New Corporate Governance Code 2018

Author: Erika Percival LLM FCIS

“You can’t manage what you don’t measure” and “culture eats strategy for breakfast” – the two quotes used to open the debate I was invited to attend last week at the House of Lords. As an expert in corporate governance, I had been invited, along with representatives from FTSE 350 companies, to help the Lords identify the challenges companies will face when implementing the new Corporate Governance Code 2018.

CULTURE DRIVES COMPANIES FORWARD

I was relieved that the debate had started in this way. I have been banging the drum for years about the importance of culture in relation to corporate governance. I have seen time and time again that, when a company finds itself in difficulty, it is the culture that drives the company forwards. Yet too often culture is seen as a ‘nice to have’ rather than a key driving force for the business.

WE NEED THE VOICE OF EMPLOYEES IN THE BOARD ROOM

During the debate, we discussed the evolution of the executive director role on the board. It used to be the ‘norm’ for the HR Director and others to be appointed to the Board but now many companies just have a CEO and CFO. While you can’t have everyone in the room, I’ve regularly seen how difficult it can be for two executive directors to wear multiple ‘hats’ and objectively represent key, often conflicting, perspectives. Modern day practice has meant that voices are often underrepresented in the Board room. It will be interesting to see how the Code’s “employee voice” affects board discussions.

WE CAN’T RELY ON STATISTICS

As for metrics, the listed companies in the room shared that almost all of them carry out an annual employee engagement survey. Few go a step further. Those that did use pulse surveys, utilised employee net promoter scores (ENPS) or hired external consultants to get under the skin of their culture. Whilst surveys and ENPS have their place and are easily reportable; “you can’t manage what you don’t measure”. If the purpose of the new reporting requirements is to improve corporate culture then quantitative data alone will not hit the mark.

IT’S NOT EASY

During the debate, it was helpful to hear from fellow experts that, aside from the metrics and reporting, many have found it challenging to ensure employees interpret the values and behaviours of the company in a consistent way. It was felt that cultural differences, poor training and regular interactions with employees, who did not understand the values themselves, were key factors perpetuating these difficulties. But just because it’s hard doesn’t mean that we should stop trying.

IT STARTS AT THE TOP

Employees are radiators of a company’s culture but it all starts with the tone from the top. Clear behaviours need to be set and lived by the board. They must be understood and embedded amongst employees so it becomes part of how the company does business. Of course, appropriate metrics should be set and reported on, but I believe companies need to go a step further – positive culture need to be incentivised. The new Code will mean that companies have to start reporting on culture from 2020. It will be fascinating to see whether the opportunity to embrace the regulations is taken up or it is seen as a box-ticking exercise.

DOES CULTURE EAT STRATEGY FOR BREAKFAST?

So, does culture really eat strategy for breakfast? I think it does, but one strong strategic priority, relentlessly driven by incentives, over time can also drive culture in an organisation. In organisations where the board is laser-focussed on one priority, they should be aware of the consequences and behaviour traits that may result.

Company culture is often, in part, a reflection of the diversity, in its many facets, around the boardroom table. Culture needs to be actively challenged to ensure it makes sense in the company, countries and for the stakeholders of the business. This is the bit that I love about my job – it is so satisfying when I can guide a Board through the process of streamlining their ways of working (their governance) to drive their strategy and culture.

CULTURE IS EVERYONE’S BUSINESS

Culture is everyone’s business and should be at the forefront of the board of directors’ minds. Culture impacts performance and the delivery of company strategy; it can jell a team together or push it apart. In difficult times a great culture helps those at the helm steer the ship more easily as everyone moves together. That is why I see culture as such an important part of my role as a corporate governance expert.

Author: Erika Percival LLM FCIS
Source: https://www.linkedin.com/pulse/invite-house-lords-company-culture-everyones-business-erika/