Understanding culture is not just reviewing CEO talent

There are many writings of experts on corporate governance, yet there is little reference to the boards' responsibility in auditing the culture of organisations that they govern.

Where are the references to writings about a board’s understanding of the type of culture the organisation requires to mitigate its risk, execute its strategy and deliver the best bottom line possible when discussing corporate governance? How clear are the messages in organisations about the way people are expected to behave in the organisation, and is this behaviour conducive to supporting the organisation's unique strategy?

Mettle proposes that there are six key levers of culture that the board should be responsible for agreeing to and auditing, and that the CEO should ultimately be responsible for setting. They are systems, structure, leadership, mindsets, behaviours and symbols. Boards must understand the many elements that determine culture and must have access to reliable data on the status of these levers to govern the organisation successfully, similar to the comprehensive financial data most boards would receive.

Regular surveys are conducted with board directors internationally about their understanding of their corporations and their director responsibilities. In 2005, an annual survey showed that most board CEO evaluations do not measure the CEOs' or the boards' ability to lead people, create and strengthen culture, manage stakeholders or act as a role model. Forty-eight per cent of the 4,200 worldwide respondents said that they had complete knowledge of their company’s finance; 34% had a complete knowledge of their corporation’s strategy; and only 18% said that they had complete command of its risk.

'Auditing the culture is more than just employee opinion surveys and engagement scores' says Katharine McLennan, Practice Leader at Mettle Group, which specialises in corporate culture. 'These review systems are often used as proxies for the boards to review the health of the culture,' but Katharine warns 'Buyer beware! Employment opinion surveys often indicate how satisfied employees are with the organisation at a given moment in time. They do not indicate whether employees believe that they are expected to behave in the specific ways that the board and CEO have deemed best to support the organisation's strategy. Engagement scores measure how much people feel that their opinions are being heard. However, they do not measure the types of behaviours that are expected. Further, engagement scores are usually generic across all organisations and are not tailored to the specific strategy of the organisation.'

There are many ways that boards can audit the six critical levers that drive culture in their organisations. Quantitative tools assume that all organisations have the same ideal profile, that is, as much constructive and as least destructive behaviour as possible. They tend not to target specific behaviour expectations that the board has deemed to be essential to transform the organisation’s culture, which will lead to the right customer experience, shareholder value and profit.

Mettle urges organisations to look for the quantitative tools that measure the six critical levers that are specific to the organisation’s unique strategy. However, quantitative tools in isolation are not sufficient. Audits must be backed up by rigorous qualitative research that consists of extensive independently conducted interviews and focus groups at all levels of the organisation which provide answers to the trends that are identified in the quantitative findings, giving the board the pulse of the organisation in real everyday water cooler vernacular.

In Mettle’s experience, the analysis we are able to put together from the combination of quantitative and qualitative research, interspersed with quotes throughout the research, are exceptionally powerful in telling the story of whether the current culture of an organisation can actually transform the strategy into execution—or not.

In addition to the soft reforms and the now expanded array of content that boards need to review in relation to board governance, boards are also accountable for approving, implementing and auditing very specific culture development plans that determine what cultural characteristics will best support the organisation’s unique strategy. The board is accountable for regularly auditing the health of these characteristics as they are the most powerful leading indicators about the long-term performance of an organisation and its risk profile.

'Culture is not easily replicable by competitors,' states Katharine. 'It is a strategy to produce both long and short-term returns. For those organisations that get culture right, it becomes an enabler of significant organisational initiative, competitive advantage and bottom line success. Changing the culture of an organisation requires the systematic and planned transformation of the messages of what is important and required by employees to implement and execute the organisation's strategy. Change these messages and you change the culture. Don’t monitor these messages and you lose the first hints of whether your organisation’s long-term performance is in good shape.'