Boards lacking formal culture to sustain future
Only 21% of respondents rate their boards as excellent in terms of setting the 'tone from the top'
A report published today by the Institute of Directors (IoD) in Ireland and conducted by Amárach Research, reveals that whilst 59% of boards have increased their focus on culture in the last 5 years, many are failing to treat it with sufficient rigour to sustain the business into the future.
"Ireland's Corporate Culture 2018", which looks at the meaning and prominence of culture from the board's point of view, found that whilst culture is the second most important issue for boards at 28% (after strategy and oversight at 50%), 59% of respondents say their boards’ culture is inferred or informal rather than defined.
Surprisingly, only 22% believe the board considers the impact on culture in all decisions it takes indicating a failure to see the wider impact on a range of governance decisions including company performance, strategy and risk, employee retention and corporate reputation all of which are imperative to commercial success.
Commenting, Maura Quinn, Chief Executive, Institute of Directors in Ireland, said "Culture is the DNA of any organisation. Its values and practices are bequeathed to all future stakeholders. A strong and pervasive culture can ensure consistency within an organisation into the long-term, and contribute to long-term success. In a sense, corporate culture speaks to the legacy that current board members and senior management will leave behind. A strong culture can continue beyond the contemporary board and organisation composition."
The report explored IoD members' views and practices under four themes:
37% of respondents consider transparency and openness to be the most important contributing factor to a healthy board culture. The main focus, for now, is in the boardroom itself, both in terms of ways of working around the boardroom table and relations between the board and the rest of the organisation. Culture must be cultivated at the top if it is to flourish at different levels of the business on a day-to-day basis.
The report shows that the vast majority of organisations (82%) have developed – or have begun to develop – clearly detailed statements on their values, alongside vision, mission and strategy. 52% of respondents specify that integrity and ethical behaviour are the core values in their organisation. However, there is still a high degree of informality with only 31% of overall respondents stating the organisation is clear and aligned with regards to culture, purpose and long-term strategy. Large/global organisations are to be seen as harbingers of best practice when it comes to the formality of approach to culture.
Overall, 50% of respondents cite the board as being responsible for setting culture in their organisation, but only 16% hold the board responsible for its success. In addition, 40% believe responsibility for the success of culture lies with the CEO and 19% say senior management are responsible. Many boards are realising they "can't do it all" and that an alignment between the board and all levels within the organisation is critical in order for there to be an effective culture.
The role of the board has become much more onerous in recent times with more demanding legal and regulatory requirements. Culture is increasingly being seen as part of the board's remit with 62% strongly agreeing that a key role of the board is to set the 'tone from the top'; however, only 21% rate their boards as excellent in these terms.
Indeed, this necessity to focus on culture is being acknowledged by a majority of respondents (32%) who expressed a preference for spending less time on financial performance management and more time on strategy, which in turn provides a platform for discussions around culture.
In addition, more than a third (36%) of respondents state that their board has no formalised means of holding itself accountable to its own code of conduct, and almost one quarter (24%) state that their board has no code of conduct to guide board members and no formal policy relating to any breach of ethics.
83% of respondents say that the long-term interests of the business are considered in their strategic decisions, whilst 34% agree long-term interests are the main drivers of the board's actions. 23% state the main drivers have not changed in the last five to six years.
Not only must an organisation's values and behaviours be aligned at all levels internally, they also have to be aligned with future requirements in order to serve their role in sustaining long-term success. Boards also need to be mindful of complacency with 73% stating they would not influence one single change in their board’s culture or would prefer not to say.
Maura Quinn concludes: "Our report indicates that the current positive business environment means boards have the capacity to refocus; to ingrain culture in a consistent and unified manner, formally define, measure and promote corporate culture, lead and practice culture from the top and ensure accountability and responsibility from leadership. To future-proof the organisation, it is important that boards guard against complacency. Boards should actively champion and defend corporate culture, not just at board level but right through the organisation.”
Read our findings summary and access our interactive dashboard of results here.
The Institute of Directors (IoD) in Ireland commissioned Amárach Research to conduct a survey of IoD members’ views in June 2018. A total of 197 completed responses were received. Respondents were also asked if they would be willing to participate in a short, anonymous follow-up interview by telephone, and subsequently, 12 of those who agreed to be contacted were interviewed in late June 2018.