Director Survey: Boards Lack Visibility into Culture

Director Survey: Boards Lack Visibility into Culture

The National Association of Corporate Directors’ 2017-2018 Public Company Governance Survey, which came out this week, identifies several issues that directors say are matters of concern for them, as well as what they are not getting enough information about from management and want to spend more time discussing in board meetings. Among these issues are cybersecurity threats, which only 37 percent of respondents said they felt confident that their company was prepared to defend against; and business strategy, with 71 percent saying their boards needed to improve their understanding of and contribution to management’s strategic decisions.

The third item on the list is corporate culture, which directors say they are hearing plenty about from upper management, but are not getting enough insight into what culture actually looks like further down the org chart, as Vincent Ryan notes at CFO:

Eighty-seven percent of directors said they had a good understanding of their companies’ tone at the top, but only 35% of directors said they had a good understanding of “the mood in the middle,” and just 18% of them indicated they had a good grasp of the health of the culture at lower levels of the organization.

While directors generally were confident that management could “sustain a healthy corporate culture during a period of performance challenges,” 92% of directors said they relied totally on reporting from the CEO about the health of organizational culture. According to the survey, it was rare for a director to get a direct take on corporate culture from functions such as internal audit (39%), compliance and ethics (30% ), and enterprise risk management (20%)[.]

These takeaways are largely consistent with our own latest research at CEB, now Gartner. One reason why boards are talking more about culture because shareholders are: our Investor Talent Monitor (which CEB Corporate Leadership Council members can check out here) shows that questions about talent topics, including company culture, are coming up more often on CEO calls with investors. Another reason why culture is on boards’ radar is that so many recent scandals have revolved around allegations of toxic company cultures: Boards today need a better view of culture because its impact on the bottom line has never been more apparent.

Unfortunately, our data shows that only 10 percent of HR leaders are confident their organizations understand the culture they currently have, as opposed to the one they want. Further down in the organization, we find that employees often don’t feel that their teams can adapt the culture as needed to fit their context, and they struggle to understand the tradeoffs they are expected to make in their day-to-day work. This suggests that many leaders remain out of touch with the way their employees are able (or unable) to engage with the culture.

In addition, if boards’ only lens on the culture is reporting from the CEO, they are likely not getting as rich a picture of the reality of their culture as HR can paint. Most organizations have the CHRO or other senior leaders measure their culture using a combination of engagement survey data and information from exit interviews, while progressive organizations are finding innovative ways to obtain more accurate and unbiased measurements. There is a major opportunity here to strengthen the strategic partnership between heads of HR and CEOs, or build a direct relationship between the CHRO and the board of directors, to give the board a better view into the reality of the culture and any ongoing efforts to change it.

Corporate Leadership Council members can read more about our culture research and find out about upcoming webinars and executive briefings at our Organizational Culture content hub.