Corporate boards all want to believe that their companies maintain an ethical culture.  Each board members knows the right words, platitudes and buzz words to use.  No one can fault them there.  But like every issue in life, when push comes to shove, what actual commitment of time and effort do board members actually devote to the specific issue? 

And if they do commit to the effort, do they know how to define, promote and measure a company’s culture?

Definition

Initially, board members play a role in defining the company’s culture and ensuring that it is consistent with the company’s overall operational strategy.  Some may argue that a board should defer to the CEO and senior management to define the company’s culture.  That is a short-sighted and limited perspective, and by definition, may raise serious issues as to board exercise of its duties.

It is easy to embrace the idea that a positive corporate culture will enhance performance – when employees embrace an ethical culture, their performance and productivity improves.  In this environment, execution of a corporate strategy will likely be more successful.  This seems fairly obvious (but maybe not so in the real world).

A culture can be defined clearly and with a simple message surrounding the company’s purpose, vision, mission and strategy.  Every company has to define these terms and their reason for being.  These concepts, however, have to translate into day-to-day business operations.

If a company prioritizes customer satisfaction, this may require a specific allocation of resources to local sales and service operations that can respond to customer needs.  On the other hand, if the company prioritizes innovation and market capture, the company may have to encourage employee innovation and incentivize such activities.  Whatever framework is chosen, the business strategy has to align with the company’s purpose, vision, mission and overall strategy.  Every company adopts a specific focus, a strategy defined through a goal (e.g. innovator, leader, exemplary branding).  All of this has to be translated in the company’s culture, its employee profile, its allocation of resources, and its day-to-day activities.

In this process, companies have to define their values – not just feel good statements of generalities but specific and defined behaviors that can be applied each day.  Values can change over time but culture should be stable.  Words have to match to behaviors.

Measurement

Corporate boards are responsible for ensuring that a company regularly monitors and measures its corporate culture.  There are numerous ways in which to carry out this responsibility.  As a start, the board has to approve a set of metrics for quarterly review.

As an initial step, every company has to conduct a comprehensive culture assessment, consisting of targeted and tailored surveys.  Such an assessment should not be a five-question insert on an annual employment survey but a dedicated and singular survey focused on corporate culture. 

Survey results can be supplemented by analysis of senior management communications and conduct, employee reporting, investigations, performance, and other elements that contribute to corporate culture.  Compliance data  should be examined to determine whether employee training programs have been effective, whether employees are complying with corporate compliance policies and procedures, and other indicators of compliance performance.

Additionally, companies should conduct a range of focus groups along a cross-section of corporate offices and divisions to gain greater insights.  Based on this overall assessment, a quarterly strategy for review and reporting of culture metrics should be designed based on various factors including occurrence of employee misconduct, allegations of potential code and legal violations, human resource awareness of moral problems and other factors indicative of culture deterioration.

Accountability

A company’s culture has to be communicated and implemented through behaviors.  Each person has to be held accountable for communicating the culture and behaving in accordance with the culture.  We all know that one bad act or event can cause irreparable harm to a company’ culture and its livelihood.

Companies have to manage and hold accountable its senior leaders, managers and employees.  A global organization has to commit to overcome local culture and norms to build a unified culture across and throughout an organization. 

The board plays a critical role in this area by specifically defining expected behaviors at the senior management level, requiring communications and conduct that promote the company’s culture, and building in compensation and incentives to reflect execution of these requirements.  In a more fundamental level, corporate boards should exercise review of employee misconduct, investigations, training and mid-level managerial requirements for communicating and promoting the company’s culture.  The board has to ensure appropriate communications, behavior modeling and discipline that enforces the company’s culture.

Finally, a board itself has to reflect the corporate culture and its priorities  — boards should devote more effort to promoting diversity in its own membership, should seek reporting and information on a broad range of issues, and engage in culture and ethics concerns.