Board directors tend to underestimate the importance of corporate culture when they should see it as among their top governance imperatives. Culture is inextricably linked with strategy and risk, and it can be an organization’s biggest asset or its greatest liability. Yet, recent studies indicate that more than 80% of directors don’t have a firm grasp of the culture that exists in the organizations they serve. Most directors would be hard-pressed to define corporate culture, and those that can don’t always know what their role should be in influencing it.
Effective directors realize that, in the long run, how a company does business is as important as short-term gains. Now, more than ever, directors are taking their responsibilities seriously, speaking up, and striving for results; but in many cases, the evolving relationship between the company’s executives and the board has not found the right symmetry. Both the company and the board benefit when directors take a more active role in influencing culture.
Directors committed to shaping culture understand that they need to encourage innovation and learning, set ethical standards, and promote accountability, especially with the CEO. Most importantly, directors must take a proactive approach to the oversight of culture to drive sustained success and long-term value creation.
What do we mean by “culture”? Legends tend to have differing adaptations; the truth has no versions. Both influence-either intentionally or unintentionally-the cultures we build. Corporate culture, the way we do things around here, the pattern of shared assumptions that the group has adopted and adapted, develops in much the same way as legends and traditions do.
Organizations learn as they solve their problems and adjust to the world around them. When something works well over time, and leaders consider it valid, members of the organization begin to teach the behavior or idea to new people. Through this process, new members find out what those around them perceive, think, and feel about issues that touch the organization.
Excellent decisions serve as the coinage of the organizational realm. When directors consistently make good decisions, little else matters; when they make bad decisions, nothing else matters. A pivotal decision-or, more likely, a series of pivotal decisions-literally separates the businesses that flourish from those that flounder. Every success, mistake, opportunity seized, or threat mitigated started with a decision.
Success doesn’t happen without decisions, but neither do mistakes, except when the decision involves indecision-a kind of decision not to decide. When you play in the most competitive league, you will have mishaps and missteps, but indecision doesn’t have to be among them. However, the culture of too many organizations conspires against success.
Decisions-good, bad, or decent-get stuck in the entrails of the organization, much as flotsam and jetsam accumulates on an untended beach. Boards create their own bottlenecks and harm themselves in ways that the competition never could. They become their own strongest competitors-the enemy within.
Effective directors set the tone at the top and lead the never-ending journey to discover new and better ways to
problems and adapt to the world around them. When something works well over time, and directors consider it valid, they lead the charge to teach behaviors, values, and ideas to new people and to reinforce them with existing employees.
Through this process, people find out what those around them perceive, think, and feel about issues that touch the organization.
So often I encounter directors that seems to have it all-the whole six-pack. But they lack the plastic thingy that holds it all together. Culture is that plastic thingy. Directors who hope to create exceptional organizations realize they must act as culture managers-the people who help to create the environment where star performers can consistently and consciously challenge the ordinary and make the tough calls.