The modern obsession with corporate culture dates back to the 1980s when two former McKinsey consultants – Tom Peters and Robert Waterman – wrote a bestseller called In search of excellence. Strong cultures, they argued, could explain the long-term performance of the company. The success of Japanese companies could be explained by their culture – but some American companies were also “excellent”. Their thinking was influential and the “culture change industry” was launched.
But recent interest has come from a different place. Rather, it is less about positively promoting performance per se. Rather, it’s about avoiding the negatives: corporate scandal, low levels of trust and commitment, and a transparent world that ruthlessly exposes the gap between preaching and practice.
The interest is also motivated by the fact that we know that regulation has its limits. In financial services, for example, increasingly complex rule regimes have not eliminated bad behavior. But they certainly threaten to restrict the creativity that has driven successful financial centers such as London and New York.
So if rules aren’t the full answer, maybe culture will be? This increasingly seems to be the thinking of those charged with setting the framework for managing financial risks and promoting good governance. In addition, the direct responsibility for culture is at the top.
In the UK, for example, the FRC recently published a publication called Corporate culture and the role of boards of directors. They argue that the goal and strategy must relate to culture, that values and incentives must support culture, and cultures must be valued and measured. This is good advice.
The role of the board, says the FRC, is to ensure that leaders (senior managers) embody the culture – and if they don’t, the board should act.
Boards can appoint and remove CEOs, provide long-term continuity, and bring objectivity that can help “see” culture for what it is. Accordingly, boards of directors can oversee, monitor and hold accountable cultural matters in the same way they could, for example, strategic, financial or operational matters.
But can boards of directors ‘actively shape’, ‘lead’ or ‘manage’ cultures? Do they really have such power? Or does this language limit our understanding of how cultures evolve and how they can be influenced?
After all, if culture can be broadly defined as a collection of share values, behaviors and assumptions, then remember: that what is share it’s not possible imposed. Cultures will inevitably be shaped from the bottom up as well as from the top down.
If a Prime Minister announced his intention to ‘manage’ British culture, we would find that ridiculous. Cultures change, like it or not. Leaders can influence the evolution of this culture – but they simply cannot manage it, because it is not fully under their control.
We welcome the interest in culture. But boards need to understand their limitations and avoid the obvious pitfalls. From our own experience – working with boards and on ‘culture change’ initiatives – here is what we have learned:
1. Area and function will limit what you can do
Cultures are strongly shaped by the material realities of work. Academic work, for example, grants high levels of autonomy, but outcome measures are not straightforward. This produces behaviors, relationships, and values in the workplace that are quite different from, say, certain types of sales work – which is often individually competitive and has more measurable goals.
In this sense, the cultures of elite universities on the one hand – or the sales forces of consumer goods companies on the other – will each have important similarities regardless of the cultural ambitions of their respective governing bodies or boards. , so understand your limits.
2. Cultures cannot be easily understood from the outside
It’s hard to understand a culture without spending time with those on the front lines. The intricacies of individual cultures are therefore unlikely to be detected by non-executive directors who spend six days a year attending board meetings (and a few others reading board documents or attending sub-committees), who combine this with a portfolio of other board positions and responsibilities, and who often live in another country.
In surveys of board governance, the extent to which NEDs interact with or understand the reality of leadership experience or the workplace / business reality outside of the boardroom is regularly criticized. Inevitably, their ability to understand, let alone influence, culture is compromised.
This is unlikely to change without a radical overhaul of the role of the NED. Ironically, under the current arrangements, over-involvement leaves NEDs exposed to accusations of interference and loss of objectivity.
3. Attitude polls don’t measure culture
Most academics agree that deep, underlying, taken for granted and shared assumptions are at the heart of culture. These are not directly accessible, but you can feel these assumptions by observing the behaviors on a daily basis. This was of course the method of social anthropologists. This was known as participant observation – and we recommend it regularly.
Busy NEDs without the time (or sometimes the inclination) can be won over by attitude polls. But that’s exactly what they’re measuring: individual attitudes. Never confuse this with a measure of culture. At best, attitudes give us a clue about culture – but with varying degrees of reliability. Crops cannot be managed or monitored.
4. Boards without goals are unlikely to shape culture
It is remarkable that most boards do not set specific annual goals. Raise this point with board members and they will often argue that they are unnecessary as they are embedded and assumed in a whole host of obligations, mandates, governance requirements and directors’ responsibilities.
Yet it seems difficult to see how a board can tackle the long-term task of culture change without setting phased goals and associated actions.
5. Councils that do not practice what they preach lose their legitimacy
While it is true that many boards are now much more aware of their role as examples of corporate culture, some familiar weak points remain. So, finally, here are two key questions about board practice for those who wish to establish the “right” culture.
First, given that culture is “all about people”, to what extent is the human resources function represented on your board of directors? Second, if reward systems and incentives help shape desired behaviors and values (and therefore culture), to what extent is the compensation committee leading by example?
The importance of culture is undeniable. But the arguments for making it a top priority are unlikely to be advanced by naive assumptions about what boards – as they are currently constituted – can actually achieve.
Rob Goffee is Professor Emeritus at London Business School and Gareth Jones is Visiting Professor at IE Business School. A new paperback edition of their book Why should someone be led by you is out now.
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