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How Boards Set the Tone for the Organization

by Linda Henman

How Boards Set the Tone for the Organization

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 percent of directors don’t have a firm grasp on 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.

We use the word “culture” arbitrarily, citing it to explain why things don’t change, won’t change or can’t change. A powerful force, culture anchors strategy and creates the environment where the best people can do their best work. It’s that subtle, yet powerful driver that leaders strive — often futilely — to sway. Leaders who aspire to challenge the ordinary understand they need to pay more attention to the culture they help create so they can understand it, guide it and tie it to their strategies for growth.

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.

Corporate values describe the principles and stan­dards that guide an organization’s ethical and business decisions. Organizations typically list things like leadership, integrity, quality, customer satisfaction, diversity, good corporate citizenship and a commitment to shareholder value. While laudable, which would a successful company not value? A list of ideals that any organization would promote doesn’t really distinguish your company from any other, and you’re not likely to have any arguments about the importance of embracing these ideals. But how? How can directors translate value on paper into value in practice?

When companies embrace a change orientation, they consider innovation as part of the culture, not a process or project that they engage in for a given period. People innovate and change when they see a benefit — when they perceive that the change will improve their condition, not when someone else wants it.

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.

Any student of organizational development will tell you that a pivotal decision — or, more likely, a series of pivotal decisions — literally separated the businesses that flourished from those that floundered. 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 can enter, 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 the competition never could. They become their own strongest competitors — the enemy within.

Communication and information sharing form the foundation for a strong organizational culture. Therefore, directors who aspire to strengthen their cultures need to create a multichannel communication system that allows everyone to connect with everyone one else. This doesn’t mean you must immediately purchase the latest technology for instant access to each person.

It also doesn’t imply that, in the interest of collegiality, everyone should be copied on every email, an insidious invention of the devil that slows work across the world. It does mean that every need-to-know person stays in the loop; everyone must be able to communicate with anyone else; and everyone involved assumes that telling the truth is both desirable and expected. Of course, this kind of communication network can exist only when high trust exists among all participants and when directors lead the way by trusting employees to have both the skill and motivation to improve.

Directors in exceptional organizations realize their espoused values should address the thorny is­sues and provide a compass for navigating un­charted seas, even when the price of doing so is significant. Instead of writing these values on a plaque in the foyer, directors live — and expect management to live — them. These values mean something and serve as criteria for making business decisions.

These directors set the tone at the top and lead the never-ending journey to discover new and better ways to solve 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.

Republished with permission from Corporate Compliance Insights. This article was originally published here.

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