Pamela S. Passman - How Can Boards Provide Oversight on Corporate Culture?

Search

Loading...

News

Latest News

Print article
Jan 14, 2020
by Pamela S. Passman
Newsletter
Register for our Newsletter and stay up to date
Register now
Pamela S. Passman - How Can Boards Provide Oversight on Corporate Culture?

Founder and president of the Center for Responsible Enterprise and Trade (CREATe.org) reflects on defining, assessing, and improving corporate culture Pamela S. Passman in conversation at Salzburg Global Seminar

This article is part of the series, the Salzburg Questions for Corporate Governance by the Salzburg Global Corporate Governance Forum

Corporate culture is taking center stage today. Institutional investors such as State Street, Blackrock, Vanguard, and others are writing to CEOs about the importance of culture. Regulators around the world are increasingly calling on organizations to examine their culture. Companies today are considering culture as part of ethics and compliance programs, and as a factor in considering enterprise risks. Yet as Barak Orbach writes in a recent article, a company’s formal policies may be out of sync with informal norms and employee actions. Case in point: Wells Fargo employees opening unauthorized accounts to meet sales incentives, and at the same time, violating company compliance standards.

Culture is also on the agenda for boards of directors – and for good reason. How a board embraces and promotes an integrity-based culture can have a profound impact on a corporation from the very top leaders to mid-level management and the rank-in-file. Additionally, understanding corporate culture can better prepare directors to anticipate risks and disruptions in different business models and geographies. As the 2017 NACD Blue Ribbon Commission Report on Culture as a Corporate Asset found, providing oversight of culture should be a key board responsibility as it is linked to strategy, CEO selection, and risk oversight.  

Defining Culture

But what is culture? We all have a vague sense of what it is and what it looks like at our organizations, but it can be hard to define. Merriam Webster’s definition tells us that culture is the “set of enduring and underlying assumptions and norms that determine how things are actually done in the organization.” In other words, the levers that are being pushed or pulled to accomplish the goals of the organization. The factors that comprise culture can have a fundamental, long-lasting effect on a company’s success.

The U.S. Department of Justice’s updated “Evaluation of Corporate Compliance Programs” guidance document makes it clear that measuring culture is key to a successful compliance and ethics program. The advantages of a strong ethical culture are manifold – studies have repeatedly shown that businesses with strong ethical cultures outperform those without. There are a variety of reasons underlying that performance data. Companies with stronger cultures tend to have employees who are more engaged and committed. Turnover tends to be lower and productivity higher, and when you need to hire, it’s easier to attract high-quality employees.

Assessing and Improving Culture

How can a company get a handle on its culture, and more specifically, how can the board of directors effectively provide oversight? As a starting point, measure it. Measurement is important for several reasons. First, it focuses attention on what is being measured. When you provide employees with metrics that tell them whether they are succeeding, they will try to move those metrics. Second, measurement signals the organization’s priorities. Most companies do not lack for objectives, but not every objective gets a metric. Metrics (or lack thereof) tell employees – especially newer employees – what the company really cares about. One way or another, they send a clear signal. Additionally, it provides a metric for the board to measure progress against. This is particularly important when organizations are going through times of change – mergers, acquisitions, turnover in leadership – and as a way to illustrate an organization’s commitment to an ethical culture.

One aspect of measuring culture is understanding the “speak-up” environment. Are employees comfortable reporting perceived misconduct or risks to achieving a business plan? Do employees see barriers to speaking up, and are they comfortable reporting to their managers or through other channels established by the company? Do employees fear retaliation if they bring forward “bad” news – perceived misconduct or pressure points on a plan? Is there an alignment gap between stated values and company goals? Measuring this gap across business units and geographies provides a heat map on where management needs to focus.

Senior leaders – responsible for the “tone at the top” – have a tremendous impact on the average employee. Senior leaders can show values in action by communicating the culture, history and values of the institution, as well as using real examples of how difficult situations were addressed, and examples of risks that were managed and trade-offs made. Boards and senior managers can also ensure that there are resources available for those on the front lines – managers – to be effective in communicating with teams about ethics and compliance.

