The challenge of corporate culture
CORPORATE scandals making the headlines, such as Zillingo, Uber and WeWork, often cite “poor culture” as an underlying reason for ethical lapses. In the wake of these and other highly publicised corporate failures, enterprise leaders and board directors have especially emphasised the importance of prioritising organisational culture as a business imperative.
But this is easier said than done. Culture is intangible and requires a soft approach. Even the definition and meaning of corporate culture is ambiguous to many. Corporate leaders thus continue to struggle to articulate and effectively embed the right culture to support sustainable business growth.
Understanding corporate culture
Boards should start by getting a handle on what culture is and is not. They need to understand what impacts culture and what they can do to impact culture, as well as what is beyond their control.
Corporate culture is, broadly, the shared set of values, beliefs and practices associated with an organisation about whom to hire, how to behave and lead, and what to reward and punish. Essentially, it is what guides a leader or an employee when faced with an ethical dilemma.
A well-embedded corporate culture can not only encourage positive action leading to desired outcomes, but also steer action away from those that run counter to the firm’s values and which may result in fractured trust with shareholders, employees, partners and customers.
We often hear that corporate culture emanates by example from the top. However, not all aspects are within the board’s and C-suite’s control. Generally, boards are not aware of day-to-day problems and challenges unless they devolve into a major crisis. Boards may not always have the ability to influence every level of the organisational structure.
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There are also various organisational and sociopolitical factors that help define an organisation’s corporate culture that is mostly beyond the scope of the board. They include:
- Organisation size: A large multinational company would be likely to have a more complex organisational structure and larger middle management than a smaller company with a relatively flat organisational structure.
- Industry sector: Different industries have their cultural norms and practices. For example, a creative agency with a younger customer base may have a more relaxed and informal culture, compared to a corporate law firm which might be more formal.
- Employee demographics: The backgrounds, experiences and attitudes of employees greatly impact the culture of a company. A company with a more diverse workforce may have a more inclusive and collaborative culture.
- Sociocultural factors: The local norms of a country will have an imprint on workplace culture. Values such as collectivism and deference to authority are more commonly embedded in Asian societies, and translate into hierarchical organisational structures and formalised chains of command – whereas in the Western context, corporate culture tends to be more informal and less hierarchical.
- Sociopolitical factors: Government policies, regulations and a country’s stage of economic development play a significant role in shaping corporate culture. This would trickle down into organisational hierarchy and structure.
- Investor activism: Increasingly, shareholders are using their equity stake to focus on corporate culture. Activist shareholders can use litigation, proxy battles, shareholder resolutions and publicity movements to put pressure on boards. For example, in his 2022 letter to CEOs, BlackRock’s chairman and CEO Larry Fink exhorted corporate leaders to put their company’s purpose at the foundation of their relationships with stakeholders.
Shaping corporate culture
While the board may not be able to control every factor that impacts organisational culture, there are actions it can take to shape the right corporate culture and drive the right ethical decisions.
Firstly, the board should set the tone. It can do this by defining the values and behaviours to advance the organisation’s vision and strategy, as well as articulating the actions that will be rewarded or punished.
Secondly, corporate leaders should encourage open dialogue. Directors and executives should establish an open line of communication, rather than only reporting when there is a problem. There should be a culture of safety and openness so everyone feels comfortable enough to speak up when needed and call out bad behaviours.
Thirdly, the board should equip leaders to lead. It should enable the executive team with knowledge and skills to shape and build the desired corporate culture. The board should hold the CEO and executive team – and itself – accountable for upholding ethical and cultural standards.
Finally, board evaluation exercises should give an accurate assessment of corporate culture. The board should establish a process of monitoring and ask the right questions. It should explore and leverage advancements in culture measurement to evaluate how leaders act and what people believe, revealing hard truths about the organisation.
In summary, while corporate culture is complex and multifaceted, the board can still shape and influence company values by focusing on the three “T”s: Tone, Tune and Tempo.
By setting the “Tone at the top”, the board can empower and enable the management team to implement the “Tune in the middle” and inspire the “Tempo on the ground”.
The writer is a member of the Conference Committee at the Singapore Institute of Directors.
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