Every company has a culture – it’s the set of norms, beliefs, values and vision that define how employees and managers interact with each other and, by extension, with their suppliers, customers and other stakeholders. But despite the fact of having one, many companies struggle to report meaningfully on their culture, to the detriment of their corporate image.
Of course, culture isn’t inherently positive. The wrong culture has been identified as a contributing factor in several recent corporate failings and underperforming public bodies. Given this, the importance and reporting of culture as a business imperative has been rising up the corporate and investor agenda, but many corporates could report in a far more meaningful way instead of too often relying on generic cultural indicators, such as:
- employee survey results
- health and safety data
- 'speak up' and whistleblowing data, and
- regulatory breeches.
The Financial Reporting Council has released a new UK Corporate Governance Code which places a significant focus on culture and its alignment to the broader business and the role of the board. The key parts of the new Code in this regard are:
The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture.
The board should assess and monitor culture.
The annual report should explain the board’s activities and any action taken.
Principle E and Provisions 5 and 6
Board responsibility for ‘workforce policies and practices’ and workforce engagement.
Principle P and Provision 40
Alignment of incentive schemes with the organisation’s culture and delivery of the strategy.
The Luminous view
The new Code puts a clear focus on the importance of culture. In particular, Principle B and Provision 2 are perhaps the most interesting of its stipulations and will present the greatest challenge to boards and reporters.
In my experience, many companies are still grappling with the notion of purpose, i.e. why the company exists beyond making a profit. Beyond getting this right, there is frequently little alignment between purpose, values and strategy, and culture.
The second challenge will be around the cultural literacy of the board – making sure the board is setting specific culture indicators and has the skills and experience to assess and, if necessary, correct the cultural health of the business.
Our seven top tips on culture reporting
1. Take time to create your purpose statement, being sure to consult your key stakeholders.
2. Create a set of cultural indicators specific to your company.
3. Make sure the board is engaging with the business and its stakeholders. Use the engagement to inform decisions and report back to stakeholders on outcomes.
4. Communicate, communicate, communicate! You don’t ‘do’ culture once – it’s an ongoing process that requires ongoing engagement with the business at large.
5. Make sure you join the dots. Align culture to your business model and how it supports your strategy. Showing how remuneration is aligned with purpose and strategy evidences your approach.
6. Build culture literacy on the board via executive and board-level coaching.
7. Use culture as part of organisational differentiation, demonstrating how it supports and protects long-term value creation.
Earlier this year, we hosted an #illumination event on purpose and culture. Read more here.
If you would like to talk more about how Luminous can help you meet the changes and challenges ahead, please get in touch.