Measuring an organization’s ethical culture provides board members with data and insights for effective oversight. Understanding the perceptions of employees can help the board ensure that culture evolves so that company values and purpose are aligned with strategy and execution, and that reward and performance evaluation systems reinforce the right leadership behaviors. Given the importance of culture to regulators, investors and employees – and the links of business integrity to long-term performance – it makes strong business sense for boards to put culture on the agenda. 

Have an opinion?

We encourage our readers to share your comments by joining in the discussion on LinkedIn.


Pamela Passman is founder and president of the Center for Responsible Enterprise and Trade (CREATe.org) and vice chair of the Ethisphere Institute, distinct entities with a common mission to promote leading practices to manage key governance, compliance and risks for companies and their global supply chains. Prior to founding CREATe.org in 2011, she was corporate vice president and deputy general counsel, Global Corporate and Regulatory Affairs, Microsoft. From 2002 to 2011, Pamela led Microsoft’s regulatory compliance work, including privacy, security, law enforcement, telecommunications and other issues related to cloud computing. She also led Microsoft’s global government relations and public policy work and philanthropic programs and its cross-company global corporate citizenship efforts. She joined Microsoft in 1996 and until 2002 led the legal organization in Asia, based in Tokyo. Prior to Microsoft, Pamela practiced law with Covington & Burling in Washington and Nagashima & Ohno in Tokyo. Pamela serves on the Board of Kinaxis Inc., a Toronto-listed software-as-a-service supply chain management company, and served on the Board of IO, a data center infrastructure company. She holds a J.D. from the University of Virginia and a B.A. in government and law from Lafayette College. Pamela is a Fellow of Salzburg Global Seminar.

The Salzburg Questions for Corporate Governance is an online discussion series introduced and led by Fellows of the Salzburg Global Corporate Governance Forum. The articles and comments represent opinions of the authors and commenters, and do not necessarily represent the views of their corporations or institutions, nor of Salzburg Global Seminar. Readers are welcome to address any questions about this series to Forum Director, Charles E. Ehrlich: cehrlich@salzburgglobal.org. To receive a notification of when the next article is published, follow Salzburg Global Seminar on LinkedIn or sign up for email notifications here: www.salzburgglobal.org/go/corpgov/newsletter   

 

Related Content

Anastassia Lauterbach - Why Must Corporate Boards Discuss Innovation?

Feb 25, 2020

Dottie Schindlinger - What Can Boards Do to Create Structure and Process Around Innovation?

Feb 10, 2020

Bharat Doshi - How Do We Retrain Vulnerable Older Workers for the Jobs of the Future?

Mar 12, 2019

Robert H. Mundheim - What is the Significance of the Business Roundtable Statement on the Purpose of a Corporation?

Oct 22, 2019

Barak Orbach - Do Directors and Officers Have a Duty to Monitor Corporate Culture?

Dec 14, 2019

Michael Ling: How Can a Sustainability Committee Better Look at Potential Risks?

Aug 19, 2019

Stephanie Bertels: Why Is It Increasingly Important for Boards to Clearly Signal Their Position on ESG Issues?

Jul 15, 2019

John Cannon & Stacy Baird: Is The Board Ready to Address Disruption? 

May 20, 2019

Nicole Lew: How Do Companies Filter Out the “Noise” from Stakeholder Engagement?

Mar 18, 2019

Carolyn Frantz - How Could Artificial Intelligence Create New Job Categories and How Can a Company Anticipate These Changes in Workforce Needs and Shape?

Jan 22, 2019

Stacy Baird - Europe’s Privacy Law - A Barrier to Artificial Intelligence or an Enabler?

Dec 18, 2018

Anastassia Lauterbach - What Questions Should Boards Be Asking About AI?

Nov 19, 2018

What Next for Corporate Governance?

Nov 14, 2018

Friend or Foe: How Should Directors Face Disruptive Risk?

Nov 29, 2019

Friend or Foe: How Should Directors Face Disruptive Risk?

Oct 03, 2019
Finance & Governance

Katrina Scotto di Carlo: How Is the Gig Economy Changing the Nature of the Corporation’s Relationship with its Stakeholders and its Role in Society?

Jun 19, 2019

Imanol Belausteguigoitia Rius - Why Should Organizations Prioritize Shareholder Welfare Over Profits?

Sep 17, 2019