Why your board should prioritise cultural transformation

A board that focuses on transforming and measuring culture could have better organisational performance, says Ken Boundy FAICD.

Since the banking Royal Commission, there have been strong calls for organisations to not only foster better cultures, but to measure them. The Australian Prudential Regulation Authority (APRA), Australian Securities and Investments Commission (ASIC) and the AICD are among those calling for boards to have — and expect of management — greater accountability for culture as a component of effective governance.

At the AICD Governance Summit in March, David Gonski FAICDLife acknowledged the good intent of most directors and CEOs to achieve the right culture, but also noted their frustration because many of them aren’t sure what to do. To make it harder, there is a plethora of instant experts as culture has been elevated in the conversation, and a suite of inadequate management tools. Many of the measurement tools on offer to provide a culture barometer, are based on people’s opinions, what they say, and not their behaviour and what they do.

Staff engagement surveys are widespread, but not correlated with measurable outcomes of actions and how people behave in an organisation. They tend to reinforce “entitlement syndrome”, which leads to reduced workplace harmony and productivity. An attitude of entitlement often manifests as a lack of gratitude and personal responsibility, which leads to a lack of satisfaction and tendency to blame others.

Anonymously generated 360-degree feedback products have fallen from favour, but are still offered widely. How many frustrated CEOs have you heard complaining about engagement surveys and 360-degree feedback programs because of their ineffectiveness at causing cultural change? It is also fashionable to adopt programs encouraging inclusion, values and belonging in the workplace. While there is nothing wrong with these per se, they fail, by themselves, to hold people accountable for creating and measuring desired cultural change. Leaders need to be wary of the many slick analytical and reporting tools that are also primarily based on opinion-based results.

Signature behaviours

The alternative is to define organisational values and goals and then describe aligned “signature behaviours” that will deliver the desired outcomes, committing everyone to collectively achieve and measure them. Employees typically want to know that what they do matters and is noticed; and that they can share in a sense of collective achievement because their values, and what they do, aligns with what the organisation wants. These are the strongest predictors of success, including how satisfied, even happy, employees feel.

An example of an organisation-wide signature behaviour is: “we do what we say we will do”. Quarterly measurement of what people are actually doing (in cluster groups using transparent, self-assessment and team assessment) against the defined behaviours, generates a net culture score — a meaningful measurement of culture. By linking individual accountability to organisational performance, sustainable cultural transformation can be achieved.

Recent governance failures suggest there are too many leaders who either continue to see culture as nebulous or non-core, or as too hard, or who pay lip service to it or delegate it to HR. The leaders who get the conditions right on culture will see the desired outcomes flow. There are no quick fixes and shortcuts in this space, but it does require courageous CEOs to lead wisely and be the champions of the cultural transformation program, with an executive team in lock step. As Xero CEO Steve Vamos said at the AICD Governance Summit, the CEO is the chief culture officer.

A transformed workplace culture has a quantifiable effect on profits, driven by harnessed capability, greater inclusion and sense of achievement, as well as being an enabler to improved insight and governance. Research at Regnan shows a clear correlation between a company’s delivery on desired behaviour and outperformance across the ASX 200 companies. For two decades, companies that understand culture as an enabler, as well as the concept of their social licence to operate, have outperformed their peers, including in the area of wealth creation.

For many leaders, this is only a recent epiphany, and some still don’t get it. Done properly, the cultural transformation program makes the CEO and entire workforce accountable for the decisions they make and the behaviours they demonstrate. In doing so it has the power to restore and improve staff, stakeholder and community trust and confidence in the organisation.

Sophisticated products focused on business strategy and behaviour-based assessment are available, some of them on digitised platforms. Along with a big analytics capability, these are the most powerful weapons in the CEO armoury. They also provide boards and lead teams with that critical missing metric from the dashboard, a net culture score, as well as better aligning boards and lead teams.

This is the sort of process that will need to be championed and embedded, not only in the financial services sector, but in public and private sector organisations across the economy. It is what APRA, in aspiring to measure culture, should be mandating organisations to track, giving boards the ability to tangibly assess and minimise risk accordingly.

Ken Boundy FAICD is chair of Appellon and founding chair of Regnan.