Governing company culture: Insights from Australian directors

The AICD and the Australian Council of Superannuation Investors (ACSI) have partnered on a new report Governing company culture: Insights from Australian directors that provides real-world insights from the boardrooms of Australia’s largest companies on how directors oversee, measure and influence corporate culture.

Corporate culture can have a profound impact on an organisation’s performance, governance and reputation. At the heart of many – if not all – of the high-profile governance failures over the past decade have been examples of poor company culture or sub-cultures.

Boards are as responsible for cultural oversight as they are for the financial performance of an organisation.

To help boards discharge their cultural stewardship role, the AICD and ACSI have partnered on a new research initiative that examines the board’s role in overseeing, assessing and influencing corporate culture.

Insights from Australian directors

By providing real-world insights from the boardrooms of some of Australia’s largest companies and examining the relevant challenges from a director perspective, the Governing company culture – Insights from Australian directors report provides directors with practical guidance on some of the key issues and questions boards should seek to explore.

Guidance for boards

The report takes an in-depth look at why culture matters and the board’s oversight role including:

• Why defining the desired culture is critical;
• How the dynamics of the board impact culture;
• Formal and informal techniques for assessing culture;
• How leading directors model desired behaviours;
• The relationship between executive remuneration and culture; and
• The emerging challenges created by COVID-19.

Key findings for directors

The research surfaced the following key findings:

• Culture is the responsibility of directors, not just senior management. Directors can use a range of practical methods to exert significant influence over company culture.
• Company culture is an increasingly high priority. There has been a significant shift over recent years, with culture now firmly in the spotlight for directors.
• Directors see the link between culture and long-term performance. Directors feel that culture is extremely important to the long-term performance of a company.
• Effective oversight of culture requires active and curious directors. Directors must be curious, persistent and willing to synthesise the many formal and informal sources of data relating to culture. Directors must be alert to an overly optimistic picture of culture from management.
• There is limited public disclosure on culture. Investors would value greater disclosure to discern companies’ cultural strengths and weaknesses. Yet practices amongst ASX 50 companies show wide variance in public disclosure and there is a lack of market consensus as to the most valuable metrics to report against.