Alex Rickard is a highly experienced HR Director, executive coach, and consultant on leading-edge people- and culture-related issues. She has spent her career in global HR leadership roles in many industries, including a long tenure as HR Director for a major UK wealth manager, helping to grow an organisation originally valued at £38 million to one that sold at £600 million, and is now part of a prominent larger group.
HK: Alex, a good starting point might be to put ‘culture’ into context. Why is the question of culture currently so topical?
AR: It has become more widely apparent that it is a critical underlying factor of the success, longevity or failure of businesses and organisations, and the consumer and society arguably have the most to lose in the event of a business failure due to a faulty culture. There is now a substantial body of evidence that shows healthy organisational cultures are positively correlated with high levels of customer satisfaction and better financial performance. However, with this widening appreciation of culture, there is an increased danger of businesses simply ticking the ‘culture’ box, rather than approaching the issue strategically. A healthy culture can both protect and generate value.
HK: By culture, do we mean employee engagement?
AR: No. From my perspective, culture is the behaviour that an organisation displays as a collective. Its unique leadership, structures, processes and communication methods, defined by a set of values and habits, signal to employees how they should behave. It is closely related to, but should not be confused with, ‘employee engagement’, which is the term to describe the feelings that individuals at the company have towards their work and their firm.
HK: Given some of the arguably culture-related implosions in British business in recent years, has there been a regulatory response in the UK?
AR: Yes, and the response originates at the policy level – the very highest levels of government. Theresa May laid out her plans in 2016 to tackle bad corporate behaviour. Stating that corporations had a responsibility to pay their fair share in taxes, she also reintroduced the proposal that company boards should have employee representatives, in order to close the gap between company leadership and the people actually doing the work. Whilst the latter has not yet been agreed, gender pay reporting, introduced last year, has provided at times shocking insights into employers’ attitudes towards rewarding employees. Eyes are also on the Government itself, due to the issues brought to light around aspects of an unhealthy culture in Westminster – bullying, sexual harassment and the like – and how they are going to tackle it, so it’s not like the Government itself has the strongest moral position at this point. Nevertheless, the policy position around better corporate behaviour is naturally reflected in the communications from the UK regulators to the financial services industry. Keith Jackson, Director of General Insurance and Conduct at the Financial Conduct Authority, reiterated that “culture and governance remains a priority” as recently as April 2018. Additionally, Sam Woods, CEO of the Prudential Regulation Authority, said: “If people want to rise to the top of firms – with all the rewards that brings – whilst ducking proper accountability, then they are in the wrong sector.” The PRA’s new Senior Managers Regime is arguably all about improving culture in the financial services industry, by increasing the degree of individual accountability – as in, responsibility for one’s actions.
HK: The FCA and PRA are not alone in focusing on culture – the Financial Reporting Council have been very active in the culture field in recent years, haven’t they?
AR: That’s right – the FRC ran a major study of culture in 2016, and as a result have revised the UK Corporate Governance Code, which they set and to which they oversee adherence. The revised code was put in place in late 2018 and is explicit that culture is a responsibility that sits squarely with the Board. The code is applicable to all companies with a premium listing on the public markets, whether they are incorporated in the UK or elsewhere. The code does not set out a rigid set of rules; instead it offers flexibility through the application of principles, and through ‘comply or explain’ provisions, and supporting guidance. It makes very clear that it is the responsibility of boards to use this flexibility wisely, and of investors and their advisors to assess differing company approaches thoughtfully. There’s still clearly a way to go on this, though, before boards can say they are truly engaged in the culture conversation. In a survey carried out by the FRC in 2016, involving 24 FTSE-listed companies, 33 percent said they discuss culture and ethics every six months and as a full board agenda item, and 28 percent said it was only once a year. This is frighteningly infrequent given a faulty culture can present such risks, and on the flip-side, such opportunities if a firm’s culture is in the right place.
HK: What are the key changes implied by the new code? Who will be most affected by this?
