In the wake of Uber and Wells Fargo, corporate culture has become a hot-button topic in North American boardrooms. So much so, that the National Association of Corporate Directors just released a Blue Ribbon Commission Report, “Culture as a Corporate Asset,” to serve as “a call to action for directors to elevate the dialogue on culture—including the culture of the organization overall and the culture of the board itself.”
To do this effectively, a board needs to test its assumptions about the culture of the organization it governs to determine, as the NACD report suggests, “How much of the organization’s culture is a myth that doesn’t extend beyond a plaque in the elevator?” Here are three areas to emphasize in that process.
1. Make culture count. A good place to start is with a “culture dashboard.” Tracking such factors as employee attrition, absenteeism and whistleblower reports not only gives directors greater insight, but signals to the entire organization that the board considers culture a priority. Boards should scrutinize the company’s reward and recognition systems—including incentive compensation and promotion decisions—to ensure they reinforce the desired corporate culture and avoid unintended outcomes that may undermine it. Using employee engagement surveys, customer satisfaction surveys and progress on board-approved diversity targets as part of the CEO’s annual performance appraisal also brings culture to the fore.
2. Factor culture into CEO succession. Nowhere is the board’s understanding of corporate culture more important than in CEO succession planning. Some boards incorporate interviews with the top two levels of management at the outset of any CEO succession process. Among other things, these interviews delve into issues aimed at giving the board a better understanding of what the culture is actually like. On occasion, this exercise will reveal that the CEO has been “managing up”—all is not well culturally and any new CEO in the mould of the incumbent may be a prescription for disaster. By contrast, these conversations can reveal unique facets of the current culture that are not only valuable but so well-ingrained that any new leader who contrasts too sharply with the incumbent will be rejected by the rank and file.
Once the board has done this type of due diligence, it can factor culture into CEO selection in a meaningful way. Typically, this involves formal assessments of CEO candidates incorporating leadership style analyses and other cultural factors that can give board members a better picture of how the candidate might “fit.” Spencer Stuart’s 2016 Board Index found that over 70% of S&P500 company boards utilize these types of assessments in CEO selection.
3. Don’t ignore board culture. The NACD’s report recommends: “Directors should review the culture of the whole board and its key committees on a regular basis both formally (via the evaluation process) and informally (making time for reflective conversation in executive session).”
The best way to get a handle on board culture during the board evaluation is to incorporate feedback from executives who regularly interface with the board into the evaluation process. Culture is an area that best lends itself to discussion and probing for specifics that only an interview can generate. For example, many boards describe their culture as “collegial”; yet, this term is largely meaningless. Is this a board that demonstrates commitment? Holds management accountable? Turns a blind eye to performance problems at the board or executive level? Tolerates those who ask questions in antagonistic ways? Most boards use a third-party interviewer to ensure anonymity and independence so that participants will be candid in providing their views.
High-performing boards often get a lot of positive reinforcement by including executive feedback in their board evaluation. Among other things, it helps them understand where the senior team perceives the board as genuinely adding value for the organization. Management can also offer a counterpoint in areas where the board believes, perhaps incorrectly, that it has unique strengths. Boards that follow this process also get something else which may be even more important: credibility. The executive team respects directors for holding themselves accountable through a process like this. That, in itself, goes a long way to reinforcing the right “tone at the top.”
Beverly Behan is a New York-based board consultant who has worked with more than 150 boards of directors in the U.S., Canada and internationally in the past 21 years. E-mail: email@example.com.