Corporate governance

Building blocks of corporate culture

Our latest global governance report looks at the importance of corporate culture as a foundation of good governance – what is the UK focus?

An integral part of building good governance, corporate culture is receiving increased regulatory attention1. Globally, boards are moving away from viewing culture as something they simply need to set, and more as something to measure and understand.

This shift in focus is evidenced in our recent report, 'Beyond compliance - The building blocks of strong corporate culture' (PDF) [ 3824 kb ]. Based on the findings of our research with over 2,500 business leaders around the world, and insights from our global network of governance specialists, we found that 50% of businesses worldwide have culture as a standing item on their board agenda, while 71% have established internal controls that address culture and employee behaviour.

Particularly in the UK, the conversation is moving from ‘Is culture important?’ to ‘What can the board do about culture?’Compared to other global regulators, the Financial Reporting Council is the most focused on culture2. Their focus is working with boards to encourage them to adopt better practice instead of trying to regulate for good culture.

With this in mind, it is not surprising to see UK boards prioritising culture, with 78% establishing internal controls in relation to culture. This is a stark contrast to some of the other biggest countries in the EU. In Germany, only 50% are taking this step, and in France, only 39%. The EU average is far lower than other parts of the world. This may have significant implications for global companies if there is disparity between how much focus countries are placing on culture.

In order to develop a strong culture that supports an organisation’s strategy, we recommend the businesses take the following steps.

Understand your business’s culture.

Our upcoming Corporate Governance Review 2017 found that over half of the FTSE 350 are discussing how they measure culture in their annual reports. To measure culturethe majority use employee surveys and/or HR data, such as employee retention and turnover. Creating the right culture starts with understanding employees and their behaviour. These areas are key indicators for the boards. The more advanced culture programmes are using dashboards – combining metrics and measures of culture, with employee engagement - and treating culture as something to understand holistically. It is time to get a clear picture of what is driving your culture, and how it feels on the ground, not just how it looks on paper.

Set culture. Have a clearly defined code of conduct with practical outcomes, expectations and behaviours. This is a crucial starting point for shaping the right culture. For the board, it is instinctive to say that ‘tone from the top’ is the most important thing for culture. Boards also need to manage and own their culture across all of the drivers of culture, from people management to resources to processes.

Test culture. The culture of your customers and suppliers plays a role in your brand and reputation, and impacts the culture of your business. Risk assessments need to encompass the potential impact of an inconsistent or misaligned culture, or one that does not enable the achievement of business strategy.

Refine and improve culture. Through understanding, setting, and seeing culture as part of risk governance and integral to strategy, you can transform.How this is done will differ depending on the organisation. A good starting point for the board is to develop and maintain relationships with senior management to uphold good culture, and ensure diversity is present at all levels.

Every organisation has a strategy and a culture. Assessing their alignment and impacts should form a key part of the continued investment in your organisation’s culture.

Download 'Beyond compliance - The building blocks of strong corporate culture' (PDF) [ 3824 kb ] for more global insights.

Find out more about how we help organisations assess their culture or contact Sue Jex.

References

  1. Financial Reporting Council – Corporate culture is key to sustainable growth
  2. Financial Reporting Council – Corporate culture and the role of boards
Read more
Download PDF [ 3824 kb ]