May 1, 2015 Governing Organisational Culture
When we think about corporate governance it can be all too easy to concentrate solely on the top layer of an organisation. It’s not surprising that we should, after all it is the board which sets the tone and the ethos for the entire organisation. But the danger in only looking at board governance and behaviour is that we may miss the organisational cultural variations which underpin how differing departments operate.
For example, the board may look to set a culture of ethical trading but if either at board level or further down the management structure targets are imposed which can only be achieved by breaching ethical principles then the culture in that department may be less than ideal. The question therefore is how can boards set and review governance without becoming over-reliant on micro management of the organisation?
The answer is to ensure that although the governance regime is set from the top, leaders at all levels of the organisation are coached and inducted into the overall governance culture. It’s an idea which FRC Chairman Sir Winfried Bischoff commented on in a recent speech. Quoting a Forbes article which he had read he said that “Most of the time creating a distinct culture comes from a series of deliberate steps. It’s almost like the genes of the leaders are passed down through the generations of employees.” Sir Winfried went on to comment on how boards should “by asking questions and making choices” take steps to decide, communicate and maintain culture as well as integrate that culture through the organisation.
Sir Winfried’s speech also looked at the new expectations which the FRC have been introducing in respect of corporate governance issues. These include remuneration, diversity and stewardship. On remuneration he commented on the changed wording within the Code and hoped that the new emphasis which puts the interests of the company before those of the employee would be heeded by boards. Similarly when it comes to stewardship, the emphasis is now on asset managers being more accountable to clients, with in turn investors holding companies to account.
Finally, the FRC is maintaining its drive to increase diversity within boards. Sir Winfried commented that “Diverse Boards, and by that I don’t just mean a balance of gender, but of background and experience, geography and ethnicity, not only encourage better leadership but also contribute to better all-round Board performance.” To this end, the FRC is looking to issue a discussion paper on the question of diversity within the next month.
Corporate culture, leadership, diversity and governance; these all do stem from the top but unless boards actively seek to spread the values throughout the organisation all of their efforts and ambitions could be in vain.