How to report on culture

“For too long we’ve dismissed culture as ‘Soft’; when the truth is it was too Hard to do.”

That was a client’s recent comment on the Financial Reporting Council (FRC)’s new UK Corporate Governance Code, published in July, requires companies to report on ‘how purpose and values support strategy within a healthy culture’.
It’s a challenge that has befuddled some Boards. Company Secretaries may well be asking, like the nuns in ‘The Sound of Music’ ‘How do you catch a cloud and pin it down?’.

The answer is: by assessing the way people behave, interact and make decisions. And we make that easier to do.

The new Principle of the Code, added under Board Leadership, is:

“The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture.”

In a nutshell, the new Corporate Governance Code requires developing meaningful content on culture, to report not only on What the company has achieved, but also How.
So that culture – and how this influences the long-term sustainability of the business – can be understood by the company’s investors, employees, partners and those it serves.
Download the full report from the FRC at
https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL.PDF
Read the launch information here
https://www.frc.org.uk/news/july-2018/a-uk-corporate-governance-code-that-is-fit-for-the

Why report on culture?

Culture affects behaviour, and therefore business, in so many ways: decision-making, collaboration, productivity, ethics. They all impact your performance, in every sense: financial, delivery to customers, and reputation.
Reporting on culture gives invaluable benefits. To the company, it shines a light on, and holds the board accountable for, your performance in culture as well as the established measures. To those investing and working with you it provides insight and meaningful, qualitative understanding for stakeholders about how you operate as a business.

What is culture?

Culture is how we do things, what we value, our everyday habits, the way we make decisions.
Culture is how we interact with each other and with others.
Culture is how we describe the nature of a group, its personality, and how it expresses its identity.
And culture is the environment in which we grow: it’s how we cultivate success.
A healthy culture is essential to survive and thrive.

The Financial Reporting Council and reporting on culture

The Financial Reporting Council’s (FRC) new Corporate Governance Code requires a more thorough approach to reporting on culture and values, and sets new standards in global reporting. The decision follows several years’ deep exploration and consultation by the FRC on the implications and broad context. In 2016 they published a report ‘Culture and the Role of Boards’, developed from extensive open discussion along with professional bodies including the Institute of Business Ethics, the CIPD, the Chartered Institute of Internal Auditors and CIMA, as well as frank participation from companies like BAe, GSK, Leeds Building Society, and Marks and Spencer, on their (and their investors’) experiences of reporting on culture.

The revised UK Corporate Governance Code 2018

The FRC concluded that what was missing was meaningful reporting on culture. Simplistic statements such as an employee engagement % score, a list of values, or how many employees had attended a workshop, were not enough.
With two years’ further consultation (to which Belonging Space contributed) the FRC developed the Revised UK Corporate Governance Code 2018, launched this summer.
The key requirements, as expressed in the Code summary, are:
Code content Broadens the definition of governance and emphasises the importance of:
– Positive relationships between companies, shareholders and stakeholders.
– A clear purpose and strategy aligned with healthy corporate culture.
– High quality board composition and a focus on diversity.
– Remuneration which is proportionate and supports long-term success.
Designed to:
– Set higher standards of corporate governance to promote transparency and integrity in business.
– Attract investment in the UK for the long term, benefitting the economy and wider society.

Requirement to assess and monitor culture

Expanding on the core Principle on culture, quoted above, is the Provision that:

“The board should assess and monitor culture. Where it is not satisfied that policy, practices or behaviour throughout the business are aligned with the company’s purpose, values and strategy, it should seek assurance that management has taken corrective action.
The annual report should explain the board’s activities and any action taken.
In addition, it should include an explanation of the company’s approach to investing in and rewarding its workforce.”

What can we report about culture and how?

