More Proof Companies Do Better When Boards Engage on Culture
Ethics and compliance champions are strong advocates for getting boards to pay more attention to their organization’s corporate culture, and it looks as though the message may be starting to resonate.
LRN long has worked to educate boards on the importance of creating a culture based on values that promote inclusion, diversity and trust. Our reports on moral leadership, operationalizing tone at the top, and making inroads with the board share the belief in the effectiveness of a unified message from the board and C-suite that how people act and conduct business matters.
Two recent reports from outside LRN bolster the argument that boards which engage on culture issues do better than companies where they don’t.
The first, from Ethisphere Institute, shows how the stock prices of companies named to its World Most Ethical Companies list outperformed the large-cap stock universe by 10.5% over three years and 14.4% over five years.
Companies on the list, released last week, exhibit the qualities associated with strong, ethical cultures. These include having regular closed-door sessions between directors and the organization’s ethics and compliance leaders, putting a board committee in charge of overseeing issues related to sustainability and social issues, and using multiple ways to keep the board informed about the culture, Ethisphere found.
“Companies with a global workforce have a lot to manage--both internally and with external shareholders and stakeholders,” Ethisphere’s Erica Salmon Byrne, executive director of the Business Ethics Leadership Alliance, wrote in a LinkedIn post. “Transparency and open discourse is a theme that runs through the practices” of these companies.
The second report, from Marsh & McLennan Companies and WomenCorporateDirectors, reported on a growing urgency among boards to look at culture and what role it plays in issues like #MeToo, or in whether mergers and acquisitions will be successful.
“Boards of directors, at the top of the organization, play a key role in assessing and guiding culture and are increasingly being held to account, especially in instances of cultural dysfunction,” stated the report.
The MMC/WCD report identifies 10 red flags that a culture may be toxic, and they include the usual missteps: lack of overall strategic vision, no transparency into decision-making, chief executives controlling the information the board sees. The report also highlights actions boards can take to make sure culture is being considered when decisions are being made.
"The costs of dysfunction threaten the very foundation of an organization," said Patricia Milligan, global leader of the multinational client group at Mercer, a division of MMC, in the report. "Not taking a thorough look into how the culture is functioning--or not--places a company at serious risk."
LRN's recent research based on interviews with chief ethics and compliance officers identifies 12 practical steps boards can take to strengthen their role in ensuring a strong ethical culture. These practices will help organizations shift time and strategic focus to ethics and compliance, hold leadership accountable and create meaningful metrics.
Getting to a focus on culture is not easy, said LRN’s David Greenberg, chairman of the corporate governance committee of International Seaways, a tanker company that transports oil and crude.
“Boards and board committees face a crushing workload, so it takes a real understanding that culture is foundational," said Greenberg. "Because of that, boards that fail to oversee and act with company culture in mind will find it impossible to step up to the challenges they face in the marketplace and society.”
The best way to build a healthy corporate culture is to base it on values such as trust, respect and transparency, rather than focusing primarily on rules, said LRN’s Susan Divers, author of the new Program Effectiveness Report due out this month.
The report details steps boards at organizations with high-performing ethics and compliance programs take to support those programs. It found, over the past five years, 48% of respondents said their organization’s ethics and compliance program to a great degree has focused on values, not just rules.
“Boards play a key role, as they are the principle means of holding the CEO and leadership accountable,” said Divers.
(CORRECTON: In the Feb. 28 newsletter, I misspelled the name of Zainab Salbi.)