AR: The Board and Remuneration Committee are most affected by the changes, as they are in charge of adhering to regulations and overseeing the activities of the CEO, but they now also need to figure out how they will measure or assess their culture, and that can entail some new thinking on their part. Is their firm’s culture what they think it is? How do they know? It’s not good enough to give a woolly description anymore – there needs to be some hard evidence, and because it is seen as a sprawling grey area, it can feel almost impossible to measure. Without a definition, or an index, for want of a better word, and agreed metrics, a starting point might seem impossible to find. For me, this is one of the major challenges for businesses in relation to culture, and the temptation is to shelve it, because it is challenging and hard to quantify. Also, who knows what you might find if you start accurately measuring your firm’s culture! The elephant in the room is also the challenges that the FRC is facing at the moment, in relation to its own policing of the audit industry in recent years. This, and the issues in Westminster, lead to questions around the conduct of the regulators themselves, and the example that they are setting for the rest of us.
HK: It’s a burning issue, undoubtedly, and a field in which thought and practice are still evolving when it comes to optimising corporate governance. Are there things that companies and boards can proactively do to meet their new obligations, at least from a process perspective?
AR: I am often asked, how can we define our culture? How do we measure our culture? How do we report on it? Well, it’s very doable, but there aren’t any quick fixes. One of the services I provide to my clients is that of cultural evaluation, defining the existing state of a firm’s culture requires a strategic investigation, and the reviewer needs access to all corners of the business. This can be a bit uncomfortable for businesses, but the old adage applies – “the first step to solving a problem is acknowledging that you have one.” The methodology I have built looks at both internal and external data, and the good thing is that there is always a lot of data to work with, if companies are keeping decent records. Internal measures of staff engagement, such as employee engagement surveys, employee staff council minutes, exit interview notes, grievances, employee policies and procedures, performance appraisal results, promotions and related reward discussions, management-to-staff ratios, attendance and dropout rates of training courses, and cultural diagnostics such as employee turnover, length of service, recruitment process, and whistle-blowing policy, are all useful data points. External measures include customer feedback surveys, customer complaints, behaviour in regard to supplier payments, and the quality of regulatory relationships. All of this ‘hard data’ will allow the reviewer to form a critical perspective of your culture.
HK: That data-heavy approach is interesting. Business is generally quite taken with data at the moment, so if you can apply a data-centric approach to the seemingly intangible notion of culture, you will glean some real insights.
AR: That’s right – all businesses have this data but they do not join the dots. In addition to hard data, I gather soft data by conducting one-to-one confidential discussions with employees across the organisation, ensuring each pay grade and function gets their opportunity to have their say, including the Board. A review like this is by no means a ‘tick-box’ exercise: it requires expert data gathering, excellent listening skills, building trust and ensuring confidentiality, whilst conveying gravitas but approachability. The real magic is in the detailed analysis of the hard and soft data in the context of the organisation’s leadership. The output of this discovery phase is a strategic analysis of a firm’s culture, articulated in a practical and measurable way, with recommendations and actions, next steps, a roadmap with timescales, responsibilities, risks and resources required.
HK: How has the sort of data you’re talking about been used in the past?
AR: That’s a good question. Boards and Executive Committees do have reports on some of these metrics, but as I have said before the data is not joined up. The information is looked at in isolation, whereas if it’s combined and reviewed in concert, a strategic picture of your firm’s culture emerges. Much of this data comes from HR, but culture is not the responsibility of the HR function. Culture defines the behaviour of the whole organisation, and defining culture is the responsibility of the board and executive committee. Without a cultural benchmark, a company cannot begin to report authentically. Without a strategic, joined-up approach to assessing culture, the company is almost inevitably missing valuable data that will impact customer experience and value creation.
HK: What sort of response to do you get from boards with whom you have the opportunity to discuss these issues, and your approach?
AR: Views on the importance of culture remain a mixed bag, partly due to the perceived intangibility of the issue. It’s a difficult thing to think about, partly because the methodology for doing so effectively is complex, and partly because the results of a review might raise more questions than they answer. How the company approaches this responsibility tells a story in itself. Risk committees and boards focus on measures such as reputational, financial, operational, and regulatory risk, and also ‘people risk’, although this is often restricted to succession planning and turnover. As a consequence, flawed leadership behaviours of a CEO, and / or the Chairman, can go largely unchecked, or if noticed, unchallenged, or compromised upon. An example of where this has led to huge issues is in the recently published final report from the Royal Commission on the Australian banking and retail financial services industry, which calls for all sorts of drastic changes, including compensation crackdowns and an overhaul of financial regulators. It has been a fairly shocking and embarrassing exercise, and its findings are nothing short of damning of the industry and its endemic propensity to misconduct.
