Measuring culture is hard. It's more than just looking at your results from the annual employee surveys. You need to take several data points, including information from a number of relevant sources on how your employees and stakeholders are experiencing it. Information that's sourced from both lead and lag metrics needs to be reviewed as a collective and measured over time to truly understand if your desired culture is fully embedded. The outputs from this activity can be used to introduce, amend, or change processes, tools, and interventions, and enhance behaviours which support the further embedding of your desired culture.
In our 2023 Corporate Governance Review we can see that businesses want to improve and report on culture as part of non-financial reporting but are uncertain on how to measure and evidence it. If they do find an effective approach, sustaining it over a long period is a challenge. Our analysis picked up a clear drop in reporting quality and a doubling of limited or generic information on purpose. Boiler-plate statements which don’t tell a detailed story for their stakeholders are commonplace.
This is in line with a much stronger focus on strategy that’s not supported by accountability. 95% of companies outline overarching purpose, but only 16% explain how they deliver against it. Among those that did report on it, however, there was a significant uplift in the proportion of companies using three or more metrics to measure culture in 2023 compared to 2022 (18% to 40%). There was also an increase in the diversity of metrics, with companies relying less on traditional people measures, such as staff turnover, and health and safety data. This shows that in spite of this uncertainty around how to do it, the ambition on reporting is going in the right direction, and there’s an improved connectivity and alignment between culture and business strategy.
We have seen a shift in companies extending their focus on some external social impact metrics as a way to measure and understand how their culture impacts external stakeholders and customers. For example, the percentage of companies using customer satisfaction/complaints as a culture metric grew from 7% in 2022 to 13% in 2023. While the increase was partly driven by financial services companies, reflecting the new Consumer Duty obligations impacting the industry that came into effect in July 2023, this is a positive movement to capture end-users feedback of how they experience your culture when using and interacting with your business and employees. Having more organisations consider how to use these metrics is key as the imbalance of reporting puts boards at risk of operating in an echo chamber and potentially failing to fulfil obligations as required in S.172 of the Companies Act. However, there are positive signs that boards are acknowledging this. Compared to 2022, there was a 33% average increase in the use of a customer KPI. 41% of companies are now using one or more metrics, and the number using a supply chain-related one doubled to 8%.
The updated Code has increased focus on internal controls. Transparency on how risks are managed is a key driver to enhance accountability and investor confidence. How does the culture of your business support this? Boards need to declare material controls and determine the assurance they want on control effectiveness and why.
Culture will feature higher on leadership agendas as ESG activity and reporting requirements increase, therefore reporting and measuring will need to be embedded across your organisation; in detail and aligning with everything else in the business to support the business deliver its objectives and strategy.
This may seem daunting, but there are several questions that you can ask to refine your approach.
Understanding your desired culture and the social impact it has on your employees, your clients, customers, and other stakeholders is important because they're going to make decisions based on their experience and how they interact with you. This information can come from many sources across your organisation. These should be reviewed regularly by key governance forums. Embedding a desired culture isn't a one time exercise. It takes time and you need to consistently measure its effectiveness and how it has been embedded.
For more insight and guidance on measuring or auditing your culture, get in touch with Jacky Griffiths.