Perhaps one of the reasons culture has not been a requirement previously is that it is not easy to quantify. Unlike carefully audited performance figures, there is no set means to measure and double-check the measure. At first sight, quantifying culture can seem like catching a cloud and pinning it down. How can you assess and report on what seems to be invisible?
The answer is: by identifying the key reference points of culture in action, the reality of leadership, and the characteristics of daily business practice.
Culture has many variables. So it has no single ‘count’ or ‘ruler’ or ‘weight’ and this approach is a fruitless task.
Instead, assessing culture is highly qualitative.
By focusing on a few core principles, and how they reflect in running the business, we can provide insight that is much more meaningful than a percentage score of employee engagement.
We build this up using our proprietary model and method, the ‘Belonging Framework©’.

We examine core themes, and explore accordingly for the strategic and commercial context of each business, aspects such as:
– What are the daily habits around the business?
– How are decisions made?
– How is risk-management related to long-term strategy and values?
– By what means do employees understand what they are accountable for?
– How are safety and ethical principles shared and upheld?

Our approach to assessing culture

Assessing culture is a multi-layered process. Typically a programme includes a mix of:
– Desk research: what’s on paper, the accountabilities such as code of conduct or safety, key facts and figures such as staff turnover, policies, safety record
– Observation: seeing leaders and teams in action in daily business
– Interviews: 1-to-1 or minigroups, to gain deeper insights from specific perspectives
– Workshops: group discussion, to draw out and explore key themes from employees’ experience
– Survey: testing back on the key themes from qualitative work, and providing wider reach of input, with some quantitative measures
Through this approach we can identify the key characteristics of an organisation’s culture.
We relate them to strategy, purpose and long-term sustainability.
Then we identify the ways in which culture helps the business to succeed, and ways in any which culture potentially hinders (or even harms) business performance or reputation.

From what we value, to creating value

A list of values is meaningless: sadly, recent business headlines have been full of companies that did not live up to their lists of fine words as values.
And while more companies now have a clear sense of Purpose, few are able to relate this to strategy and values in the way that the FRC would like.
We see values and purpose working together in the Ethos at the heart of the company.
What stakeholders need to understand is:
– What do you really value?
– So what – what do you do differently (or NOT do) because you value this?
– Why should we believe you?

Our process digs into these aspects in order to articulate the ethos at the core of your daily business practice.

How deep do we need to go?

The FRC has been careful not to mandate a single approach, or specify the depth of reporting. In these first years of the new Governance Code, as companies get to grips with culture reporting, it’s likely that there will be a broad variety of content in the type and depth of disclosure.

We suggest three possible levels:
– Level 1: Lighter touch – Culture Overview
– Level 2: Mid- level – ‘Litmus Test’
– Level 3: Deeper Exploration – The Belonging Framework

Level 1: Lighter touch – Culture Overview
This lighter touch approach gives an indication of culture in the organisation.
It is quicker, more simple and more pragmatic than the mid or deeper levels, still providing meaningful content.

Level 2: Mid- level – ‘Litmus Test’
More involvement around the business, and consideration of purpose and values, and aspects of of how culture and strategy work together.

Level 3: Deeper Exploration – The full ‘Belonging Framework’©
Our full Culture Assessment, working with our proprietary Belonging Framework.
Much richer and deeper analysis, and greater consideration of the impact of culture on strategy and performance.

Interdependency of strategy and culture

It’s become a cliché that ‘Culture eats strategy for breakfast’.
And equally true is that Strategy can poison your culture before dinner.

The reality is that the two are mutually supportive: dividing strategy from culture, as much of corporate reporting has done till recently – or vice-versa, culture from strategy, as much brand-led engagement has done – is unhelpful.

Much more useful to employees, to partners, to customers, and to investors, is to understand how strategy and culture work together; and how well this interdependency is understood by leaders in the way they run the business and plan for the future.

By identifying the key points of interchange, you can assess and report on the partnership of strategy and culture.

And in reporting to the new Corporate Governance Code, boards can help themselves, as much as their investors, to improve performance and strengthen the long-term success of the business.

Email or call us to discuss how we can help you report on culture

isabel@belongingspace.com    020 7833 6420

http://www.belongingspace.com

It’s all part of how a sense of belonging supports the long-term success of the business.