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Shaping corporate culture from the top

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Boards should fully understand the desired culture and how the various facets align within the organisation.

CORPORATE culture is the set of values, principles and standards that results in shared norms and behaviour in a company. Culture cannot be seen, but is keenly felt by stakeholders. While it stems from attitudes and accumulated experiences within the company, it eventually translates to external behaviour and perception.

A company's culture can be an effective tool in effecting change, whether positive or negative. It can impact the reliability of financial statements, effectiveness of internal controls, risk profile and risk management efforts.

As the ultimate keepers of a business, the board has to ensure rigour in instilling effective leadership on culture, channelling the right tone and seeing that the management communicates and exemplifies the right corporate culture. If the board and management are not mindful of the corporate culture present, it may well take a life of its own, requiring more time and effort to undo or rectify.

THE BOARD'S INFLUENCE

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Executive management has the primary responsibility to communicate, maintain and demonstrate the right company culture. Boards share this responsibility through their conduct and oversight of the management, by supporting the management's communication and demonstration of the corporate culture.

Boards should fully understand the desired culture and how the various facets align within the organisation. These include the company structure, practices and policies; management action, communication and compensation; employee retention, training, treatment and remuneration; as well as the company's reputation, mission, strategies and values.

To that end, they should conduct annual reviews of the company culture for an objective assessment. To complement this, board members can also assess company culture qualitatively through ongoing interactions with non-executive employees, by having mid- and front-line managers present at board meetings, visiting company workspaces and facilities beyond the boardrooms, or by patronising a retail location.

The subject of culture becomes even more pertinent if the company undergoes a merger or acquisition. The board should provide direct input in shaping the "new" company's culture and in selecting the CEO. In identifying the right culture or candidate, the board reinforces the company's priorities as well as the leadership style that would be the best fit. This compatibility is determined when the board assesses whether the current culture is still relevant, or introduces an outsider who could bring fresh perspectives for change.

CORPORATE CULTURE AND DISRUPTION

While the board and management are generally cognisant of the rapidly changing business environment that threatens to upend entire sectors and companies, few are in tune with the nexus between culture and disruption.

On one hand, the established corporate culture could be challenged or undermined by emerging forces of change. For example, in the area of people-related culture, a shift in workforce demographics and hiring patterns in view of the rise of the "gig" economy can have a profound impact on the shared values and behaviours of the organisation.

On the other hand, to seize opportunities in a disruptive environment, qualities like agility, innovation and responsiveness are highly desired.

Yet, the corporate culture may not be fit-for-purpose and therefore requires the board and management to consciously implement intervention programmes.

When doing so, boards and management must be mindful to avoid superficially changing rules and policies without authentically reflecting on deep-seated issues within the company.

In helping to shape and reinforce the company culture, boards should consider the following:

  • What is the company's perceived reputation vis-à-vis real value among stakeholders, including employees, investors and business partners, both in the press and on social media?
  • With advances in technology resulting in products and services disrupting almost every industry, how can corporate culture inject energy to foster an agile environment for innovation?
  • What can the board do to make certain that a purposeful and positive culture is lived and experienced by employees and other relevant stakeholders?
  • How is the business code of conduct and ethics communicated, monitored and enforced?

As management expert Peter Drucker said: "Culture eats strategy for breakfast". A good culture will defeat a bad strategy, and a bad culture will defeat a good strategy.

Clearly, culture is critical to a company's performance. It is arguably the single most important intangible asset that boards must keep a close watch on.

  • The writer is EY Asean and Singapore managing partner, Ernst & Young LLP.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms