Culture as a Corporate Asset

The co-chairs of the Blue Ribbon Commission Report on Culture as a Corporate Asset introduce the report's actionable guidance.

Letter from the Co-Chairs

In the corporate context, culture has been described as “the sum of the shared assumptions, values, and beliefs that create the unique character of an organization.” While it is often perceived as a “soft issue,” it is actually a hard issue—both in the sense of having concrete impact, and in the sense of being difficult to assess. As directors, we have a responsibility to bring more rigor to the discussion about organizational culture. We are well-positioned to play this role: directors’ independence is an advantage, not a hindrance, in culture-oversight activities.

As one of our fellow Commissioners remarked, “By defnition, members of management are immersed in the company on a daily basis, so it’s difcult to avoid breathing their own exhaust.” Directors bring a unique perspective to the table—ofen informed by years of executive and board experience with a range of companies and industries—and may be better able to pick up on early warning signs than those with solely an insider’s point of view. How much of the organization’s culture is a myth that doesn’t extend beyond the plaque in the elevator? How does this company compare to others, not just in terms of results, but also as to its conduct and “rules of the road”?

Organizational culture has been studied by business and academic writers for decades, but it tends to attract public attention mainly in the wake of negative events, such as the accounting scandals of 2001 and 2002, the 2008 banking and fnancial crash, and the series of corporate crises that unfolded in 2016 and 2017. But a company’s culture has the potential to enable positive results as well. As one group of analysts observed: “If culture is lef to chance, it can absorb precious energy and put the handbrake on the organization achieving its purpose and strategic goals. But if led and managed well, culture is the rocket fuel for delivering value to stakeholders.”

The idea that an appropriate corporate culture boosts performance by providing a framework that encourages behavior aligned with goals for long-term value creation would seem to make it an obvious topic for regular, routine discussion among corporate leaders. Yet in many organizations, culture does not get the level of boardroom attention it deserves until a problem arises. We believe this has to change. Oversight of corporate culture should be among the top governance imperatives for every board, regardless of its size or sector.

Indeed, culture oversight is by defnition a key board responsibility, as it is inextricably linked with strategy, CEO/senior leadership selection, assessment and evaluation, and risk oversight—all of which are squarely in the board’s domain. Te Commission’s dialogue this year was informed by several other NACD Blue Ribbon Commission reports, including those on board diversity and the board’s role in strategy and long-term value creation. Directors may fnd it useful, as we did, to consider the fndings and recommendations from these reports as they take up the topic of culture. (See the Appendix for links to these reports, as well as other related NACD thought leadership and selections from the large body of work related to the oversight of corporate culture.)

PART ONE of this report sets out the Commission’s view on a defnition for organizational culture and outlines its key characteristics and discusses the factors that are driving a fundamental change in how boards need to engage in its oversight—moving beyond an ad hoc or compliance-focused approach to one that is much more proactive and based on the notion that culture is a core asset. We recognize that some CEOs may consider heightened involvement from directors in this area to be a form of board overreach, but we fundamentally disagree with that view. Some dynamic tension is acceptable, but if it can’t be resolved, then the company may have the wrong CEO.

PART TWO outlines specifc actions for directors regarding

• board oversight responsibilities;

• assessing boardroom culture;

• discussions with management about strategy, risk, and performance;

• CEO selection and evaluation;

• reward and recognition systems; and

• communications with shareholders and stakeholders.

PART THREE summarizes the Commission’s recommendations, and the Toolkit provides resources to help boards implement the recommendations.

Our intention in producing this report is to issue a call to action for directors to elevate the dialogue on culture (including the culture of the organization overall, and the culture within the board itself) as a way to drive sustained success and long-term value creation—objectives that are relevant to for-proft and nonproft organizations alike. Stories about failures and scandals attributable to dysfunctional organizational cultures appear in the headlines with unfortunate frequency, and these may make it easier for business leaders to lose sight of the potential for healthy culture to serves as a competitive diferentiator. Discussions about identifying potential weaknesses or minimizing risks related to corporate culture are of course essential, but alone they are not sufcient. And even companies with healthy cultures can’t aford to rest on their laurels—as the report notes, the operating environment is volatile and the stakes are high, so a continuous-improvement mind-set is required.

We and our fellow Commissioners believe that taking a proactive, forward-leaning stance on culture oversight, as outlined in this report’s recommendations, will not be additive to boards’ workloads. In fact, we believe boards that consider culture oversight as separate from directors’ existing responsibilities—or, worse, as “another box to check”—are exhibiting symptoms of potentially serious problems. Performed properly, culture oversight not only can be embedded into directors’ existing activities, but also can signifcantly improve the quality and impact of the board’s work overall—a goal that we know all directors share.

Nicholas Donofrio
Helene Gayle