Culture as a Corporate Asset

In my view, corporate governance is key to both improving the performance of my portfolio and changing the world. I am trying to move some of the levers through proxy proposals, working with other shareholders, writing, consulting, etc. See The Individual’s Role in Driving Corporate Governance in The Handbook of Board Governance.

At the event, I took notes on what most interested me. I could have misinterpreted, so read at your own risk. This program, like most NACD programs, was subject to Chatham House Rules, so I left out those juicy references to individuals and companies. I will say that Harvey Weinstein’s name came up more than once. One member of the audience asked, where was the board? I don’t recall the response but apparently the board was complicit. According to press reports, his employment contract said that if Weinstein “treated someone improperly in violation of the company’s Code of Conduct,” he must reimburse the company for settlements or judgments. No further action would be taken.

As Nick Donofrio noted, culture is the shared assumptions, values, beliefs that create the character of the company and determines what the organization considers as meaningful results. Boards should hold their CEOs responsible for helping you understand the culture. Yet, the Culture as a Corporate Asset commission found that over 50% boards weren’t even looking at culture.

Take the measure of your CEO as the cultural leader. Use existing committees to explore and extend the board’s involvement in assessing the corporate culture, rather than setting up a special committee. Red flags from internal audits, as reported to the audit committee can be especially important. However, a “transformation committee” can also be effective. Several at the session embraced “management by walking around” as a way to get to know and assess culture as a corporate asset. It can also be useful to reach out to largest shareholders re communications through management.

View culture from an enterprise risk mentality. What are you company’s leading indicators and why? What changed? Startup companies in Northern California often have a lot of foreign nationals. How does that impact the culture? Does everyone understand the Foreign Corrupt Practices Act?

Deal committee of startup should assess who and how the company is going to hire going forward. Does the CEO have clue as to how to build the culture? What is their cultural fluency? How will employees get hired and promoted? Are these random acts or is there a plan to build a culture with specific features?  If the CEO is clueless, it is time to act.

Sustainability is not just a term that applies to the environment but should also be applied to corporate culture. Culture as a corporate asset has to be sustainable. Shareholder and stakeholder mindsets should blend. Does your company have an employee engagement index? Strategy – board as a strategic cultural asset. Scan what people say to the whisteblowers hotline and in exit interviews.

Employee roundtables and “jams” of various kinds were also discussed. These can involve a few people around a table or an entire company around the company’s intranet.  Create a focus, like a “values jam.” One example took 48 hours online. Tens of thousands of comments were captured and threaded into three buckets. Those were refined and sent back for 24 hours to finally arrive at 3 values at the core of the company. There were also innovation jams with customers.

Codes of business conduct were also discussed. I see the Culture as a Corporate Asset report (pdf) includes a sample director code of conduct from Sidley Austin LLP in section four of the report. Another topic discussed was the possible stigma involved in leaving a board before term your is up? Few step off when they don’t have to but perhaps that would be more common if directors did better individual assessments, not just by fellow directors but through self-examination. If I have already been on the board for twenty years, am I really going to add more value than a new director?

You are smart enough to build your own lists and surveys, we were told, but the Culture as a Corporate Asset report includes a multitude of sample assessment devices in a handy “Toolkit.” CEO had one culture; company had another? Discussed. Tone at the top, middle, bottom. Trust but verify. Audit, compensation, governance committee, each has role in assessing culture and its effectiveness as a corporate asset.

Tie corporate culture to corporate strategy. The board weaves it all together.

Culture as a Corporate Asset: The Report

The National Association of Corporate Directors (NACD), the authority on boardroom practices representing more than 17,000 board members, released The Report of the NACD Blue Ribbon Commission on Culture as a Corporate Asset, which calls on boards of directors to take a proactive approach to culture oversight as a means to driving sustained success and long-term value creation.

Organizations with strong, positive cultures have been shown to outperform their peers on everything from sales, customer satisfaction, safety, and quality to profitability and productivity. Conversely, the absence of a healthy culture can create or exacerbate significant risks. Yet in a recent NACD survey, less than half of directors reported that their boards assess the alignment between the company’s purpose and values and its strategy, and only 50 percent say they understand the “buzz at the bottom”—the collective behaviors, norms, and values at the front lines of their organizations, among their rank-and-file employees.

The 2017 NACD Blue Ribbon Commission—a group of more than 30 experienced directors and leading governance professionals—aims to change these statistics by calling on boards of all sizes and sectors to apply the same leading-edge risk-oversight practices to culture oversight as they would to the management of any other risk they oversee. Said Helene Gayle, Commission co-chair, CEO of the McKinsey Social Initiative, and director of The Coca-Cola Co. and Colgate-Palmolive:

Too often, culture is mistakenly dismissed as a soft issue. The fact is, it’s concrete and has real business impact, so as directors we need to bring more clarity and rigor to our discussions with management about culture. It’s time to move 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 competitive asset.

The 2017 NACD Blue Ribbon Commission report contains recommendations and specific action steps board members can take to elevate culture-oversight practices in key areas including CEO selection and evaluation; executive compensation design; discussions with management about strategy, risk, and performance; and assessing culture inside the boardroom. According to said Nicholas Donofrio, Commission co-chair, and director of AMD, BNY Mellon, Delphi Automotive PLC, NACD, and the MITRE Corp.:

Boards and management teams are results-oriented, but we can’t forget that results are driven by individuals’ actions and behaviors. Boards need to hold management accountable for the way in which performance outcomes are achieved, because it’s as important as whether or not the goals are met. This report raises the bar for directors in this critical area of the board’s responsibility.

