A global survey of 2,500 businesses across 36 economies has found that 71% of global company boards are establishing internal controls that address culture and employee behaviour.
The Grant Thornton report reveals that half of global businesses now have culture as a standing item on their agenda. The survey also showed that 78% of UK businesses are establishing internal controls, ahead of the global figure and the figure for the EU, which stands at 61%.
Richard Ratcliffe, a Director of Grant Thornton in the Isle of Man, said the survey revealed the growing awareness of the need for corporate culture to be a key part of doing business, and added that firms in the Isle of Man should heed the report’s recommendations.
He said: ‘One definition of corporate culture is the combination of values, attitudes and behaviours that a company exhibits in its operations and relations with those affected by its conduct, such as employees, customers, suppliers and wider society. Others will put it differently, but what is undeniable is that around the world, the issue of corporate culture is gaining increasing regulatory attention as a foundation of good governance.
‘As a result, the issue has arguably never been as high up the business agenda as it is today. The message this sends to boards, including here in the Isle of Man, is clear; there is a growing responsibility on their shoulders to meet increased regulatory expectations. That includes holding executive teams to account, to make sure they are taking the issue of culture seriously and fostering it throughout the company in the right way.
‘Holding management to account is one of a board’s fundamental purposes and culture is emerging as an issue regulators expect to be part of that function.’
He added that Grant Thornton recommends four steps to assess corporate culture.
The first is understanding culture. Grant Thornton suggests conducting a culture audit or assessment to obtain a clear picture, and therefore a better understanding, of the positioning of your organisation’s culture. You should examine the formal drivers of culture – leadership, strategy, corporate responsibility, people management, resource management and process –and evaluate your findings against the perceptions of your employees and other stakeholders, such as customers and suppliers. You should ask where are there gaps or misalignment and then look at your strategy and ask if your culture is enabling your strategy or holding your strategy back.
The second is to set your organisation’s culture. Creating a code of conduct is a fundamental bedrock to establishing a strong corporate culture; if the behaviour expected from all employees is clearly defined and accessible for all, it provides parameters for what corporate culture can and cannot encompass. You should also create open channels of communication for culture to flow. Globally boards and businesses are investing in resources to institutionalise culture throughout the organisation through activities like town hall meetings, periodic training sessions and opportunities to discuss the code of conduct once it is set.
The third recommendation is to test your organisation’s culture, using real life examples. Culture is as much a spirit and a sense of how things should be done as a set of policies and procedures. By attaching culture to solving an existing business problem, this can test the culture in real life rather than exploring it in theory, as well as making sure that the culture is working for the challenges your business faces, rather than against it. You should also factor culture into ongoing risk governance. Board members have responsibilities when it comes to risk, and assessing behaviours and processes through a risk lens has an important impact on maintaining a strong corporate culture. If boards uncover behaviour that could derail culture, it should be captured as part of risk assessment activity. Your organisation should also ensure cultural alignment with key stakeholders. Respondents to the survey said that boards worldwide are thinking about the culture of their customers and their suppliers when they do business with them. This illustrates a recognition that those external stakeholders you deal with can affect your brand and reputation if you are associated with a stakeholder who ends up making headlines for the wrong reasons.
The final recommendation is to refine and improve culture. This involves developing strong relationships with senior management, as one role of a board is to understand how the leaders it oversees articulate the culture of the organisation in their own words. Consider how to spend more one-on-one time with senior management, getting to know them and asking behavioural-based questions to see how culture plays in the things they do every day. You should also explore ways to boost the diversity of your board as some respondents believe that bringing younger employees into board discussion could help boards embrace digital change. It may also help culture embed right throughout an organisation. Setting targets to make culture an actionable corporate objective is essential. You should encourage leadership teams to include changing or developing culture as a strategic objective, giving them extra accountability for ensuring culture is embedded properly. Your organisation should also focus on the future as well as the present; alongside overseeing day-to-day activities, part of the board’s responsibility is to make sure the business they govern is either equipped to meet future challenges or is taking steps to react and become equipped. In order to establish this sustainability, look at the role culture will play in the years ahead.
Mr Ratcliffe concluded: ‘The growing importance of corporate culture is clear from these findings and the recommendations from Grant Thornton will help boards respond to the challenges and opportunities presented.’
Download Corporate Governance 2017 - Building blocks of Corporate Culture from www.grantthornton.global/corporate-governance-2017/
Photo - Richard Ratcliffe.