Failing to address cultural problems within an organisation makes bad business sense.

When barbarians are at the gate, corporate boards and chiefs immediately jump into action to understand and communicate what they believe their companies are worth, and to advise shareholders whether to accept or reject the barbarian’s offer.

However this behavioural response is in marked contrast to the same group’s tolerance of their own internal barbarians, viz those employees whose behaviour trashes a sound business culture. So the considerable sabre rattling from corporations in response to advice from Australian Securities and Investment Commission (ASIC) and Australian Prudential Regulation Authority (APRA) chairs, Greg Medcraft and Wayne Byers, that both regulators will soon examine board and CEO accountabilities for organisational culture, is surprising to say the least.

The two most common criticisms of this new regulatory initiative have been that culture is too hard to get a handle on, and thence to demonstrate cause and effect relationships that boards could be held responsible for; culture is soft HR stuff, and the markets want to see hard financial numbers delivered. Both criticisms are flawed.

The Deloitte Human Capital Report in 2015 defines culture in an organisation as “the way things are around here,” viz its values, behaviours and the organisational rules of engagement among employees. Australian of the Year, David Morrison defines it more pointedly as “the stories we tell each other about ourselves”. All recruits to an organisation will know the practical substance of these two definitions within six months of starting a new job.

Further, employers have a fiduciary duty to deliver a fit and proper workplace for the conduct of work by their employees, and also one that is safe in terms of physical and mental health.

To ignore culture is bad business. A review of the Hay Fortune 500 world’s most admired companies, or the Aon Hewitt best employers survey demonstrates that positive culture and business performance show strong positive correlations. Culture actually drives performance, or as Peter Drucker said “culture eats strategy for breakfast”.

Where do the issues lie?

Despite the widespread board fear factor on measuring culture, it is easy to assess effectively and quickly. There are many online surveys that can give timely information on culture through answers to a half dozen simple questions, such as: Do you know this organisation’s values? Have you been bullied or sexually harassed at work? Are you led by managers, whom you respect?  

FedEx, for example, has regular reporting with answers to these and other key questions on business performance and culture, with a focus on ‘hotspots’ where there are poor results. Such data is rolled up into regular board reporting, and at the locational level for management attention. FedEx runs a simple traffic lights system on all locations, updated weekly with green indicating all is well up to red where head office intervenes and managers have to produce turnaround plans.

Addressing culture issues

There are a number of barriers to tackling poor culture. The first is a lack of courage by boards and CEOs to investigate and take on the most sacred of the internal barbarians – those leaders with high business writing autonomy who deliver positive short term business results, but who demonstrate inappropriate values and are poor cultural exemplars. The worst cultures are often found well away from head office. The recent cases of misadventures, bullying, and harassment by foreign exchange dealers at ANZ in Sydney and New York are typical examples.

Doing nothing to address negative root causes is almost worse than the disease, and breeds deep cynicism among employees.

Australia has its own recent cultural and performance exemplars – like Telstra and Qantas. Both organisations have dramatically improved customer service standards, culture and performance.

The recent attempt by the Commonwealth Bank to reward senior executives for people and culture performance was admirable, but the subsequent voting down of their remuneration reports by proxy advisers was short-sighted. Those who stated that the metrics around culture need to be more objective, have a point that can be addressed.

ASIC and APRA will soon be asking the right questions of Boards and CEOs on culture. The chance to be a first mover has passed, but the risks of failing to become a rapid imitator are considerable.

Image credit: rawpixel via pexels

This article originally appeared in the February 2017 edition of HRM magazine.