Ethos and purpose – what we stand for and what we’re here for – is at the heart of belonging.
And yes: Boards of Directors are responsible for leading this, should be held directly accountable, and should be required to report on culture alongside performance figures.
In our model of belonging, Ethos is at the centre, and around it are the eight parameters that define culture. Of these, particularly important to uphold integrity, are: Leadership, Accountability, and Appreciation.
The way leaders lead – what they do, how they react, their daily habits and language – sets the tone for everybody else. It says what is acceptable or not.
Why is culture so powerful?
Because it’s intuitive. It affects our decisions at an unconscious level.
We are a social species. We may well go along with the tribe, doing what seems ‘normal’ rather than acting on our own conscience.
The Board of Directors, as leaders of a business tribe, acts as an important part of the conscience of the organisation. But they are not the only one: the whole tribe shares the responsibility to do the right thing.
It is a collective accountability. It is not ‘They‘ who are accountable (whether ‘They‘ are Directors, legal team or front line staff, something other than ‘Me‘): it’s ‘Us’. All of us.
Culture can harm ethics as well as help
When a company breaches ethics, the question is not so much “What was wrong with that person that they did this?” as “What was wrong with that culture, that it enabled this? And what were leaders doing to demonstrate that this was not acceptable behaviour?”
Dame Minouche Shafik, Deputy Governor of the Bank of England, speaking after the Libor scandal, called out the unethical state of banking culture:
“It is not just a few bad apples, it is actually the barrel in which they are operating, and we need to fix the barrel as well as track down the bad apples.”
She stressed that the whole financial industry shared a responsibility to put this right.
While the responsibility is shared, the ultimate accountability is with Boards of Directors. Yet in all the swathe of ethical scandals, of misadvice (or lying) to customers, of over-selling, of abusing international currency deals for the sake of personal gain, how little institutional shift we have seen in Board level accountability. We’ve seen regulatory fines and heard fine words “we are very sorry and must learn from this” and “We must change our culture”. But do we trust that an ethically sound culture has become integral to these corporations?
Effective Board leadership ensures a strong culture and values. Our new Prime Minister pointed to this as she set out her own agenda for leadership: she wants to restore trust that Directors are accountable for how they make money not just how much they make.
A senior legal counsel in a global engineering company, told me during an extensive ethics programme
“It’s my job to keep the CEO out of an orange jumpsuit”.
Isn’t that the job of the whole Board? And surely the Board should be motivated beyond protecting from criminal liability, by the positive effect of culture and values on commercial success?
Financial Reporting Council and Institute of Business Ethics Research
How refreshing, then, to see the considered review from the Financial Reporting Council (FRC) after almost a year of consultation with its Culture Coalition (across companies, bodies like the Institute of Business Ethics, and specialists) ‘Corporate culture and the role of boards’
– Recognise the value of culture
– Be open and accountable
– Demonstrate leadership
– Embed and integrate your values
– Align your values and incentives
– Assess, measure and engage
– Exercise stewardship
The case studies in the report stand out as great examples of culture enabling commercial success, particularly the work undertaken by Old Mutual on underpinning their strategy with values and culture, by Lear Corporation on leadership development and cultural change, and by GlaxoSmithKline on providing assurances on their company values.
We’ve seen from experience how powerful these practices are.
It all comes back to how we make decisions. Getting everybody in the tribe ‘doing the right thing’ requires an understanding of what that means and, crucially, conscious of WHY that matters. Then we all know how to put that into practice in daily business. It’s about the context for the whole business as well as relevance for your work, and your team’s.
We’re experienced in running sessions with Boards to find the boundaries, challenge ethical rigour, examine how strategy, values and reputation intertwine and where they come unstuck.
Ethical Risks and Recommendations
Here’s a taster: four risks and recommendations for how Boards of Directors can overcome them.
Risk: leaders undermine integrity by behaving out of sync with ethos and values.
How to overcome this?
Stand up for your values, consistently. (Easier said than done)
Risk: Skirting the edges of the law, with ‘what you can away with’. This quickly becomes the boundary of what’s acceptable.
How to overcome this?
Establish boundaries, educate Board members and all employees through real scenarios, practice decision-making, so that integrity is a well-used muscle.
Risk: Tolerating bad behaviour, not challenging it, leaving habits to ingrain deep in culture
As we heard in one client, dealing with a serious complaint of discrimination and bullying “Oh, I know it’s not right, but that’s just Bob, isn’t it”
How to overcome this:
Encourage managers routinely to challenge bad behaviour directly and openly, supported with (sensitive and confidential) feedback to the individual involved about the consequences and why this matters.Keep an open log of ethical near-misses, similar to health and safety.
Risk: Not appreciating when people do uphold values, taking it for granted, especially if their behaviour is in the face of a prevailing culture of bad habits.
How to overcome this?
Catch people in rather than out. Appreciate the care taken, or tough decisions made. A quiet “thank-you” goes a long way.
Our point? Structural integrity takes effort and requires the Board to confront knotty issues.
These two reports are timely. Boards of Directors need to be in shape and ready to respond to the FRC recommendations and IBE good practice. Business needs to be ethically robust and resilient in order to thrive commercially.
Without conscious leadership on values it’s easy for Directors to allow a company to sleepwalk into bad practice.
That’s why values need to be structural and institutionalised, part of business as usual. That’s why Boards of Directors are accountable for how they lead their tribe and set the precedent for ‘doing the right thing’.
If you’re still asking “Why bother with culture?”, then let’s give the last word to Sir Winfried Bischoff, Chairman of the Financial Reporting Council. He says in the foreword to ‘Corporate culture and the role of boards’:
“A healthy culture both protects and generates value. It is therefore important to have a continuous focus on culture, rather than wait for a crisis.”
Make it so, Boards of Directors, make it so.
If you would like to build a culture of ethics give us a call, we’re happy to chat this through. If you just want to say ‘integrity’, but not mean it, then don’t call us.