Said NACD CEO Peter Gleason:

Having a healthy, resilient culture is essential if companies want to be able to adapt to new business dynamics and competitive challenges. Simply put, healthy cultures pay off. NACD’s Blue Ribbon Commission Reports have set the standard for effective boardroom practice for two decades. Our goal this year is to offer boards practical guidance and tools to help their organizations harness the power of culture as a competitive differentiator.

The report’s toolkit includes materials all boards can use to benchmark their current practices and implement improvements, including the following:

• Boardroom discussion guides with specific questions on a range of culture-related topics
• Guidelines for developing board-level culture metrics and reporting
• “Red flags” that indicate potential breakdowns in culture
• Templates for board-member guiding principles and director codes of conduct
• Examples of culture survey questions and board disclosures

The 2017 Report of the NACD Blue Ribbon Commission on Culture as a Corporate Asset and the comprehensive toolkit (available exclusively to NACD members) can be accessed at nacdonline.org/culture.

The report’s Commissioners comprise distinguished corporate directors and governance experts. In aggregate, they serve on the boards of 48 publicly traded and 28 privately held companies, and on 25 nonprofit-organization boards. The Commission includes 11 current and former CEOs.

The 2017 NACD Blue Ribbon Commissioners
(with Primary Affiliations and Board Seats)

Co-Chairs:

• Nicholas Donofrio*, AMD Inc., BNY Mellon, Delphi Automotive PLC, Liberty Mutual Group, The MITRE Corp.
• Helene Gayle, McKinsey Social Initiative, The Coca-Cola Co., The Colgate-Palmolive Co.

Commissioners: 

• Joan Amble, Booz Allen Hamilton Inc., Sirius XM Holdings Inc., Zurich Insurance Group
• Shellye Archambeau, MetricStream Inc., Nordstrom Inc., Verizon Communications Inc.
• Daryl Brewster, CECP: The CEO Force for Good, FreshPet, Manna Pro Products LLC
• Stephen Brown, KPMG Board Leadership Center
• Phyllis Campbell, JPMorgan Chase & Co., Alaska Air Group Inc., Toyota North America Advisory Board
• Rodney Chase, Hess Corp., Tesoro Corp.
• Sue Cole*, SAGE Leadership & Strategy, Biscuitville Inc., Diversified Trust Company, Martin Marietta Materials Inc.
• Theodore Dysart, Heidrick & Struggles
• Charles Elson, University of Delaware Weinberg Center for Corporate Governance, Bob Evans Farms Inc., HealthSouth Corp.
• Brenda Gaines*, Southern Company Gas, Tenet Healthcare Corp., Smithsonian Institution National Board
• Peter Gleason*, NACD, Nura Health Inc.
• Holly Gregory, Global Corporate Governance & Executive Compensation Practice, Sidley Austin LLP
• Janice Hamby, National Defense University College of Information and Cyberspace, American Armed Forces Mutual Aid Association, Cubic Corp.
• Leslie Heisz, Edwards Lifesciences Corp., Public Storage, Kaiser Permanente
• Robert Herz, Fannie Mae, Morgan Stanley, Paxos, Workiva, Sustainability Accounting Standards Board Foundation
• Dan Hesse, Akamai Technologies Inc., PNC Financial Services Group Inc.
• Karen Horn*, Simon Property Group, National Bureau of Economic Research, US-Russia Foundation for Economic Development
• Marie Oh Huber, eBay Inc., James Campbell Company LLC, Silicon Valley Community Foundation
• Michael Marino, Heidrick & Struggles, Board of Governors of the Curry School of Education at the University of Virginia
• Georgia Nelson, Ball Corp., Cummins Inc., CH2M, TransAlta Corp., Sims Metal Management
• Karen Peetz, McKinsey and Co. (senior advisor), Global Lyme Alliance, Johns Hopkins University Board of Trustees, Wells Fargo & Co.
• Myrtle Potter, Axsome Therapeutics Inc., InsMed Inc., Liberty Mutual Group, Proteus Digital Health Inc., RiteAid Corp., University of Chicago Board of Trustees
• Adalio Sanchez, ACI Worldwide Inc., Quantum Corp.
• Linda Sanford, Consolidated Edison Inc., Pitney Bowes Inc., RELX PLC
• Gregory Smith, Lear Corp., Penske Corp.
• Elizabeth St-Onge, Oliver Wyman
• Lauren States, Clean Harbors Inc., Webster Financial Corp.
• Robert Stevens, Monsanto Co., US Steel Corp.
• David Swinford, Pearl Meyer
• John Visentin, Novitex Enterprise Solutions Inc., Presidio Inc.
• Dennis Whalen, KPMG Board Leadership Center
• Dona Young, AEGON NV, Foot Locker Inc., Save the Children
• Robyn Bew (ex officio), NACD

*NACD Board member

The titles and affiliations of commissioners in this list are selective and do not include all directorships. Commissioners participate as a service to the governance community and not as representatives of any organization.

About NACD

The National Association of Corporate Directors (NACD) empowers more than 17,000 directors to lead with confidence in the boardroom. As the recognized authority on leading boardroom practices, NACD helps boards strengthen investor trust and public confidence by ensuring that today’s directors are well prepared for tomorrow’s challenges. World-class boards join NACD to elevate performance, gain foresight, and instill confidence. Fostering collaboration among directors, investors, and corporate governance stakeholders, NACD has been setting the standard for responsible board leadership for 40 years. NACD Northern California alone has 1,000 members and is growing. I hope to see you at upcoming events.

Culture as a Corporate Asset: Also of Interest

• Total Societal Impact Is the Key To Improving Total Shareholder Return
• Why are Corporate Boards Scared to Company Culture? Boardroom INSIDER
• Corporate Culture: Evidence from the Field
• European survey: boards struggle with culture