5 inconvenient truths about corporate culture, and how they hold you back

Culture should be a boardroom priority, but don't be fooled into thinking you can manage it, say Professors Rob Goffee and Gareth Jones.

by Rob Goffee and Gareth Jones
Last Updated: 31 Jul 2019

The modern obsession with corporate culture originates in the 1980s when two ex-Mckinsey consultants - Tom Peters and Robert Waterman – wrote a best seller called In Search of Excellence.  Strong cultures, they argued, could explain long term corporate performance. The success of Japanese corporations could be explained by their culture – but some US companies were also "excellent". Their thinking was influential and the "culture change industry" was launched.

But recent interest comes from a different place.  It is rather less to do with positively promoting performance per se. Rather, it is borne out of avoiding negatives: corporate scandal, low levels of trust and engagement, and a transparent world that ruthlessly exposes the gap between preaching and practice.

Interest is also driven by our knowing that regulation has its limits. In financial services, for example, ever more complex rule regimes have not eliminated misbehaviour. But they certainly threaten to restrict the creativity that has driven successful financial centres such as London and New York.

So if rules are not the complete answer perhaps culture will be? That seems, increasingly, to be the thinking of those charged with setting the framework for the management of financial risk and the promotion of good governance. What’s more, direct responsibility for culture sits at the top. 

In the UK, for example, the FRC has recently produced a publication called Corporate Culture and the Role of Boards. They argue that purpose and strategy should connect to culture, that values and incentives should support culture, and that cultures must be assessed and measured. This is sound advice. 

The board’s role, says the FRC, is to ensure that leaders (top executives) embody the culture - and if they don’t then the board should act.

Boards can appoint and remove CEOs, provide continuity over the longer term and bring an objectivity that can help "see" culture for what it is. As a result, boards can oversee, monitor and hold to account matters relating to culture in a similar fashion to the way they might do with, for example, strategic, financial or operational issues.

But can boards "actively shape", "drive" or "manage" cultures?  Do they really have such power?  Or does this language limit our understanding of how cultures evolve and the way they can be influenced?

After all, if culture can be broadly defined as a set of shared values, behaviours and assumptions then remember: that that which is shared cannot be imposed. Cultures will inevitably be shaped bottom up as well as top down. 

If a prime minister announced an intention to "manage" UK culture we would find this ludicrous. Cultures evolve, whether we like it or not.  Leaders can influence the evolution of that culture – but they simply cannot manage it, because it is not fully under their control. 

We welcome the interest in culture. But boards should understand their limitations and avoid obvious pitfalls. From our own experience - working with boards and on "culture change" initiatives – this is what we have learnt:

1. Sector and function will limit what you can do

Cultures are strongly shaped by the material realities of work. Academic work, for example, grants high levels of autonomy but output measures are not straightforward. This produces workplace behaviours, relationships and values that are quite different from, say, some types of selling work – which is often individually competitive and has more measurable targets.

In this sense, the cultures of elite universities on the one hand - or consumer goods companies’ sales forces on the other - will each have significant similarities no matter what the cultural ambitions of their respective governing bodies or boards, so understand your limits.

2. Cultures can't be easily understood from the outside 

It’s hard to understand a culture without spending time with those at the coal face. It is therefore unlikely that the subtleties of individual cultures will be detected by non-executive directors who spend six days a year attending board meetings (and a few others reading board papers or attending sub-committees), who combine this with a portfolio of other board positions and responsibilities, and who often live in another country. 

In board governance surveys, the extent to which NEDs interact with or understand the reality of executive experience or the workplace/commercial reality outside the boardroom is regularly critiqued. Inevitably, their ability to comprehend, let alone influence, culture is compromised. 

This is unlikely to change without a radical rethink of the NED role. Ironically, under current arrangements, excessive involvement leaves NEDs open to charges of interference and loss of objectivity.

3. Attitude surveys don’t measure culture

Most academics agree that deep, underlying, taken-for-granted and shared assumptions are at the core of culture. These are not directly accessible, but you can sense these assumptions by observing day-to-day behaviours.  This, of course, was the method of the social anthropologists. It was known as participant observation – and we regularly recommend it. 

Busy NEDs without the time (or sometimes inclination) can be seduced by attitude surveys. But that is exactly what they measure: individual attitudes. Never confuse this for a measure of culture. At best, attitudes give us a clue about culture – but with varying degrees of reliability. Cultures can neither be managed nor surveyed.

4. Boards without objectives are unlikely to shape culture

 It is a remarkable fact that most boards do not set themselves specific annual objectives. Raise this with board members and they will often argue they are unnecessary since they are embedded and assumed in a whole series of board obligations, mandates, governance requirements and director responsibilities. 

Yet it seems difficult to see how any board can address the long haul task of culture change without setting stage point objectives and associated measures.

5. Boards that don’t practise what they preach lose legitimacy

Whilst it is true that many boards are now much more aware of their role in acting as exemplars for company culture, some familiar weak points remain. So, finally, here are two key questions about board practice for those who wish to establish the "right" culture.

First, given that culture is "all about people", how well is the human resource function represented on your board?  Second, if reward systems and incentives help shape desired behaviours and values (and so culture), to what extent is the remuneration committee setting an appropriate example?

The significance of culture is undeniable. But the case for making it a top level priority is unlikely to be advanced by naïve assumptions about what boards – as currently constituted – can actually achieve.

Rob Goffee is Emeritus Professor at London Business School and Gareth Jones is Visiting Professor at IE Business School. A new paperback edition of their book Why Should Anyone Be Led By You is out now. 

Image credit: Susanne Jutzeler/Pexels

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