Closely monitor the tone at the top and culture throughout the organization with a sharp focus on behaviors (not just results) and yellow flags (e.g. management control overrides or favorable supplier/procurement terms). Is senior management sensitive to human resource issues, particularly the pressures on employees (both in the office and at home), employee health, safety and well-being, productivity, engagement and morale and normalizing work-from-home arrangements? Does the company make it safe for people to do the right thing? Is leadership equipped with the skills required to manage teams and keep them connected while working remotely or in a hybrid setting, including paying particular attention to an increased fraud risk?
Headlines of harassment, price gouging, aggressive sales practices, misuse of COVID-related relief and other wrongdoing continue to put corporate culture, leadership, and incentives front and center. With the near-instantaneous speed of social media, corporate crises (particularly when self-inflicted) are hitting corporate reputations fast and hard, with investors, regulators and others increasingly asking, “Where was the board?”
Given the critical role that corporate culture plays in driving a company’s performance and reputation, we see boards taking a more proactive approach to understanding, shaping and assessing corporate culture. Have a laser focus on the tone set by senior management and zero tolerance for conduct that is inconsistent with the company’s values and ethical standards, including any “code of silence” around such conduct. Be sensitive to early warning signs and verify that the company has robust whistle-blower and other reporting mechanisms in place and that employees are not afraid to use them. Closely monitor the reporting systems to understand how claims are addressed and resolved and identify trends. If the company has a sizeable workforce and few or no claims, the board should dig deeper.
Understand the company’s actual culture (the unwritten rules versus those values employees are supposed to adhere to); use all the tools available – surveys, internal audit, hotlines, social media, virtual town halls, as well as walking the floors, and visiting facilities – to monitor the culture and see it in action. Recognize that the tone at the top is easier to gauge than the mood in the middle and the buzz at the bottom. How does the board gain visibility in the middle and bottom levels of the organization? Make sure that incentive structures align with culture and strategy and encourage the right behaviors. Take a hard look at the board’s own culture for signs of groupthink or discussions that lack independence or contrarian voices. Focus not only on results, but the behaviors driving results.
There’s an ongoing trend since the start of the pandemic whereby a lot of people are (considering) leaving the company to change jobs. Consider checking the current turnover rate and digging into the underlying reasons, – e.g. how the pandemic has been handled internally, the company’s strategy going forwards with regards to hybrid working, new expectations or values, etc. – to see if this is something that is impacting your company.