In today’s rapidly evolving business landscape, boards must prioritise their organisations’ corporate culture. By adopting a learning mindset, directors can better guide their companies in balancing performance and people priorities.
Today’s directors face emerging challenges and opportunities in the evolving business environment. Shifting geopolitics, new digital trends, pressing demands for sustainable growth and a changing talent environment have led to new opportunities, risks and uncertainties. Stakeholders expect boards to conform, perform – and transform – their organisations.
Organisations increasingly have to provide their customers with new, technology-based offerings and services. Their critical assets now include intangibles like their brands and human capital.
Reports by Ocean Tomo and IP CloseUp show that over the past two decades, investments in intangible assets have overtaken those of tangible assets. More than 90 per cent of the value of the S&P 500 is made up of intangible assets.
As investors and activists have become more vocal, companies have to understand stakeholder capitalism and the importance of environmental, social and governance matters. At the same time, business has changed and leadership models are moving from authoritarian “command-and-control” models to more collaborative ways of working.
This shift underscores the need for directors to be adaptive and forward-thinking in their approach.
The role of directors is evolving
A company’s stakeholders are more than just their shareholders. As the boundaries of work have shifted, so have the tasks and roles of directors evolved. Leadership (and directorship) is increasingly challenging and complex, and leveraging diverse talent is critical.
Since the Covid-19 pandemic, many organisations and their leaders have operated in “survival” mode – with the emergence of an overworked and highly-stressed workforce in Singapore.
Likewise, we can see the impact of these pressures on organisations and leaders through high-profile incidents such as fraud and whistleblowing occurrences reported in the media. Unfortunately, some have resulted in court cases, litigation and directors being arrested.
While it may be easy to argue that these were the results of a few individual “bad apples” (which may be the case in some circumstances), incidents don’t always occur in a vacuum.
Directors should be curious as to the possible root cause of these issues, and consider if such behaviours are triggered by pressures arising from system level, group, individuals, or even a combination of factors.
Given the challenging external environment, it is even more critical that directors’ roles include more than ensuring that their organisations conform. In many cases, what differentiates one company from another are its people and corporate culture.
Therefore, to perform, directors must ensure that the organisation’s culture creates a supportive environment that encourages sustainable growth in line with its chosen purpose and values.
The board and corporate culture
Provision 1.1 of the Code of Corporate Governance 2018 notes that the board is responsible for setting an appropriate tone-from-the-top and desired organisational culture within the company.
So, what is corporate culture? Corporate culture generally refers to “the way things are done here”.
When considering culture, we often consider a company’s artefacts, such as logos and staff uniforms. However, Edgar Schein’s Organizational Culture and Leadership proposes a three-level model, which some describe as an iceberg, as most of its espoused values and basic assumptions are below the waterline. Schein defines the culture of a group as:
“…the accumulated shared learning of that group as it solves its problems of external adaptation and internal integration; which has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.”
In this definition, a system of beliefs, values and behavioural norms form unconscious ways of engagement within the organisation. Corporate culture in this sense could be described as a company’s unconscious code of conduct which influences how things are done in an organisation.
A robust corporate culture supports an organisation’s survival and preservation, allowing it to deal with external changes, volatility and pressures, manage internal boundaries, and align its people to meet its strategic objectives.
Studies have shown that high-performing organisations address performance and people issues. Not only do they achieve financial results and adapt well to changes, they also have an integrated and aligned management structure and continuously improve their core capabilities. Employees are treated as their primary asset.
In short, an organisation’s culture is the critical link between each company’s vision and its performance. Corporate culture influences a company’s values (mindsets, beliefs, norms, assumptions) and leadership practices, behaviours and competence. In turn, this impacts its performance (see box, “The Role of Culture”).
What can directors do?
1.Understand their impact on the corporate culture.
Directors should be mindful of their role in shaping and influencing the culture of their organisations. They can do this in many ways – through their thoughts, actions and behaviour.
Even though directors may only interact with a few leaders and spend little time with their organisations, how they interact verbally and nonverbally through their body language around the boardroom table and when interacting with management can directly impact employees.
As the external environment has evolved and boards have become more diverse, demographically and cognitively, navigating the boardroom has become more challenging.
Many directors and management have seen “dramas” between individuals in the boardroom. Or, sensed elephants in the room, where collective thoughts remain unsaid and unspoken.
When analysing boardroom dynamics, one may conclude that individuals have personal issues. Alternatively, they may feel that certain directors are narcissistic, and others don’t want to speak up. This, indeed, may be the case. Yet, these behaviours may also result from the board’s broader collective anxieties.