HK: Talking of flawed leadership behaviours, one might look at some of today’s world leaders, and justifiably say the highest profile perpetrator of that kind is a figurehead of a flawed organisational culture. Politics is certainly a mess on both sides of the Atlantic, and there are ‘strongman leaders’ popping up all over the world. Cultural issues really are everywhere you look, aren’t they?
AR: If a company’s board, or organisations in general for that matter, political or commercial or otherwise, do not pay attention to the potential ‘dark side’ of leadership behaviour and associated decision-making, the outcome can demonstrably prove catastrophic for the firm’s employees, customers, health and safety standards, shareholders and other stakeholders, and society itself. In the book, ‘Wilful Blindness’ by Margaret Heffernan, the judge in the Enron case said that the CEO and Chairman “deliberately blinded themselves to the existence of a fact”, which led to the firm’s collapse and resulting chaos – and may I also point out, lengthy prison sentences for the executives involved. The challenge for boards is that performance is a lagging indicator, whilst behaviour is a leading one.
HK: That’s a crucial point – performance is a lagging indicator, whilst behaviour is a leading indicator. I may have to steal that from you! OK – so how you define a good culture?
AR: There are three key themes or principles that I look for. The first is ‘purpose’. A good culture is one that is defined by keeping everyone’s eyes on the firm’s purpose: why does this business exist? The second is ‘values’: a defined set of values, which explicitly state what behaviours are acceptable and what are not, in pursuit of the company’s purpose. Thirdly, people operations: the company’s values should be weaved into all recruitment and selection activities, employee induction, learning and development, internal communications, appraisals and reward discussions, promotions and career development, customer service, and finally the means by which the business makes people-related decisions.
HK: The notion of ‘values’ keeps cropping up in this conversation. How can a firm define its values in a thoughtful way, and then live by them?
AR: Core values and brand values are one and the same. They are already evident in any established business, so it’s important to identify them, both the good and the bad, then unfreeze the bad and publicly throw those away, whilst holding onto the good, and amplifying and living by those that remain. For example, you might consider measuring your CEO’s performance through the two lenses of your organisation’s values versus its straight financial performance – EBITDA, share price etc. – thereby pitting the lagging indicator versus the leading one, and seeing what the outcome is. Such an exercise will undoubtedly lead to some interesting findings. Also make sure to listen to your customers and suppliers, and seek their opinions – they will always be brutally honest about whether you are living your values.
HK: What should CEOs be doing about culture, in your opinion?
AR: The CEO’s role is absolutely critical. The CEO of a company is in a position of great power and responsibility, and their organisation provides a platform through which they can fashion a business in their own image. Firstly, CEOs should articulate their purpose and personal values, and keep these at the forefront of their decision making. The CEO must remain grounded and true to their personal values through success, crisis and complexity, because they will undoubtedly encounter all of those things during their tenure as business leaders. Secondly, CEOs should access, evaluate and ‘profile’ their firm’s culture, using independent expertise and diagnostic tools. Through such an exercise, you can establish a benchmark, just like you would an annual audit, and create some metrics to return to over time. After all, why would you rely on what the senior management think an organisation’s culture? Their views will be anecdotal, and may be influenced by individual biases, which are unpredictable. Finally, CEOs should be placing the culture topic firmly on the Board’s agenda, and keeping it there. How it is defined, how it is measured, and how high standards are maintained, are the Board and Executive team’s responsibility. Setting the standard on the cultural front will be seen as leading by example, and more importantly, in a modern context, being willing to be held to account on these issues.
HK: And your own work at the moment is focusing on advising boards on culture at this time – is that right?
AR: Yes – boards need a mechanism to detect when things are going awry, and an independent expert resource to call upon for an objective view of culture in real time, and that is the service that I provide. This makes good governance sense and indicates to a company’s stakeholders that the Board is authentic about setting the cultural, rather than being led by it, or worse, caught out by cultural issues. Furthermore, such a resource would be fully up to speed if there is a necessity to conduct a ‘deep dive’ review, if a cultural dilemma or reputational issue suddenly emerges – as they occasionally do.
HK: As ever, an interesting discussion on a pressing topic. Thanks for your time and your views, Alex.
