Boards have a fundamental role in understanding the cultures of their organisation and how culture is changing or evolving, and must take a number of steps in order to hold management to account to ensure that culture, values and behaviours align.
Culture is central to the success of organisations and to the wellbeing of workforces, but culture can be complex to understand and takes time to change and effort to sustain, said CIPD chief executive, Peter Cheese.
“Positive and healthy cultures are true to their stated values, give voice to people, engage them, and create the best environment for people to perform in, thereby creating value and competitive advantage,” he said.
“However, as recent corporate scandals have shown, when cultures turn toxic trust breaks down and performance, wellbeing and reputation suffer.”
This is why boards have a fundamental role in understanding the cultures of their organisation and how culture is changing or evolving, as well as leading from the top in the behaviours and values they demonstrate.
“They must also hold management to account to ensure that culture, values and behaviours align, and the decisions the organisation makes enables it perform financially, ethically and sustainably,” said Cheese.
“We know through many years of research and work with HR practitioners just how important organisational culture is in helping to develop the conditions which characterise high-performing and ethically-sound organisations.
“Organisations have a duty of care for their workforce, and this includes building a culture which is inclusive, healthy for employee wellbeing and an environment which promotes positive productivity.
“People and relationships are the biggest drivers of risk and value in an organisation”
CIPD’s recent paper, A duty to care? Evidence of the importance of organisational culture to effective governance and leadership, examines key questions about the purpose and value of culture, the measurement and reporting of cultural issues, and the impact and importance of workplace concepts such as employee wellbeing, engagement and performance.
It suggested boards adopt four practices to help ensure HR activity in the organisation is enabling the desired culture of the organisation:
1. Align core values at the very top of the organisation, embed desired behaviours across the board, and apply a values lens to board decision processes.
The board must live the values and culture of the business to demonstrate their importance to the rest of the organisation, and to ensure that the culture which develops is one which is based around integrity and trust.
The board should be held accountable against the values they espouse, and the correct governance to oversee this should be in place.
2. Invest in building HR and people management strategy and capability which focuses on leadership and management culture, and embedding cultural values across all levels of the organisation.
The board must work closely with the HR function to create the appropriate organisational culture through aligned strategic human resources management practices, from recruitment, induction, training initiatives, leadership development, performance management, resourcing and succession planning.
Embed into this agility and resilience for future change at all levels in the organisation, and build short- and long-term business horizons with a focus on how the culture will develop and embed over the long term.
3. Align measures of reward and culture to address issues of high pay and ensure that future reward decisions take the cultural alignment dimension into account.
Aligning reward structures with values-based measures alongside performance or outcome measures helps to reinforce the desired behaviours, together with promoting other forms of recognition and reward beyond just financial.
Being aware of the unintended consequences regarding reward is also important when setting and reviewing performance rewards.
4. Empower the remuneration committee to challenge and act with independence.
Ensure that the board responds to the remuneration committee transparently and with full commitment.
By empowering the remuneration committee, the board can satisfy itself that it has the correct governance process in place to sense-check any divergence from pay norms, and also ensure that internal biases are not impacting the quality of decisions the board is making about executive pay.
‘When cultures turn toxic trust breaks down and performance, wellbeing and reputation suffer”
“People and relationships are the biggest drivers of risk and value in an organisation – research, experience and common sense all show that ‘good’ HR leads to good outcomes for businesses and their stakeholders,” the report said.
HR professionals have a unique understanding of what drives human and organisation behaviour and how to create organisational cultures in which people thrive and succeed.
When they combine this expert knowledge with commercial insight and an ability to make professional judgements that take into account the needs of multiple stakeholders, the CIPD said they become important advisers to company boards and executive management teams.
For businesses to gain competitive advantage and succeed over the long term, a culture must exist which drives performance and employee wellbeing, and engages the workforce to share expertise in roles.
Without knowledge of how people drive value-creation in the business, the report said it is unlikely that the organisation will succeed in creating value over the long term.
“Boards of larger organisations may learn a lot from how the leaders of smaller organisations develop their own unique cultures, while operating with restricted budgets and in highly target-oriented phases of the business lifecycle,” it said.
Other CIPD research has highlighted the importance of hiring new employees with cultural fit in mind, and it said aligned recruitment and induction programmes structured around building cultural fit will help introduce new employees to the culture of the organisation to ensure that new employees understand how people and teams operate in the business.
“The organisation ensures that it puts in place early intervention to rectify cultural misalignment and this is also one way by which senior leaders could ensure issues arising are stemmed before they cause significant harm,” the report said.
“Boards of larger organisations may learn a lot from how the leaders of smaller organisations develop their own unique cultures”
It made a number of recommendations for boards, HR and organisations to help address the issue of culture, accountability and change:
- Champion change from the top: The Board must lead cultural change from the top and evidence its impact on the business. Appointments must be based on merit and quality and the board should be diverse and representative of the organisation and community in which the business operates.
- Empower the board’s committee’s: Empower the remuneration committee to challenge and act with integrity, independence and transparency.
- Develop leadership capability: Leadership capability should be built in line with cultural and behavioural values and leaders must role-model these attributes to the wider business
- Value alignment: Align core values at the very top of the organisation and apply a values lens to board decision processes, focusing on trust as an enabler of positive and productive cultures.
- Address reward: Ensure that reward decisions take cultural alignment into account, and align measures of performance and culture to address the issue of high pay in particular
- Invest in people capability: Invest in building HR and people management strategy and capability which focuses on leadership and management culture and embeds cultural values across all levels of the organisation.
- Enable through voice and engagement: Build a culture of engagement and voice, communicating the importance of open and transparent values via top-down and bottom-up methods.
- Protect whistle-blowers and those speaking up: Create employee voice and whistleblowing processes that protect employees who speak out about cultural and behavioural issues, ensuring the board takes action to rectify concerns.
- Measure and report: Improve the measurement and reporting of cultural, organisational and human capital indicators, both internally and externally, to drive greater insight and transparency and communicate the importance to all stakeholders using data with a clear and accessible narrative. Seek evidence that all HR processes, including recruitment, induction, training and performance management reinforce and align with the organisation’s culture and values.
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