Boards must manage the corporate culture challenge

We too often see examples of governance and cultural failings at corporates – think of the Steinhoff (JSE:SNH) implosion.

Where does the responsibility lie for ensuring ethical corporate behaviour, and who is accountable when culture is found to be at fault?

Culture is not an easy concept to understand and measure. It’s the sum of values, knowledge, beliefs and experiences of individuals as part of a community of people.  It can and do change over a period of time.

A corporate environment brings added complexity: different cultures, staff turnover and changes at the executive level, particularly at CEO level.  Yet every company has a culture of its own.

The governance of companies depends crucially on culture.  Good corporate governance is an essential part of a healthy corporate culture.

The board should regularly discuss whether the corporate culture within the company is in line with the values that they espouse as individuals.  Are key performance drivers and values consistent? Are the company values and reward packages of the executives integrated? How effectively does the company’s culture relate to its business model?  How do they assess and measure the culture of the company?

What is important to understand is that the messages and comments of the board invariably set the groundwork. The actions by the board and the CEO must consistently match the corporate message if the corporate governance culture they stand for, is to take root in the company.

The relationship between the board chair and the CEO is of key importance toward inculcating the corporation’s culture across all levels of management and staff.  The employees of a company will quickly notice if a change of tone, or more seriously a false message in an otherwise sound corporate culture, occurs.

A change at CEO level invariably brings about a gradual change in aspects of the culture of the company – think of the recent change of CEO at MMI (JSE:MMI) and at Rebosis (JSE:REA) announced a few days ago.

Expect the corporate culture to gradually change to reflect the values of the new CEO.