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Overview

Today’s C-suite is more concerned about organisational culture than ever before. Signs that the corporate cultures of the recent past have failed shareholders, regulators, and society at large are everywhere, including in the news and social media. However, understanding what a good corporate culture looks like and how to foster it remain key challenges.

In late June, a group of senior governance, risk, and compliance (GRC) executives met in London’s Houses of Parliament committee rooms to discuss a new whitepaper from corporate philosopher, Roger Steare, which looks at questions of culture. The paper, “How would you build and lead a high performing, high integrity organisation?” provoked questions, debate, and discussion from those gathered.

This report summarises the key highlights and takeaways from the session.

  • The Qualities of a Good Corporate Culture

High performance and high integrity are two values that characterise an effective corporate culture. Interestingly, these two concepts need not be at odds with each other. In fact, according to a global meta-study called Firms of Endearment, the 73 firms identified as having both sets of values simultaneously outperformed the S&P500 by at least 1,000% over a 15-year period.

In contrast, companies that put performance before integrity face a number of challenges. The top red flag is when “chasing the numbers” becomes the #1 priority. This pursuit of the quarterly P&L targets has relatively little meaning in the grand scheme of things and is at odds with the of long-term sustainable economic value. The companies that create true value do so over a period of 10-15 years

  • The Secret Sauce: Effective Leadership

Negative qualities in cultures often have their origin in the leadership of the organisation – particularly when the leadership demonstrates traits like narcissism and sociopathy. Therefore, a key step in building a high-performance and high-integrity centred corporate culture is for the leadership to introspect. “Know thyself” is the root of all wisdom.

There are a series of soul-searching questions in the whitepaper by Roger Steare which leaders can leverage to identify the ways in which they can personally change, and then use that change to rethink their organisation’s priorities, beliefs, and actions.

Leadership should also be mindful that the rest of the organisation watches them for clues on how to behave. For example, if an employee at an open meeting speaks up about an issue, leaders needs to respond in the right way. It can be all too easy for them to shoot the individual down, forgetting about the empowerment training that he or she may have undergone. Just a few derogatory words in a situation like this can destroy months of work on cultural change across the organisation

  • Bringing about Cultural Change

Top-down organisational change initiatives only reinforce existing problems. Instead, the change needs to happen from the bottom up. One way to encourage this approach is to seek out individuals who are exhibiting the types of behaviour that the organisation wishes to embrace. Leadership can encourage these individuals, hold them up as examples, and thank them for what they are doing. Recognising people by thanking them can create a powerful and positive ripple effect across the organisation.

Another way to encourage bottom-up change is to consciously shift the language that the organisation uses to communicate. Language carries culture, and linguistic changes can have a big impact. For example, talking about the UK’s Senior Managers and Certification Regime (SM&CR) can often put fear into people. However, discussing a “Trust Code” that seeks to build trust with both employees and customers can elicit a more positive reaction.

When tracking cultural change, it can be challenging to use metrics or key performance indicators in the way they are used to track traditional business processes. Culture is a more qualitative phenomenon. One way to sense whether or not cultural change is taking root is to talk to people, either one-on-one or in small groups. Having a structured approach to these conversations can make it easier to compare discussions with each other.

  • The Relationship between Compliance and Culture

To understand how compliance ties into culture, it helps to look back at the history of corporate governance structures. Organisations tend to be politically designed more like a totalitarian state – such as North Korea – than like a democratic country such as Norway. This is because the template for corporate structures was established in the 16th century with the formation of proto-business organisations such as the UK’s East India Company. These early organisations drew on the feudal-type structure that dominated social, political, and economic life during the Middle Ages.

The problem with this type of structure is that it leads to binary thinking – that things are either right or wrong. Instead, to build a strong organisational culture, individuals need to engage in systems thinking, which seeks to understand complexity and nuance. That bring us to the issue of compliance. There can often be a certain amount of tension between encouraging a more democratic form of corporate culture and enforcing regulatory compliance requirements. Regulatory rules can seem much more “North Korea” than “Norway”. The fear is that compliance requirements reinforce binary thinking, rather than systems thinking.

However, a different way of approaching compliance is to consider what is really being asked of the organisation. About 80% - 90% of compliance requirements are really just a codification of industry best practices. Culturally, the organisation should recognise that these “requirements” are things they should be doing anyway, that embracing such practices is “good”. Making this shift is important – otherwise organisations can become stuck, culturally, within a more totalitarian viewpoint.

  • Encouraging Risk-taking

To create a truly successful organisation, leadership must encourage individuals to take risks, while allowing for failure. Today, organisations and societies at large often say, “You have failed, because you haven’t made revenue.” Shareholders, regulators, and others give firms a very short window of time to sort out challenges – often just one or two quarters.

Instead, individuals and organisations should be allowed to say that they missed revenue goals for the right reasons. Perhaps they felt it would be better to invest in people or infrastructure. Or perhaps, they simply walked away from a bad deal.

Individuals also need to be allowed to make occasional mistakes without fear of retribution. They should be encouraged to take a calculated risk, knowing that a risk is just that -- it is not a “sure thing.”

  • Achieving Cultural Consistency across a Global Enterprise

Large, global organisations often say that they struggle to implement a corporate culture across multiple countries. What is perceived as being ethical in one country can be understood as unethical in another. For example, in Japan, the act of hiring a family member is supported within both the societal and corporate cultures of many organisations. It is viewed as a positive action that supports families while increasing social cohesion. However, in the US, hiring a family member is now considered unethical behaviour.

One way to tackle this challenge of consistency could be to consider global organisations as a collection of smaller communities of just 150 people or so – this is known as Dunbar’s number1. By thinking about influencing cultural change within these smaller groups, it can be easier to address specific challenges individual groups may face.

1https://www.newyorker.com/science/maria-konnikova/social-media-affect-math-dunbar-number-friendships

Key Takeaways:

  • Effective corporate cultures are characterised by high performance and high integrity.
  • Behaviours at the leadership level determine what corporate culture will look like.
  • Cultural change needs to happen from the bottom up, driven by rewards, appreciation, and positive language.
  • Compliance isn’t about rigorous regulatory enforcement, but about strengthening culture based on industry best practices.
  • Risk-taking is the hallmark of a mature corporate culture.
  • Global organisations should be treated as a collection of smaller communities to strengthen cultural consistency.

Summary

There are no quick fixes for organisational culture. Building a high-performance, high-integrity organisation requires time and focus at all levels of the enterprise. However, those within GRC leadership roles are well-placed to enable positive cultural change.

To learn about how MetricStream GRC Solutions can help drive a culture of performance and integrity, visit our website.