In 2015, employees at Wells Fargo opened millions of fake bank accounts to meet sales targets. They also sold auto insurance and other products to customers who did not need them. Over the last year, two of Boeing’s 737 Max planes crashed within six months, killing hundreds of people. Boeing had effectively hid safety problems from regulators; over the years, financiers in the company had replaced engineers and an ethos that encouraged dissent was gradually eroded. Each of these catastrophic failures could have been averted if the organizations had paid greater heed to their internal cultures.
Though it is a rather nebulous concept that is hard to define with precision – for our purposes, ‘culture’ most simply put, is the way companies carry out their strategic objectives. In other words, the ‘how’ of strategy is, broadly, the definition of organizational culture. But should corporate boards be responsible for overseeing organizational culture? If so, what are the best ways to measure and track it over time? In the spring of 2019, the Johnston Centre, the Institute for Corporate Directors (ICD), the Governance Professionals of Canada and Mobilis Strategic Advisors posed these questions to company directors across Canada. Our latest report, The Culture Imperative, presents insights from these conversations and suggests tools that might be helpful to boards.
Company directors agreed that the board does have a responsibility to oversee the culture driving (or stalling) their organization since the culture of an organization is inextricably tied to its purpose and execution of its strategic plan. An earlier survey by ICD revealed that while most directors (62%) believe they are spending the right amount of time talking about culture, only 34% say they have agreed on oversight measures and discuss them frequently.
There are many challenges that boards face in overseeing culture. To begin with, most organizations do not have a single culture: complex organizations with many business units for example, might have multiple, even competing cultures. It can also be tough gaining insight into the daily experiences of employees, especially when there is a lack of trust and transparency. Furthermore, the lived experience of employees can diverge from what is reported by senior management. Directors suggested some ways to overcome these challenges:
- Seek opportunities to understand the ‘lived’ culture in an organization by asking the same questions at different levels of the organization
- Develop strong relationships with appropriate senior executives to improve information transparency
- Understand the compensation structures at all levels of management and how they align desired behaviors with strategy
Our discussions also revealed that there is no ‘one-size-fits-all’ approach to measuring cultural attributes. Each organization needs to decide which traits are important to their organization and then determine how to measure them. Here are some tools that boards can use:
- Engagement surveys to measure an employee’s connection to the organization
- Site visits to interact with employees
- Third party operated whistle blower hotlines
- Exit interviews with departing managers
- Cultural dashboards to collect and report on the cultural attributes the board has decided are important. Metrics could include turnover rates, health and safety reports, and grievance reports.
A company’s culture affects its reputation and relationship with external stakeholders, the recruitment and retainment of talent, and the satisfaction of its customers. Catastrophic corporate failures from the Wells Fargo scandal to the Boeing 737 Max 8 disaster illustrate that the costs of neglecting culture can be devastating and fundamentally threaten the long-term viability of an organization.
So what can company directors do to better understand, measure and track culture? Read the report to learn what business leaders think.
READ THE REPORT