Directors Leading Organisational Culture

If culture eats strategy for breakfast, and we also know that businesses that focus on culture show a 9% growth in EBITDA and it’s not all fluffy soft stuff left to HR, then why do we seem to put so little time into it as Directors? This is interesting because there are so many recent points of reference of where it has gone awry, with media snippets such as: 

“a negative culture and claims of bullying within the Black Sticks women's hockey team has revealed some alarming findings”

 "the review found, “No one was in charge in the Wellington office, the team within which incidents occurred was out of control," Russell McVeagh had a "work hard, play hard" culture with excessive drinking, and crude, drunken, sexually inappropriate behaviour".

 "investigations found MediaWorks had a "boys’ club culture" that excused sexual assault and harassment, racism, sexism, drug and alcohol abuse, and a massive pay gap almost double the recorded national average".

 "serious allegations of psychological and physical abuse have emerged from elite former New Zealand Gymnasts, as an “insidious” culture driven by fear in the sport continues to be exposed globally".

 WorkSafe "are concerned that where health and safety issues continue to arise in a company or group of companies, this may indicate there are systemic issues that need to be addressed in the boardroom," when discussing Talleys.

Of note, all of the aforementioned are organisational health issues. As Directors we should remember it's health and safety. We can clearly see what it looks like when it goes wrong, so how do we make it go right?

Setting the Emotional Climate & Culture. The old saying, ‘the fish rots from the head’ means that a rotten organisation starts with poor leadership. It is the Leaders (the Board) who must set the values and the tone of the organisation. Those values in turn shape organisational behaviour as the basis of organisational culture. The culture then determines the levels of staff engagement for discretionary effort in the organisation, and the resulting productivity, and impact on customer loyalty. Notably, values must be backed up by observable directorial and managerial actions or they will remain simply an aspiration.

Creating an appropriate organisational culture is a fundamental building block of a healthy organisation, and it is measurable – by quantitative and qualitative methods, such as retention stats, exit surveys, organisational capability surveys, 360s etc. The board should understand an organisation’s histories, folktales, dramas, rituals, and routines, and align the energies generated by its people to achieve its purpose. Remember, people will follow the Board's behaviour and actions rather than its words.

Culture is easy to talk about but challenging to get a handle on, and it's important directors send the right signals. Two of the most important levers the board can use to drive organisational performance are appointing the CEO, and setting the vision and strategy of the organisation. So, who is the executive leader you are charging with leading the culture on a daily basis to build culture and drive performance? Just as the board must be clear about the strategic direction ie the vision of the organisation, it must also be clear about the kind of culture required to enable its achievement.

Creating an Intentional Culture. Joe Calloway says in The Leadership Mindset “You can’t not have a culture. The question is whether your culture is intentional and by design….., or whether it simply emerged with no rhyme or reason, tends to be situational, and is purely defined by the behaviour of the strongest personalities in the organization”.

As a business anthropologist, I define culture as the shared patterns for and of behaviour, as represented by the values, ideas, concepts, rituals, and symbols that allow a social or business group to function and perpetuate itself. What then are the patterns for behaviour or the rules that make it work and create future patterns of behaviour? What creates your business’s way of doing things? What are your rituals eg annual conference, awards, inductions etc. Where should your business' culture sit on the scale of hierarchy, market driven, clan orientation or adhocracy? - might surprise you that your Board and your management team may not be aligned.

Unlike these traditional values that organisations draw upon in the FTSE index, such as integrity, respect, innovation or safety, the reality is that they don’t drive behaviour or anything to aspire to be in performance – some would argue that honesty, integrity and trust should be table-stakes to get in the game – but as has been shown when it isn’t, things go awry. But these traditional values should be embedded as part of the desired behaviour.

Unlike these traditional values that organisations draw upon in the FTSE index, such as integrity, respect, innovation or safety, the reality is that they don’t drive behaviour or anything to aspire to be in performance – some would argue that honesty, integrity and trust should be table-stakes to get in the game – but as has been shown when it isn’t, things go awry. But these traditional values should be embedded as part of the desired behaviour.

What organisations need are real values that drive attitudes and behaviour such as those at Elastomer Products (epl), who manufacture in both NZ and Thailand, or global tech business Seequent.

Enabling Culture. There are a number of mechanisms that can help enable culture, including making sure the organisation’s policies, structures, processes and practices, including reward and recognition schemes, actively supporting the realisation of the desired culture and not working against it. If these aren’t intentionally in place, people fill the void with situational adhoc decisions and practices.

How they do this at Link Engine Management as a global business, is an example of how you relate your purpose, whakapapa, values, language, rituals, symbols, behaviours, job descriptions, through to recognition and celebration. It links across geographies via purpose, brand and symbolism. 

We must question ourselves - Are the current cultural norms and values espoused by the Board the best ones for the organisation now and in the foreseeable future? Are they aspirational or just cementing the status quo? The board needs to closely monitor the extent to which these aforementioned policies, structures and systems are driving the right behaviours and results, and then adjust accordingly. How far have the values actually penetrated? How does the Board do a dip test? Are we asking the right questions? Are we listening enough to what is said?

Monitoring Culture. Is culture on the Board agenda? Does the Board have ready access to regular and reliable comparable data to assess whether the promoted culture of the organisation is being realized in practice? Any number of measurement tools – quantitative, and qualitative answers – additional questions eg do you think we have a culture that takes H&S seriously? What is being done with the data that takes it beyond interesting?

Data is essential because it shifts it from opinion but is not a substitute for getting out around the business and its environment and getting a sense check of the data. Directors need to get out - go to conferences, meet the customers & stakeholders, meet the staff, and listen. But always keeping in mind - Eyes and ears in, fingers and toes out, is the way for Directors to conduct a litmus test. And then, what are the patterns? What are the subtle triggers for concern?

Leading Culture Change. If a culture change is required, the Board needs to be clear about what the change is and the quantum of that change. A new CEO can be the most immediate and effective way for the board to facilitate and signal change. What are the parameters for the change, how far to go? What does success look like? What is the mandate? How long to realistically create change? The NZTA shifted from a regulatory enforcement, culture enforcement to a willing compliance model seeking to educate, inform and deter, but recent media suggests that it went too far with many examples of non-compliance? Similarly, when you have done a merger or acquisition how do you bring the two cultures together? What is the timeframe to make that work? Was culture one of your considerations in Due Diligence - it should be.

A word of caution: most desired changes are culture or adaptive change – but all too often organisations try and leverage a technical solution eg a restructure to attempt to change an adaptive or cultural problem. Seek to understand and change the actual issue.

Culture Issues & Indicators. How quickly are issues identified and remediated? Do you have a complaints policy and process for both internal and external situations; remember to ensure ‘SELF’: your processes stand up to Scrutiny, are Ethical, Legal & Fair.  What are the patterns we are seeing? Do we need to have a whistle blower policy? Is there appropriate timeliness, oversight, transparency or independence?

We recognise that culture is your key enabler, your differentiator, a source of competitive advantage – a business essential. So, in knowing that a healthy culture both protects and generates value, the question is – how will we as Directors create an intentional focus on culture, rather than wait for a crisis?

This article was contributed by Greg Allnutt, Partner and Strategic Advisor, Pivot & Pace.