An inherent challenge of board work is that individual and group anxieties are always present. These anxieties can affect behaviours (such as groupthink or going off-task). Like all individuals, directors are the product of their past, which can negatively impact board dynamics.
Further, how the board interacts with senior management can significantly affect the senior management team and those one or two layers below them. In today’s competitive business environment, many senior managers may become more competitive in their interactions with one another and the board.
Accordingly, for boards to be effective, they must be psychologically-safe environments where every director feels able to be candid. In these boards, directors feel it is okay to take risks, express ideas and concerns, speak up, ask questions and admit mistakes without fear of negative consequences. The chair plays a vital role in shaping this environment.
2. Adopt a paradoxical mindset.
In today’s business world, paradoxes are everywhere. These persistent, interdependent contradictions are complex, adaptive, system-level issues with widespread uncertainty.
As individuals, we often face paradoxes, such as work-life balance. Similarly, organisations and corporate governance could also be paradoxical, as they involve elements of creativity, independence and control.
Over time, the importance of paradoxical mindsets, which recognises that decisions should not be either/or but both/and, has been recognised. Directors increasingly also need to adopt a paradoxical mindset.
As individuals, we are naturally hard-wired to crave certainty and clarity when making decisions in times of uncertainty. Our biases and blind spots can impact our decision-making. Further, loss aversion and status quo bias mean that we tend to avoid risks. Hierarchy and groupthink in organisations can make it hard for boards and management to manage complexity.
A paradoxical mindset means being open-minded to different perspectives and solutions. It includes thinking of contradictory ideas beyond apparent constraints, being willing to take risks, and experimenting with new ideas.
It can be developed by reframing questions, accepting tensions, developing comfort with discomfort, distancing oneself and searching for new possibilities.
3. Balance performance and people priorities.
Directors also have specific obligations regarding an organisation’s culture. SID’s Statement of Good Practice No. 17/2021 outlines good practices on how boards can fulfil their responsibilities to instil an ethical corporate culture and ensure that the company’s values, standards, policies and practices are consistent.
Some organisations find that an organisational culture audit is a valuable tool to surface gaps and create awareness of whether what the company says is actually what it does, supporting alignment on the organisation’s shared sense of identity and destiny. This can be done by assessing both performance dimensions and people dimensions.
Performance dimensions can include competitiveness, results orientation, change orientation, client and stakeholder orientation, responsibility and accountability, and entrepreneurship. On the people side, this could consist of respect for the individual, trust, teamwork, learning environment, fun and social responsibility.
A significant imbalance between the performance and the people element, if left unattended, could impact the ability of an organisation to meet its primary goals and lead to some level of dysfunctional dynamics. Further, there could be differences in views between the board and the perceptions of the rest of the company. It is, therefore, essential to surface these differences in perceptions and embrace both performance and people elements.
Embracing transformational learning
A former colleague and ex-banker used to describe bankers as akin to goldfish. According to him, one full circle of the goldfish bowl was a new experience for them, suggesting that bankers often forget what happened in the past.
We may laugh at this, but the same may be said about organisations and their directors. Every so often, we read about incidents in the media and wonder, haven’t we seen that in the past? Didn’t they learn from other case studies? Why are these incidents happening again? Does the culture need to change? And where were the directors?
Culture change is not easy and takes significant time. When faced with incidents, the easy solution for boards and management is often to quickly implement policies and set key performance indicators that “look good” on the surface.
Structures and frameworks are essential in organisations. However, boards should ask themselves the critical question: Have we understood the root cause of the issues, and will these initiatives prevent problems from happening again?
This is because culture change involves dealing with often unconscious underlying assumptions that we take for granted and don’t think about discussing, such as assumptions about an organisation’s goals and what it has learned from its successes and failures.
Change can be viewed as a transformational learning process. Unfortunately, any form of organisational learning can be anxiety-provoking, as it is an emotional process that can simultaneously create excitement, hope, resistance and fear in individuals. However, directors are essential in supporting and encouraging a learning environment.
Even though many more processes are technology-related, many issues, such as data and cyber security incidents, arise from human error. No policies and procedures will be 100 per cent perfect at preventing incidents that arise from human error and oversight. Hence, it is critical that organisations have a corporate culture that balances performance and people and is open to organisational learning and finding ways to learn from incidents.
This starts with enlightened boards, directors and senior management being individually and collectively aware of their influence on others in the organisation. Having succession plans to identify new directors who are curious and open to learning from both organisational successes and mistakes is an important start.
Full article can be found here: The Importance of Corporate Culture
This article was first published in the Q4 2024 issue of the SID Directors Bulletin published by the Singapore Institute of Directors.