Source | LinkedIn | Clarke Murphy | Chief Executive Officer at Russell Reynolds Associates
Historically, many executives, directors and governance experts would argue that corporate culture issues were the responsibility of management, not the board. That is no longer the case. Culture issues can clearly result in significant financial impact and legal challenges for a company.
Take Uber, for example. In 2017, founder Travis Kalanick resigned after public reporting of widespread unethical behavior inside the ridesharing company, including allegations that he failed to address sexual harassment within the company. Reputations can be destroyed overnight when issues arise, particularly if they become public. There is now the expectation among shareholders that directors will take a more involved role in the oversight of corporate culture and related issues.
Institutional investors feel the same way:
Part of BlackRock’s 2019 Investment Stewardship Priorities is an expectation that companies will disclose more information about the board’s role in overseeing human capital management, including organizational culture. State Street Global Advisors is “calling on board chairs and lead directors at companies around the globe to help investors better understand how their company culture aligns with their long-term strategy.” And Vanguard has explicitly linked organizational culture to financial performance, saying that “If a company’s practices, organizational culture or products put people’s health, safety or dignity at risk, they can pose a financial risk to investors too.”
What should boards do? Here are three recommendations, including input from a session we recently hosted on this topic at New York Governance Week:
- Create alignment and understanding: It is essential that the board and management have a shared understanding of the board’s role in corporate culture oversight. The board needs to help management understand the importance of corporate culture and the clear link to the successful delivery of the long-term strategy.