A popular quote in business management circles over the last 15 years has been “Culture Eats Strategy For Breakfast” or “Culture Trumps Strategy.” While these are popular refrains, most senior executives and boards believed that culture was a “soft issue”—and they felt it was a better use of company time to focus on strategy issues that could contribute to the bottom line.
My prediction? 2019 is going to be known as the year that “soft issues turned hard,” and it looks like culture might lead the way. The most interesting part of this paradigm shift is that it’s not based on major legislation, innovation, or regulatory and technology changes, but rather on a period of refocusing on company purpose. Institutional investors and other stakeholders are increasingly concerned with the amount of companies losing their moral compass, and they fear the implications on long-term shareholder value. Distrust of corporate motives is at an all-time high, and today’s largest institutional investors are realizing that they can influence the C-suite and boardroom. Led by the big three: BlackRock, Vanguard and State Street Global Advisors, the previously management-supportive investors have said enough is enough.
Culture isn’t the only issue they are focusing on, but arguably it is the most important. Corporate values should drive strategy and decision-making, and investors have asked boards to understand their culture and influence it where they can. If not, and if they see no signs of effort around how a company interacts with its many constituencies, then they will give consideration to finding a board made up of people who will.
So what does all that mean for corporate boards? Well, first, you need to do your best to get your arms around your organization’s corporate culture. And honestly, that is not always easy. There are metrics and data that can be used to give you a pretty good feel. Companies can do culture and performance surveys. Boards can get reports on turnover, exit interviews, whistle-blower activity and GlassDoor, and they can look at performance reviews and incentive structures to make sure both are promoting desired behavior. It’s hard to know how a culture should be shaped and influenced if you can’t get a handle on what it is now. But all of those exercises are more about “fact finding” than actually embracing or trying to impact a company’s culture.
Culture eats strategy for breakfast.
Can a board comprised of business-savvy men and women meeting anywhere between four and 12 times a year truly have an influence on an organization’s corporate culture? The simple answer is yes—and my answer is hell yes—especially on specific occasions and opportunities. So let’s look at three ways that boards can positively influence a corporation’s culture:
1. Hire the Right CEO – Okay, this is an easy one—and one of the most foundational duties that a board has. Nobody can influence that company’s corporate culture more than the CEO who is responsible for the organization’s mission and vision throughout the calendar year. He or she builds the management team and sets the tone at the top. Yes, CEOs ultimately report to the board, but let’s be practical here. The CEO holds most of the levers that influence the culture. Make sure you have a leader who gets it, and then the board’s job becomes much more interesting, impactful and fun.
2. Establish and Publish a Core Set of Corporate Values – As part of the planning process, make sure your organization has a set of values that form the foundation for how you want employees to act, make decisions, treat others and go about their daily work with constituents. Constant communication and support of company values will create the right environment for employees and customers.
3. Be Mindful of Watershed Moments for the Board to Confirm Its Stated Values – While the CEO has the major responsibility for a company’s culture, the board can solidify or damage the culture with a single board action. During the calendar year, there will be incidents or actions that will end up on the board agenda, which all employees and the investing public will observe, that either support and invalidate what previously has been communicated on corporate values. The best way to make this point is by giving a true example of a watershed moment—and how a board can use it as an opportunity. This story was shared in confidence, so company names will not be used.
A global U.S. company with sales offices around the world developed a very aggressive incentive compensation program for regional sales managers who met or exceeded their annual targets. One such regional manager was the talk of the company. Having doubled his target goal, he put his team in a position to be handsomely rewarded. About a week before the compensation committee met to review incentive payouts to top performers, the company’s general counsel received some information that the top-performing region had cut corners and had also potentially violated practices that could saddle the company with a Foreign Corrupt Practices Act violation. Further investigation on the GC’s part found that all other sales regions were aware of this region’s tactics, as was sales support at the main headquarters. The GC reported the information to the CEO, who asked if the violation was serious enough for them to self-report—and if there was a way to retain and retrain the sales manager whom the CEO had hired and liked. At that point, the GC felt the board needed this information, and it resulted in a special executive meeting of the board and a subsequent meeting with the senior management team. The board demanded that the regional manager be fired and the incentives for the team adjusted. The company would self-report what it thought could be a violation and made it clear to the CEO that similar situations in the future should be dealt with more aggressively.
This is a perfect example of how the board can positively influence corporate culture when situations and decisions are brought to its attention during the year. Corporate directors must understand how their decisions will affect the company’s culture, which serves as the foundation for all organizational behaviors and practices.
TK Kerstetter is the CEO of Boardroom Resources/Diligent and is a second generation pioneer of governance thought leadership and board education. He can be reached at firstname.lastname@example.org.