The Board of Directors bears responsibility for oversight and control of the management of an enterprise. Their duty to monitor management actions and performance includes assessing the risks that the organization faces. Unfortunately, many boards have been caught by surprise by recent scandals and crises at firms such as Wells Fargo, General Motors, Volkswagen, Uber, Toshiba, and Theranos. Key risks remained hidden for lengthy periods of time. When the boards finally became aware of these issues, the damage had largely already been done... to company reputation, share price, etc. In many of these cases, investigators and analysts have blamed the corporate culture. The organizational cultures encouraged inappropriate behavior and discouraged people from sharing bad news. The boards in many of these situations did not understand the dysfunctional elements of the corporate cultures.
The Wall Street Journal reports today that some boards have decided to become more involved in understanding and evaluating organizational culture. Joann Lublin reports:
Corporate culture counts. But bad culture can damage a company’s reputation, results and recruitment. That’s why boards are starting to scrutinize the cultures of companies they serve. Directors at Whirlpool Corp. , for example, make sure its workers feel comfortable divulging bad news by tracking internal surveys. Companies such as Citigroup Inc. and CACI International Inc. have formed board culture committees.
Culture describes the way values and actions create a unique business environment. One recent study found that a positive corporate culture improves company profits. Yet “few boards currently have an explicit focus or formalized approach to cultural oversight,’’ said Helene Gayle, a director ofCoca-Cola Co. and Colgate-Palmolive Co. A blue-ribbon panel co-led by Ms. Gayle wants boards to monitor corporate culture as vigilantly as they do risks. The 34-member commission, organized by the National Association of Corporate Directors, released an extensive report on Wednesday that suggests how boards could bolster their oversight of company culture.
Can board oversight and intervention help? Absolutely. As Lublin reports, Whirlpool went through a scandal in 2010, and the company instituted changes at the behest of the board. They focused on encouraging workers to share bad news. The result? According to the Wall Street Journal, "Worker survey scores about their willingness to speak up rose 10 percentage points between 2010 and 2015."
I would add one important recommendation to this push on the part of several boards. Before engaging in culture audits and other monitoring mechanisms, these boards also need to look in the mirror. They must evaluate the board's culture. Are people able to speak freely in board meetings? Do directors have the appropriate incentives? Does risk management get sufficient attention on the agenda at meetings? The boards cannot be effective at evaluating and enhancing the organization's culture if they do not practice what they preach.