The biggest challenge for business leaders in 2018 is ensuring that their enterprise culture meets the ‘pub test’ of fair play and community-mindedness.
Eminent director and business executive, Graham Bradley, in presenting the Australian Institute of Company Directors (AICD) 2017 Essential Director Update briefings, put corporate culture and conduct at the top of the agenda for directors and management.
Bradley cited a substantial shift in the business governance landscape, with more demanding standards placed on business reputation and the social licence to operate. The traditional view of the sole responsibility of directors being to serve the interests of the company and its shareholders is being broadened to include businesses’ responsibilities to the wider communities they serve.
This governance shift does not come from a change in the law, but the impact of social media exposure, rising shareholder activism particularly on social and environmental issues, adverse community reaction to high-profile examples of corporate misconduct, and ramping up of regulatory measures for greater director and manager accountability, e.g., higher penalties, more whistle-blower protection.
Bradley said that in the year ahead, there is no more important task for company directors than to win back community trust and respect. This means improving corporate culture and conduct to meet community expectations, the ‘pub test’.
Culture is a nebulous concept, hard to understand and shape.
The AICD explains culture as “simply the collection of standards that a company sets for its internal and external behaviour towards employees, customers and the general community.” Bradley emphasized that in particular, he looks for a culture where bad news travels quickly from the bottom of the organisation to top management and the board.
Culture, though intangible, is an increasingly significant driver of company value. So, it makes sense to focus on those components of culture where most value can be created, or destroyed.
The AICD and regulators recommend directors set and monitor corporate culture on actions such as:
- Reporting and monitoring key indicators of a healthy culture, e.g., customer satisfaction, complaints, staff feedback.
- Culture as a regular topic on board agendas, with documented corporate behaviour standards made explicit.
- Incentive systems that reward adherence to corporate behaviour standards, as well as business performance.
- Director interaction across the company and with partners and other business stakeholders to gain insights and/or dissident views.
Action to ensure a sound culture that enhances a company’s value, reputation and community support relies on business leaders being outward-looking and open to new, even disruptive, ideas.
An essential prerequisite for this is cognitive diversity—deliberately promoting and managing different perspectives, disciplines, and ways of thinking and problem-solving among a board’s directors.
Graham Bradley gave a ringing endorsement of cognitive diversity as a vital pillar of leading-edge governance.
This approach is also a key prescription for business innovation, especially when enterprises are facing fundamental change in what makes business models successful, entirely new industries and jobs emerging, and the challenges of the digital revolution.
Businesses that give a priority to improving culture unlock the value of intangible assets like consistently demonstrated ethical behaviour, rich relationships, and management of divergent sources of knowledge, insights and approaches.
Attention to culture fuels both the licence to operate and the licence to innovate.
Australian Institute of Company Directors, Essential Director Update: 17, 2017.
Narelle Hooper, Licence to Lead, Company Director, Volume 33, Issue 11, December 2017/ January 2018.
Suzanne M. Johnson Vickberg and Kim Christfort, Pioneers, Drivers, Integrators and Guardians, Harvard Business Review, March-April 2017.