Making integrity active: The FRC and IBE set new standards for business

A few years ago a friend sent me a photo about Integrity that made me laugh out loud. A big financial institution had responded to the latest ethical scandal (PPI mis-selling? FOREX? Take your pick) by… yes, you’ve guessed it, they relaunched their values. And their values included everybody’s favourite: Integrity. There is was etched in the glass windows that fronted onto a public space in the City, and writ very large around the company’s reception. My friend stood in a public space to take a photo of ‘Integrity’ publicly in the window… And a security guard charged over with his hand up shouting “You can’t take a picture of that!”

So the photo is the security guard trying to mask ‘Integrity’ from view. What a symbol of the failings of leaders to make integrity more than an easy word to bandy around the Boardroom or corporate report.

It is timely reminder of just how hard it has been to make ‘Integrity’ active, and sometimes the lack of leaders’ responsibility for corporate culture.

Now two reports are published today on Corporate culture and the role of boards.

The Financial Reporting Council (FRC) report ‘Corporate culture and the role of boards’and a related report from the Institute of Business Ethics (IBE) Stakeholder engagement values, business culture & society’.

The FRC report is the culmination of nearly a year of consultation on the issues involved. The IBE one is from one of the FRC workstreams – the Culture Coalition Project – which was led by the IBE.

In the foreword to ‘Corporate culture and the role of boards’, Sir Winfried Bischoff, Chairman of the Financial Reporting Council, says

“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.”

Amen.

He goes on to stress that there is no conflict or contradiction here: purpose and profit go hand in hand.

“The strategy to achieve a company’s purpose should reflect the values and culture of the company and should not be developed in isolation. Boards should oversee both.”

The three main themes are:

  • Connect purpose and strategy to culture
  • Align values and incentives
  • Assess and measure

Encouragingly, the FRC report includes inspiring case studies of best practice from companies like Old Mutual, Lear Group, L’Oréal, and TalkTalk.

The IBE includes BAE Systems, Marks and Spencer and Unilever.

Both reports shows the depth of consideration and breadth of consultation. The result is a straightforward and rich assessment of a complex issue.

These two reports are a great reinforcement of Boards of Directors’ responsibility for culture, values and ethics. They offer a sound basis for moving businesses to a more responsible leadership of culture.

But culture is not easy to pin down. There are some good models around, but there’s no fixed ruler or set of scales for culture: it would be a false search.

The FRC report agrees

“The Chairman felt strongly that there is no ‘one-size-fits-all’ when it comes to culture. What matters is that the culture is appropriate for the context in which the company is operating and that there is internal alignment between company purpose, values, strategy and business models.” 

We’ve developed a framework that does exactly this. We have identified the parameters of belonging, giving the characteristics of cultures within a business. We find it much more useful for a business to understand their culture relative to their strategy, and their work, than to have a fixed benchmark.

The IBE report includes plenty of practical guidance. It stresses the importance of communicating through a crisis, and also linking with both investors and customers.

We applaud this principle, extending the sense of belonging inside the organisation to include those that it serves.

The IBE report says

“Companies must engage fully with the society which gives them their licence to operate, but their first task is to work out what their values are so they have something to communicate”

But beware the gap between what a company says it values and what it actually does.

Culture affects business success in many ways. It can help – but it can also harm your business.

A few years ago I conducted research into the values of the FTSE 100. No surprises that ‘Integrity’ came top, claimed by 35 out of the FTSE 100. Several of them hit the headlines only months later with spectacular ethical contraventions.

Including the big financial institution with ‘Integrity’ on its window, but not in its conscience.

Meanwhile, here are our top tips for any Boards of Directors considering their responsibility for culture:

  1. Make values active, not passive. What matters is ‘what we value’ not a laundry list of ‘values’, and they’re no use as nice words on a wall.
  2. If you’re defining values, involve the whole organisation, not just senior people. Get to the heart of what the business, and everybody in it, really values.
  3. Articulate this in the language that has surfaced through, in the voice of people who belong to it – not cleverly crafted by an outsider.
  4. Make sure it’s true: why should we believe you? What are you doing about it? That’s the useful story, not the list.
  5. Understand, and quantify as far as possible (we can help with this) how values turn into value
  6. Ask your board: if this is what we value, what are we prepared to do, or to refuse to do, to protect it?
  7. Assess you culture(s) across the organisation: how does this help or harm your business?

We will digest both reports and the surrounding themes in more depth and post a longer piece soon.

For a quick taster of whether your culture is helping or harming your business, take our Belonging Challenge: it includes a few knotty issues for any Directors to get their heads round.

 

Isabel Collins is a specialist in culture, leadership and belonging. She has conducted research and written papers on ‘The value of values’, ‘Commitment beats compliance: Effective Codes of conduct and ethics’ and ‘Building a culture of ethics’ and is a regular speaker at international conferences on the these themes.

 Belonging Space is a culture consultancy that helps leaders shape the sense of belonging and ethics in their business.