What a relief to hear the inner sanctum of UK business finally take belonging seriously!
At the Financial Reporting Council’s (FRC) ‘Culture to Capital‘ conference we saw an impressive panel examine the impact of culture on capital and long-term sustainable value of organisations. This followed their in-depth report ‘Culture and the role of Boards’.
Hosted by the Lord Mayor of London at Mansion House, home of the City London, and the FRC’s Chairman Sir Win Bischoff, joined by CEOs and leading figures from business, investors, regulators and the finance world.
At Belonging Space we know how deeply culture can help or harm business. Justin King, ex CEO of Sainsbury’s and now Vice Chairman and Head of Portfolio Business at Terra Firma, summed up the challenge:
“Culture can be a force for bad as well as good”
At our seminar on 19 October, How to connect Culture, Strategy and Governance, we’re looking at this in depth. We’re delighted that the FRC’s Anna Colban is one of our speakers.
We’ll explore the sophisticated belonging challenges Boards face in their role with culture. After all, Everybody in an organisation (Board to frontline) shapes the sense of belonging, and is shaped by it: so how does the Board frame their role?
How does the Board both lead and participate in the sense of the belonging?
How do companies ensure that the Board shares accountability as well as holding others to account?
The FRC’s conference looked at the practical, ethical and commercial issues. We asked the panel: How can boards share accountability for a sense of belonging?
Sacha Romanovitch, CEO of professional services firm Grant Thornton, replied, in one of our favourite quotes from the conference:
“Vulnerability. Leaders need to have vulnerability, not just know all answers, or be perfect”
Justin King, talked about how a sense of belonging creates a culture in which ethics and safety thrive.
“People ‘do good’ only because they feel they are part of something worthwhile”
Justin King stressed the importance of measuring performance (and assigning bonuses) based on values not just ‘hitting the numbers’. And holding the board to account for their behaviour:
“It means being willing to sack people who are out of line”
“A great city delivers shared good“, stressed Alderman the Lord Mountevans, The Lord Mayor of London.
Sir Win Bischoff, Chairman of the FRC set out the heart of why culture is so critical for capital:
“A healthy culture leads to integrity, business success and ultimately: trust”
He put the focus on long-term sustainable performance and wider impact of business.
“We must have a culture within businesses that benefits society. Codes put forward principles, but that doesn’t prevent bad behaviour alone, leaders must do that… The Board must be credible in the eyes of the employees and shareholders.”
Conor Kehoe, Senior Partner at McKinsey picked up the theme:
“If short-termism at any cost is the culture, then bad performance follows. It leads to bad decisions”
“Companies can no longer afford poor behaviour – Boards need to go further, and actively encourage good behaviour”
CEOs in Conversation
Asked why she took a pay cut, Sacha Romanovitch, explained:
“The CEO must ‘set the tone from the top’. I wanted something symbolic that would let people know I was serious about sharing everything throughout the business. I also introduced a profit-share ‘Shared Enterprise’. It was a three-year rolling scheme. It has to be long term, and focuses on idea sharing.”
“Average pay multiples for exec pay are dangerous. If we start putting rules in place around this then you will see low pay jobs outsourced and an increase in Zero-hours contracts. If you can keep them performance related then there is no problem with bonuses, it’s when they are not deserved that the problem comes in.”
He also pointed to the bigger role of business: can companies help create a fairer society alongside successful commerce?
“We have to stand up to the government. If we don’t think it’ll be effective we have to say, otherwise who else will? Our political system is set up for short-termism currently as well, how do we solve that?”
Delivering Long-Term Value for All Stakeholders
Chris Cummings, CEO Investment Association, moderated the discussion and opened with:
“Culture should be the magnet for Capital”
Sir Roger Carr, Chair of BAE Systems plc
“We get everybody to look at what we do, how and why: we’re values-led, not just by numbers.”
Talked about inbuilt protection in a strong culture, he said
“Culture, not just rules, is essential in forming trust…You don’t want to wake up finding someone has done something in a dark corner”
Amanda Mellor, Company Secretary of Marks and Spencer
“Everybody knows they’re accountable for doing right thing, evaluated against out Code of ethics”
Mark Austen, Chair of mutual group LV=
“Culture & values are not something you do once, in a big report: it has to have real meaning…. Around measuring culture there’s a lot of flimflam: we need to make sure we measure the things that matter “
It was all sounding good from corporate leadership.
But do investors care?
Oh yes, said Elizabeth Fernando, Head of Equities, USS
“We look at culture in companies we invest in: know we’re getting sustainable returns.”
With a steely eye she cut through corporate-language:
“We need to get beyond the platitudes. We need to know: are the companies we’re investing in really living up to values?”
It’s clear that the top of British business sees how significant – and complicated – the impact of culture is on capital. Given the affect of culture on performance and upholding ethics (poignant, as news breaks about another expensive ethical scandal with Wells Fargo – that’s another story)
At Belonging Space we believe there’s a strong case for including an objective assessment of culture, and how your culture’s characteristics help or harm performance, in your corporate report.
A final thought from Sir Win Bischoff, Chairman of the FRC, stressing that the management of culture is nuanced for each company:
“There is no one size fits all answer to culture.”
Email firstname.lastname@example.org to reserve your place.