Designing company culture
February 2017 | FEATURE | BOARDROOM INTELLIGENCE
Financier Worldwide Magazine
The importance of corporate culture cannot be underestimated. In light of the increasingly stringent regulatory climate in which modern firms operate, companies must ensure that they reinforce their corporate culture, not only to satisfy the demands of various regulatory authorities, but also to help protect and generate value throughout the organisation.
Corporate culture is a diverse concept but arguably should be seen as the combination of desired beliefs and behaviours that companies must demonstrate when dealing with their stakeholders, including shareholders, customers, employees or the wider community. Getting these relationships right is pivotal, and companies that neglect them can quickly fall foul of regulators, shareholders and other stakeholders.
Yet, for many firms, designing and implementing a company culture is a reactive process, where deficiencies are only addressed following a crisis. However, it is prudent for companies to reinforce their cultural practices when the going is good. This will help organisations to protect their operations and profitability in the long run.
Most business leaders realise that they need some form of positive company culture to be successful. According to data from EY’s ‘Governing culture – practical considerations for the board and its committees’ report, 86 percent of respondents said that corporate culture was fundamental or very important to their company’s overall strategy and performance.
Yet there are still many organisations which struggle to implement an attractive and compliant corporate culture.
Of course, different companies will have different ideas about good governance, but the most important body in building the right corporate culture is the board. Indeed, designing and implementing an appropriate and comprehensive company culture requires careful consideration, and must be led from the top down.
EY suggests that though firms are increasingly aware of the importance of good corporate governance, there is a disconnect in some organisations regarding the role of the board. Only 19 percent of firms surveyed believe that the board has primary responsibility for ingraining governance and culture into their firms. For boards, passing the buck is a misstep, particularly in the post-financial crisis climate where governance is a hot topic. Since 2008, the cultural failings of many banks and financial institutions were cited as underlying causes of the crisis.
To avoid a recurrence, boards must take a lead role in establishing and disseminating the desired standards and practices to which the company must adhere. Ultimately, the board is accountable for defining and monitoring corporate culture. Any failure of the organisation is a failure of the board.
Though it can often be difficult for companies to manage and measure corporate culture, it is vital that boards and senior management work together to ensure that good practices spread throughout the firm, particularly as regulators like the UK’s Financial Reporting Council increase their focus on governance.
Boards also have a responsibility to ingrain transparency into their corporate culture. Transparency makes sense from both an ethical and value creation standpoint, as it helps to foster trust among employees and customers alike. Trust must be considered both a valuable and scarce commodity, particularly in the post crisis reality where confidence in the financial services industry is still being rebuilt. Increasing transparency in the social media age is also important; as people become more comfortable sharing their experiences, both positive and negative, the importance of transparency should not be underestimated.
Organisations should also remember that culture does not stymie growth. A sound culture can act as a business accelerator, providing a competitive advantage. As more companies enter new markets and industries, it is increasingly difficult to differentiate them. Culture can help a firm stand out from the crowd. Amid increasing competition for the next generation of employees, pragmatic companies will be able to leverage their corporate culture to attract the right people. Senior management must not only recruit well, but also retain staff by providing a supportive and rewarding environment. Offering staff opportunities to develop personally, as well as professionally, is an effective recruitment tool, particularly when expectations and attitudes toward work are shifting. The expectations of tech savvy millennials, for example, are changing the corporate landscape. Accordingly, companies must be agile enough to adapt
Prudent companies also hire staff that fit their cultural profile. Though it is possible to glean information about potential colleagues from their previous work history or education, companies should not neglect the personality aspects of the hiring process. Determining an individual’s ability to fit within the company’s corporate culture should, arguably, be given equivalent importance during the hiring process.
Furthermore, once an employee has been hired, he or she must be given the opportunity to grow and evolve within their employer’s culture if the company is to retain talent. By the same token, organisations must develop their corporate culture to evolve with the times.
Designing and implementing corporate culture is vitally important. The right cultural framework can keep regulators at bay and safeguard profitability. Companies should remember, however, that culture cannot be allowed to stagnate.
© Financier Worldwide