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Boards Have a Vital Role in Shaping Organisational Culture

March 9, 2017

In the December 2016 issue of NUMBERS, we considered the role of an organisations leadership in setting the tone and effectiveness of business culture. In this article, we look specifically at the role of the Board.

Although board behaviours have less influence on culture than those of the CEO and management team, they do set the tone at the top which in turn has a significant impact on the culture within.

The Board sets the organisation’s guiding values and ethical climate. It is important that they model this in everything they do, in the decisions they make and the dialogue they have with their CEO and Executive team.

As we know culture is the shared values, beliefs and assumptions that shape the behaviour of the organisation. In fact when we talk about culture, we are talking about ‘how we do things around here, even when there is no one looking’.  In reality the culture can make or break the most experienced executives and the best strategy.

If the company culture is so important why aren’t Boards more actively engaged in its oversight?
We have found working in multiple businesses throughout New Zealand that they are often not involved because it is assumed that the CEO and Executive team have the greatest influence over the culture, so Boards tend to give the issue of culture a wide berth, expecting the CEO to raise the cultural aspects if they believe they need to. Often there is also limited Board visibility into the culture. Directors rely on the Management team to bring information about the culture to the Board. This distance then means it is not easy for Directors to gain a clear perspective on the company’s culture.

In our experience also we find that practice areas such as executive compensation or risk oversight are clearly defined, but cultural oversight is not. Finally and just as critical, the Board and CEO do not create a process, with a shared language to enable discussion about the health of the culture.

Consulting to numerous CEOs we have found that many Boards do not focus on the culture at all. This means that what gets presented by the CEO to the Board can be a very different picture in reality to what is playing out in the business. In fact some of our clients have at the request of Boards conducted culture and climate reviews only to seriously ‘water down’ the issues or concerns that get raised. Often this culture review process is viewed as an annual event that gets ticked off when completed. Rather than an important exercise for both the leadership and the Board to understand their business.

The importance of setting the tone at the top is and does need to be concentrated on much more. To enable this to happen questions that need to be considered include:

- What role should the Board play?
- What actions should Boards, together with CEOs, take to set the tone at the top?
- How healthy is the Board’s relationship with their CEO?
- What is the Board’s culture and how does that align with expectations of the business?
- What are the unspoken rules that impact on employees’ decision making and the way they behave in the    business?

Thankfully, a big shift is beginning to happen in many businesses within NZ today, particularly in the way Board members view their roles. The significant change in Health and Safety in New Zealand and the expectations of Boards has led to far greater interest in the ‘culture’ and what is exactly happening in the businesses they govern.

This is a significant and positive change. Research by the Department of Labour shows that the benefits of a positive safety culture include:
- Fewer accidents, injuries and lost time
- Safer behaviours among workers
- Improved wellbeing and job satisfaction
- Better relationships between management and staff

A positive culture led from the Board creates engagement, loyalty and personal value alignment. We hear more and more of our clients talk about the Directors talking to employees, being visible and showing a genuine interest in the business.

Why wouldn’t any Board want to ensure that this is happening?
Boards can foster long term shareholder value by deepening their understanding of their business culture, placing it on the Board agenda and ensuring management is forging a culture that is aligned with the business strategy. While Boards must establish core values and principles, a CEO’s behaviour tells employees what counts and what will be rewarded and punished. The tone at the top matters.

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