November 2022
Despite widespread recognition that a strong, healthy and positive culture can lead to organisational resilience and superior performance, many Boards struggle with meeting their important responsibility of assessing and monitoring culture. In this article, we explore how boards can be effective in continuously reviewing culture in an integrated approach alongside its other responsibilities – looking for evidence, supporting or challenging information provided by management; and how individual directors can contribute to the debate based on their observations, including from their ongoing engagement with stakeholders.
In the past, Employee Engagement Surveys were typically accepted as the main or only source of information providing a gauge of the temperature of an organisation’s culture. However, in its report published in December 2021, the FRC reported there were signs that an increasing number of companies are introducing culture dashboards (which include a range of consistent metrics) in their board packs and moving towards a more sophisticated and integrated approach to reviewing corporate culture. At BE-GS, we applaud this best practice development, but believe it is not sufficient for directors to simply rely on one or two sources. We suggest there are many ways, both directly and incidental to another purpose, which allow boards and individual directors to be on the pulse in this critical area.
From our long experience of knowing what works well within the boardroom and for directors individually, we have provided a list of some very practical ways in which directors can properly gauge the cultural temperature within their organisations. NEDs, in particular, should be asking themselves whether these matters are being adequately addressed when the board chair and committee chairs consult with management on their respective forward agenda for the coming year.
Within the board:
- is there regular feedback in respect of employee engagement (both formal and informal)?
- are employee turnover, absenteeism and dismissal rates explainable?
- does the board/individual NEDs make site visits (including unchaperoned visits) and is there opportunity for interaction with management and employees to gain informal feedback insights?;
- does the board receive regular feedback from other stakeholders such as customers, suppliers and regulators?
- are customer satisfaction/complaints monitored and reported?
- are supplier payment terms reasonable and adhered to?
- are health and safety issues taken seriously at all levels with adequate training and reporting of all incidents?
- does the board observe management behaviour in action?
- is there broad exposure of senior management to the board and xommittees and do they have freedom to make presentations and answer questions without undue interjection from dominant executive directors?
Within the audit committee (and risk committee if separate):
- is the application of accounting policies acceptable or aggressive?
- are accounting judgements reasonable and consistent?
- are there large levels of unadjusted differences and/or specially disclosed items?
- is the relationship between the external auditors and management robust but healthy
- how does management react to auditor challenge?
- is the external auditor able to be candid when meeting with the audit committee in the absence of management (likewise with the internal auditor and risk officer)?
- does management fully resolve/adopt the agreed recommendations within internal audit reports and the external auditor’s post-audit management letter within the agreed timescales?
- does management accept that it is their responsibility (with the support of the Risk function) to identify and manage risk in line with approved risk policies and appetite, and is there a mature risk culture whereby management identify, analyse and report emerging risks giving early warning where possible?
- is regular assurance provided that all formal policies are fully embedded, regular training given and breaches and remedies reported swiftly?
- is the whistleblowing helpline regularly communicated to all employees and are issues raised reported to the committee along with status reports until resolved/closed?
Within the remuneration committee:
- is there an all-employee share plan with a healthy take-up amongst employees at all levels and consistent across the organisation (not just pockets at the centre)?
- do management incentives take into account not just the ‘what’ but also the ‘how’?;
- is there a behavioural override and malus and clawback?
- do the measures and targets drive unacceptable risk?
- is there management pressure for adjustments or accounting practices to improve outcomes?
- is the HR director able to be candid when meeting with the remuneration committee in the absence of management?
- does management understand and accept investor and stakeholder concerns related to pay?
Within the nomination committee:
- is sufficient time dedicated to succession planning at board, executive and management levels with emergency, medium- and longer-term candidates?
- are there development and mentoring programmes in place?
- do the NEDs have a programme of engagement with talent and those in the succession pipeline in the absence of management?what is the feedback takeaway when meeting with employees?
- does the vommittee monitor diversity ratios and the diversity pipeline and is progress being made in line with agreed targets?
- does the company have comprehensive induction and integration programmes for new recruits at all levels – the induction programme for NEDs may provide evidence of quality?
At BE-GS, our extensive in the Boardroom experience can be applied to help boards to adopt a practical and integrated approach to assessing and monitoring culture, either as part of an independent Board Effectiveness Review or as a discrete exercise. Do please get in touch (at www.be-gs.com) if you would like to know more about our approach to Board Effectiveness Reviews or how Boards should better assess and monitor organisational culture.
About Us
Mark Peters
With over 25 years’ in the Boardroom experience at both large and medium-sized listed companies, Mark has advised Chairs, Executive Directors, Board members and senior management on Board effectiveness specifically and on corporate governance, stock exchange and company law matters, more generally. His experience spans both UK and non-UK listed companies, working closely with Boards at times of significant structural change or crisis, including IPOs, finance-raisings, acquisitions, sales, and hostile takeovers. Mark has always regarded a key facet of his role as ensuring Boards are provided with the tools they need to operate both effectively and efficiently. Over the years, he has conducted many internal and external Board Effectiveness Reviews. Further information concerning Mark and his career can be found at www.be-gs.com.
Derek Woodward
Derek has more than 25 years’ FTSE100/250 in the Boardroom experience and has contributed significantly to improving Board effectiveness throughout his successful career as a company secretary. Working at senior level in international companies, including (from most recent) Worldpay, Thomas Cook, Zurich, B.A.T Industries and Eagle Star, Derek has a solid understanding of the challenges faced by Boards and their Committees, and the expectations of investors and other stakeholders. Throughout his career Derek has been the trusted advisor to Chairs, other individual Directors and has successfully managed strategic change including mergers, demergers, IPOs, business transformations and group-wide cultural change, as well as dealing with “business as usual” but nevertheless fundamentally important, activities. Further information concerning Derek and his career can be found at www.be-gs.com.
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