Research & Strategy
“It takes 20 years to build a reputation and five minutes to ruin it.”
A great culture has always been an important driver of organisational performance, but in a time of significant challenges across our economy, particularly post BREXIT, addressing culture is more significant than ever.
Recent inquiries following corporate governance failings by companies such as Yahoo, BHS and Sports Direct have highlighted that boards must step up their focus on corporate culture and work to foster longer-term goals, such as to “double revenue by the end of the three-year strategy cycle”, if they want to win back trust from all stakeholders and ensure sustainable businesses. With this in mind, both work from the Financial Reporting Council (FRC) and Parliament look to improve corporate culture.
FRC pushes for healthy corporate culture
In July 2016, the FRC published a report (Corporate Culture and the Role of Boards) that highlighted how stakeholders and society in general have a vested interest in healthy corporate values, attitudes and behaviours that lead to sustainable growth and long-term economic success.
A key focus of the FRC concerns how corporate culture is embedded within a company, how it is measured and the role of the board of directors in ensuring its activities reflect the values and visions the company is based on. Importantly, it identifies the role of culture and talent in supporting the achievement of the group strategy.
Aligning culture, strategy and talent
A company must have a clear understanding of its values and purpose to achieve its strategy. Furthermore, through talent development and engagement, employees must be aligned and supportive of the company’s purpose and direction.
Key factors that strengthen culture:
- Culture is clearly defined internally and externally
- Recruiting executives with the right cultural attributes
- Cultural engagement from the board
- Cultural leadership from the CEO
- Inclusion in leadership and development programmes
- Culture is included in strategy discussions
- Rewarding work and/or behaviour that represents cultural values
- Penalising work and/or behaviour that contradicts cultural values
Corporate culture cannot be legislated
On 16 September 2016, Parliament launched an inquiry into corporate governance, following a statement from Theresa May stating a crackdown on executive pay and a focus on rebuilding trust between business and society.
The desired outcome of the Parliamentary inquiry is not that of regulation. Ultimately, the inquiry looks to ensure that companies promote a culture in which doing the right thing because it’s the right thing to do is something to admire and achieve. However, this culture is not achieved overnight and cannot be forced by regulation. Companies must start with a clear plan, articulate it well, remain consistent in their message and repeat it over and over again.
Don’t wait for the crisis
People often say after a crisis that they could see the warning signs. The red flags were there, hiding in plain sight, accessible to those closest to them if they had known what to look for. It can also be challenging for non-executive directors to identify a potential breach of culture because their touch points with the company tend to be structured and contained to their colleagues on the board, the CEO and the executive team.
Back to Buffet’s original statement on trust – in our opinion, the mindset of business leaders needs to move from thinking about success solely in terms of financial performance, to thinking “culturally” about organisations and all the elements that contribute to overall performance. Identifying behaviour and transforming culture must be led by the CEO and strengthened by the executive team, with overall responsibility remaining with the board.
Research & Strategy
FRC Annual Meeting – Your requests
A few weeks ago the Financial Reporting Council held its Annual Open Meeting in the rather beautiful Saddlers’ Hall. This event always enables the FRC to engage with its stakeholders and is a date which few like to miss.
Research & Strategy
DP partners with QCA for reporting advice workshop
Following the Financial Reporting Council’s pledge to improve the quality of reporting by smaller listed and AIM quoted companies, DP has been carrying out a number of corporate reporting workshops in association with the Quoted Companies Alliance.