Is your company's culture healthy?

What makes for a healthy culture, why it matters and how you set the right tone at the top.

Culture eats strategy for breakfast”, attributed to the management consultant and author Peter Drucker, has never had more relevance for directors than it does today, in the light of the public hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The hearings have powerfully raised the stakes on culture, its impact and the role of directors in relation to corporate culture. Messages emanating from the Royal Commission include:

• An organisation’s culture can exert far more influence on its behaviour and performance than does its strategy
• Public declarations about high cultural values are hollow if the culture that is enacted betrays those values
• The board may not be aware of the chasm between declared and actual culture, which can create a very high risk for the organisation, the board as a whole and individual directors
• An “unhealthy” culture can damage an organisation in significant and lasting ways.

What is culture?

Put simply, culture is the umbrella that sits over an organisation’s values, ethics, laws, customs, beliefs and behaviours — not as they are in principle or on paper, but as they are enacted in real life as experienced by employees, partners, suppliers and, most importantly, customers. Culture determines what an individual’s experience will be, whether internally, as an employee or contractor, or externally, as a customer or supplier.

Culture is most powerfully expressed when it is enacted in language and deed. The true culture of an organisation is revealed by the way employees treat customers and the way they interact with one another.

Culture comes in different styles. A team of researchers in the US — The Leader’s Guide to Corporate Culture by Boris Groysberg, Jeremiah Lee, Jesse Price and J Yo-Jud Cheng (Harvard Business Review) — identified eight cultural “styles” (caring, purpose, learning, enjoyment, results, authority, safety, order). Although based on US companies, their findings demonstrate a conundrum found in Australian companies: the dynamic tension in an organisational culture that values both “results” and “caring” to almost equal degrees. The researchers found those two values ranked most highly among employees across all sectors. Not surprisingly, however, other cultural characteristics were also ranked highly by employees in certain sectors. For example health sector employees rated “purpose” more highly than did employees in any other sector.

Why is culture important to directors?

Drucker was right. He believed that culture is anything but amorphous or invisible. Culture drives behaviour, and, unfortunately, sometimes produces behaviours inimical to the organisation’s professed principles, values and strategic objectives. The impact of culture is visible in the success or failure of an organisation. Shareholder returns, company valuations and the reputations of a company and its directors can be severely damaged by revelations of poor cultural practices. Most Australian directors understand this. As recent events have shown, it is imperative that directors mind the gap.

How can directors assess whether their organisational culture is aligned with and supports corporate strategy/goals?

Directors must understand and have assurance that an organisation’s actual culture is consistent with the culture the board has endorsed and is considered essential for their organisation’s success. Short of a formal survey, here are a few initial questions that may help:

• Is corporate culture monitored by management and board — or relegated to HR?
• Given the culture the company wants and needs, does it have the right people? What is the evidence? Are recruitment and retention systems effective in recruiting for and developing the desired culture?
• What do employee attitude and behaviour surveys reveal about the company’s culture? Beyond Net Promoter Score, does management use additional quantitative as well as qualitative methods to assess customer, partner and supplier experience, and judgements about the company? No (bad) news is not good news when it comes to organisational culture
• How does senior management communicate and demonstrate the cultural characteristics the board expects?
• What culture prevails at the middle-management level, where inimical corporate culture can hibernate and fester, hidden from senior management and the board?
• Do managers have the competencies and inclination to lead the desired culture? If not, are there structured initiatives to improve their attitudes and behaviours?
• Do internal and external messages align with the cultural values the company espouses? For example, does the company talk diversity, but illustrate the opposite?
• Finally, does the company’s system of incentives and rewards reflect the balance the board expects between “results” and “caring”?

Abby Bloom FAICD is a director of Sydney Water, Sydney Children’s Hospitals Network, State Insurance Regulatory Authority and Longevity Innovation Hub.