Scandals Draw Boards’ Attention to Importance of Culture

Scandals Draw Boards’ Attention to Importance of Culture

If Volkswagen’s emissions cheating scandal, Wells Fargo’s fake-accounts scandal, and Uber’s sexual harassment scandal have a common thread, it is that each of these controversies has been blamed on a fundamentally toxic element within the organizational cultures of these companies, so each company has embarked on a major culture overhaul in its wake. In a feature at the Wall Street Journal last week, Joann Lublin observed that scandals like these were opening directors’ eyes to how significantly their companies’ cultures affect their performance, and took a look at what some companies’ boards were doing to manage culture issues more directly.

Even though the evidence is mounting that culture problems can do severe damage to a company’s reputation and bottom line, “few boards currently have an explicit focus or formalized approach to cultural oversight,’’ Helene Gayle, who sits on the boards of Coca-Cola and Colgate-Palmolive, told Lublin. Gayle was the co-chair of a blue ribbon commission appointed by the National Association of Corporate Directors to prepare a report on culture as a corporate asset and come up with ideas for how boards can manage culture more effectively.

The report recommends that boards work with the CEO and senior management to “establish clarity on the foundational elements of values and culture,” and take a proactive approach to culture management. That means making oversight of culture (including the board’s own culture) a full-board responsibility. Culture management needs to be embedded in the organization’s business processes, including rewards systems and CEO selection and evaluation, and in the board’s interactions with management.

This recommendation concurs with the conclusions of our latest research on culture at CEB, now Gartner: Many organizations try to change their culture by changing their people, but these interventions are often ineffective, despite massive investments of time and resources. The most effective culture change efforts we’ve seen focus instead on crafting systems and processes that allow everyone to live the culture.

The NACD commission stresses the need for the board and the C-suite to gain clarity on what kind of culture they want for their organization, but these change processes also require leaders to gain a better understanding of the culture they already have. Our research finds that only 10 percent of HR leaders believe their organizations really understand their current culture.

To close this knowledge gap and ensure the organization has access to the information the board really needs to play a bigger role, we recommend an employee-driven measurement approach that gathers data on how employees actually experience the culture day-to-day (not just periodic satisfaction data), and empower employees themselves to interpret inputs and communicate feedback to executives, rather than HR or other senior leaders crafting a culture narrative.

One example of a company that has gotten this process right is PayPal. CEB Corporate Leadership Council members can read our interview with PayPal’s HR leaders in the Q3 issue of our CHRO Quarterly magazine. Members can also read more about our culture research and find out about upcoming webinars and executive briefings at our Organizational Culture content hub.

Another noteworthy recommendation from the NACD report is that the board include its culture management activities in shareholder communications. Our research also finds that investors are paying more attention to culture and other talent issues than ever before. Our Investor Talent Monitor (which CEB Corporate Leadership Council members can read in full here) finds that among the 900 largest companies in US equity markets, the percentage of organizations talking about talent on investor calls increased from 55 percent to 70 percent from 2010 to 2016.