Can you show what it means to belong to your company, and how this guides the Board’s decisions – and everybody’s actions?
The Financial Reporting Council (FRC) has started the year sharing concerns about a disappointing level of reporting on culture. It calls for “Improved governance and reporting required to promote sustainability and trust in business”.1
“Too many companies substituted what appeared to be a slogan or marketing line for their purpose or restricted it to achieving shareholder returns and profit. This approach is not acceptable for the 2018 Code. Reporting in these ways suggests that many companies have not fully considered purpose and its importance in relation to culture and strategy, not have they sufficiently considered the views of stakeholders in their purpose statements.”
This is the crux for reporting on culture: Boards need to develop a structure for regular and meaningful discussion on culture. This is the only way to report usefully on this complex and multi-layered subject.
The FRC requires no slogans or ‘tick box’ glibness, it’s not a single figure from a single source, it doesn’t fit neatly into a spreadsheet: it takes a new approach to pin down culture meaningfully.
The FRC’s analysis found the following key points:
- Some good examples of reporting by companies who are increasingly using incentives relating to non-financial matters and are grounded in long-term strategy.
- Many companies are grappling with defining purpose and what an effective culture means with too many substituting slogans or marketing lines for a clear purpose.
- There is insufficient consideration of the importance of culture and strategy, or the views of stakeholders. Following the FRC’s 2016 report on culture, companies should be commenting on culture and now explain how they are monitoring and assessing it.
- Limited reporting on diversity. Those companies that did report well had clear plans to meet targets – beyond just gender – and understood the long-term value of diversity.
- The use of engagement surveys was portrayed by many as an effective tool to achieve insight on employee engagement and culture. While these can help, they only provide a snapshot of information and should not be used in isolation.
- Companies must be able to demonstrate that the engagement methods used are effective in identifying issues that can be elevated to the board and how this affects company decisions.
The FRC’s Chief Executive, Sir Jon Thompson said:
“While there are examples of high‑quality governance reporting from ‘early adopters’, looking ahead we expect to see much greater insight into governance practices and outcomes reporting on a range of key issues from diversity to climate change.
“Concentrating on achieving box-ticking compliance, at the expense of effective governance and reporting, is paying lip service to the spirit of the Code and does a disservice to the interests of shareholders and wider stakeholders, including the public.”
We outlined our view on How to report on culture in this piece in October 2018. These points are all directly relevant to the concerns raised in the FRC’s report, so repeated here as a quick summary:
Six key points
- Use a mix of qualitative and quantitative evidence from a combination of sources.
This new requirement is more nuanced than some aspects of the traditional reporting discipline, requiring different parameters and perspectives. You might create an overview of culture from, for example: employee engagement, safety record, gender pay gap, diversity & inclusion and ethics.
But don’t use any one of these sources alone: a ‘tickbox’ is not enough.
Evidence needs assimilation and commentary.
- Work facts into narrative to put this evidence into context.
Show how culture and values connect to purpose and strategy. Show how they are relevant to the performance on the business, good stewardship for future, and what they mean for people’s work. Look forwards in time as well as back.
- Communicate on culture through different aspects of the report.
For example: expect both the Chair and CEO to comment meaningfully on culture, make it relevant to strategic priorities, show how culture is considered within remuneration, how culture is considered as part of risk planning.
- DON’T use glib brand straplines or slogans. They have a place in marketing, but in reporting they lack depth or real meaning. This is NOT credible. Indeed, our anti-sloganeering slogan: ‘Brand risks bland’.
- DO own up to what’s not working well – as well as outlining the action you are taking to remedy.
This shows scrutiny, transparency and commitment. In fact this (along with identifying emerging risks) may well be the most useful and credible aspect on culture for investors, partners, customers and employees.
- In order to do all this… For a meaningful Board conversation and reporting on culture, you’ll need a framework. Ours is the Belonging Framework, which we use as a basis for achieving these six top tips. Culture is very wide reaching yet can seem amorphous. You need a way to ‘catch the cloud and pin it down’. Make culture’s comprehensive scale easier to to get hold of, so you can show the impact on people, performance, purpose and prosperity in the widest sense.
It might be that one or two workshops with the Board will help frame your response, or a mid level exploration with our Belonging Litmus Test to give richer narrative, or our deeper examination of evidence around our Belonging Framework for fuller review of the impact of culture on performance.
See a more detailed version of this article at www.belongingworks.com.
We’re happy to chat through how you could improve your company’s reporting on culture.
Contact us at email@example.com
Read our views at www.belongingworks.com
Next phase Belonging Space research: Looking at practical examples
Having begun trawling for specific examples it’s clear this calls for a more thorough examination. We are undertaking a qualitative review to recommend best practice in reporting on culture.
This will culminate in a report and seminar.
Please do drop a line if you would like to join us or receive a copy – or you have a good example for us to include.
1 FRC Press release summary – 09 January 2020 Improved governance and reporting required to promote sustainability and trust in business
2 FRC Review of UK Corporate Governance Code https://www.frc.org.uk/getattachment/53799a2d-824e-4e15-9325-33eb6a30f063/Annual-Review-of-the-UK-Corporate-Governance-Code,-Jan-2020_Final.pdf
3 FRC – UK Corporate Governance Code – July 2018 https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL.pdf