Another false dawn?

With culture, only leaders will make the difference 

What will the histories written of the last decade focus on?  It might be uplifting stories across medicine, science, sport or space.  It might also be less upbeat ones concerning seismic issues such as terrorism, Brexit, pollution or Donald Trump.  The choice is going to be difficult, but near the top, or even at the top would be the financial crisis. I am not going to dissect the causes of the crisis – rather I want to look at one area of the response to it.  I single it out because this one area has been undeniably ineffective.  It is the governance that oversees corporate culture and behaviour, which I typify as consisting almost exclusively of hand flapping and arm waving.

Plus ça change

In the wake of the economic turbulence, volumes have been written about the importance of culture amongst executives and in the boardroom.  Vitriol and comment continues to pour out on every sort of media, parliamentary committees and even stand-up comedy routines.

At the same time, regulatory authorities talked about culture and increased regulation.  Guides on governance and codes were written and rewritten, jail sentences and fines were meted out, MPs vented their disgust, and much was written and many fists were shaken.

Sadly, despite the vows that “We mustn’t let the sorts of behaviour that we saw before, during and after the crash happen again”, little seems to have changed.  At the beginning of 2018 we can look back on another year of corporate misbehaviour.

The root cause – Accountability

There is a common theme in many of the corporate culture failings – the palpable lack of leadership and tone from the top.  It’s always someone else’s fault or “we can’t be held accountable for what happens on the shop floor”.

I believe the heart of every leader’s role is to define the culture, align the organisation behind it and then keep managing it as actively as any other KPI.  An annual survey or a values screensaver is not enough – culture must be lived and modelled every moment of the day.

This applies to every level of leadership from the board, executive team and middle management and against more immediate and apparently more pressing items such as digital disruption or GDPR.

The Financial Reporting Council (FRC) Consultation

Which takes me to a consultation process that was launched on the 5th December 2017 by the FRC (the UK’s independent regulator responsible for promoting high-quality corporate governance and reporting, and for setting the UK Corporate Governance and Stewardship Codes).

I don’t doubt that you are rolling your eyes and muttering by now, but the FRC’s consultation paper deserves attention.  Not just because the auditors will lap it up but because the FRC have sharpened their focus on the Board’s role in monitoring corporate culture. In particular, they have placed Boards at the heart of this and reminded them they are responsible for the culture of the organisation.

If a world as dry as financial reporting has understood the importance of culture, then perhaps the FRC (and the wider corporate world?) have finally realised it is the cornerstone of good governance.

More rules?

So will that mean more regulation and rules for something which is generally understood to be all about heart, minds and soul?  It could do, but that will not solve the problem.  We all know that rules are bypassed or broken when the underlying mindset is at odds with them.

It comes back to leadership to ensure culture is taken seriously – and it is not an exact science.  I believe that dedicating time and energy to define the desired culture to underpin an organisation’s strategy will always pay dividends and it isn’t about culture workshops and culture focus groups.  It is about leaders defining what the right culture needs to be, articulating the visible behaviours that demonstrate that culture, and then leading by example.

I could get maudlin that the FRC even have to pay attention to this area – surely it should be inherent in a leader’s DNA?  Sadly, that seems like wishful thinking, but the new moves by the FRC may encourage the muscle to be developed to compensate for the missing gene.

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