Richard Chambers is the CEO of Richard F. Chambers & Associates and also serves as Senior Internal Audit Advisor at AuditBoard.
A healthy culture is vital to the success of every organization. Most board members and C-suite leaders understand this. In fact, according to PwC’s 2021 Global Culture Survey of 3,200 leader and employees, 67% of respondents believe culture is more important to performance than strategy or operating model.
An unhealthy culture can derail everything you’re trying to accomplish for your organization, which makes a healthy culture vital to your success as a board member or C-suite leader. Fortunately, boards and management are critical influences in shaping, modeling, communicating and enforcing the values of their organizational cultures.
Yet, many boards appear to be missing in action from the culture conversation. Conversely, many C-suite leaders fail to recognize their outsized influence on culture or their responsibilities to proactively manage and monitor culture health.
A troubled culture is often a root cause of self-inflicted organizational failures. From modern-day cautionary tales to now-classic corporate tragedies, it’s not hard to see how devastating an impact a broken organizational culture can have. And, yet, management and the board’s relationship relative to culture is often ill-defined or non-existent. Too often, they’re not regularly communicating about culture’s crucial importance or actively recognizing the roles they play.
Understanding The Problem
Again, most business leaders and board members know culture is important. But that knowledge doesn’t always translate to meaningful action to measure or manage culture. Consider, for example, that 92% of executives believe improving corporate culture would increase their company’s value, but 84% believe their cultures need improving, according to Corporate Culture: Evidence from the Field, a 2022 study conducted by researchers from Duke University, Columbia University and University of California, Berkeley. And yet, a 2021 EY CEO Imperative Study found that “culture and purpose” is ranked as the lowest CEO priority area for changes over the next three years.
The EY Global Board Risk Survey 2021 found that boards may be overlooking culture’s impact on business success. While many board members do invest time in thinking about culture, 27% reported they “never or rarely discuss the culture needed to support their organization’s strategy.” Further, 22% expected that “misaligned culture will more than moderately impact their business in the next 12 months.”
An internal audit perspective can illuminate how these board and management attitudes are playing out. Cultivating a Healthy Culture, a 2022 report by my company and the Chartered Institute of Internal Auditors, found that while roughly 71% of U.K. and Ireland internal audit leaders reported that their boards had established a desired culture for their organizations, about 52% hadn’t been asked to assess or report on it. Our 2023 Organizational Culture and Ethics Report also found that 37% of organizations conduct no formal culture assessments, and nearly 1 in 5 assess no aspects of culture. Further, when they do, most rely on narrowly focused, piecemeal approaches. Only 17% issue formal, stand-alone reports on overall culture.
Understanding Your Impact
Management and the board are both pivotal influences in setting and maintaining organizational culture. But they—and their organizations—often fail to recognize the role they play.
As my company’s 2023 culture and ethics report found, management is often seen as having an overwhelming influence on culture, and boards as having very little. When internal audit leaders were asked which entities most influence culture in their organizations, they cited the CEO and/or founders (76%), line managers (65%) and other members of the C-suite (60%). The board was ranked fourth (27%). In addition, when asked about the top five culture risk indicators, a resounding 68% identified “poor tone at the top/executives don’t live values.”
Both management and the board must recognize how they’re seen, including whether they’re modeling a healthy culture through their words, behaviors, priorities, expectations, communications, leadership styles and strategies.
To help you assess, it’s critical to access perspectives across your organization. Include targeted questions in a culture assessment questionnaire sent to a broad employee population. For more in-depth insight, hold one-on-one interviews and small roundtable discussions incorporating stakeholders at different levels—and be accountable for acting on the insights you uncover.
More often than not, boards also need to step up and play more of a role, while management needs to take greater ownership and fully understand the magnitude of their impact.
Board members, make sure compensation and reward structures, succession planning, and overall talent strategy support and reinforce the desired culture. Also, put protocols in place to ensure you’re regularly receiving information about—and independent assurance on—the health of the culture. If your board lacks expertise in understanding and assessing culture, talk to other boards about what they’re doing, and study culture drivers, risks and risk indicators.
Management, be fearless in seeking the truth about your culture’s health. Instead of waiting for HR, ethics/compliance, risk or internal audits to suggest assessment efforts, step up with ideas recommended by culture experts (e.g., audits of exit interviews, employee/customer attrition data, ethics/compliance hotline calls). Work with your risk and assurance teams to identify and monitor key culture metrics and risk indicators. Create a road map for transforming your culture to better align with your organization’s values, purpose and goals.
Most importantly, boards and management should focus on building a synergistic partnership focused on assessing and managing culture. What does your organization think about your role in influencing and overseeing culture? Have you formally defined and communicated your expectations and vision and defined a purpose greater than profits? Are you making culture and tone at the top regular agenda items? Are you leveraging all possible resources to help you understand, assess and monitor your culture’s health (e.g., risk, ethics/compliance, HR)? These are conversations worth prioritizing.
It’s your choice. Culture can be your most powerful ally or your most formidable opponent. It’s time for management and the board to move past dysfunction to deliberate, proactive partnership, forging the culture your organization needs to succeed.
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