Angus Armour, CEO of the Australian Institute of Company Directors (AICD), said in the Institute’s response to the financial services Royal Commission (1 May 2018) “governance and the role of boards and directors in shaping and monitoring organisational culture and behaviours are under tremendous scrutiny”.
The questions that are being raised by the Royal Commission and the findings contained in APRA’s Prudential Inquiry into the Commonwealth Bank of Australia (published 30 April 2018) are not just for the boards and directors of financial services companies. There are range of findings and implications for all Australian organisations.
The spotlight on culture has forced directors to consider their role in shaping culture. If responsibility for the culture of an organisation sits squarely with the board what is management’s role?
Board delegates to management responsibility for implementing and monitoring the desired culture as defined by the board and for demonstrating leadership of the culture. This in turn has significant implications for human resources (HR) leaders and functions.
The Managing Culture – A good practice guide that key industry bodies, the Institute for Internal Auditors, The Ethics Centre, Governance Institute of Australia and Chartered Accountants Australia New Zealand, issued in December 2017, states that many of the responsibilities of the HR function “are fundamental in shaping, reinforcing and changing corporate culture within an organisation” (p19).
Articulating the link between the desired culture and business performance should be led by HR. Culture change happens by design not by chance and therefore needs to be supported by a range of HR practices that shape, reinforce and monitor the desired culture.
In discharging their duties, boards will increasingly ask management for assurance that the organisation’s operations are aligned with the desired culture. To gain some practical insight into how boards may discharge their duties, APRA’s report into the CBA identified a number of markers:
- Unclear accountabilities
- Weaknesses is how issues, incidents and risks were identified and escalated
- Overly complex and bureaucratic decision making processes, favouring collaboration over timely outcomes
- A remuneration framework with little sting for poor risk or customer outcomes
So in response, what should HR be focusing on and can HR functions ensure they fulfil their role at this time of increased scrutiny? How aligned are the HR practices that ensures that boards and CEOs have confidence that HR functions are supporting the discharging of roles and responsibilities?
deliberatepractice believes that HR functions need to review their practices to ensure there is alignment and appropriate focus on practices that shape, reinforce and monitor culture. Some practical suggestions include:
- Are Position Descriptions (PDs) sufficient in quality to use as basis for recruitment and performance management? Are accountabilities clearly defined and is there clear goal alignment with KPIs that are cascaded down the organisation?
- Is there assessment on technical skills and behaviours, and cultural fit in talent acquisition processes?
- Is performance managed against behaviours and are the performance goals of individual employees aligned with organisational goals?
- Do on-boarding programs help employees understand culture and expected behaviours?
- Are the HR policies up to date, communicated and well understood by employees?
- Are HR operational, compliance and conduct risks clearly documented and action plans given appropriate priority?
- Do HR Executive and Board reports identify trends and systemic issues and are analytics used to identify, predict and prioritise future risks and opportunities?
- How is culture currently measured and reported to Executive and Board? Is there a plan that clearly articulates the desired culture and the roles and responsibilities in leading culture change? Is the plan effectively governed?
- Is compensation based not only on achievement of financial outcomes, but also demonstration of the behaviours that will drive sustained long-term organisational performance?
Whilst many of these suggestions may appear to be “hygiene factors” in many contemporary organisations, the APRA report found many aspects of CBA’s practices to be below the standard expected.
To assist organisations to understand the maturity of their current practices and to develop a roadmap to strengthen HR practices to shape, reinforce monitor culture, deliberatepractice has developed a HR Culture Practices Diagnostic. It is not a culture diagnostic, it is designed to work collaboratively with HR functions to develop and support their capability to discharge their role and responsibilities in culture. For more information, please contact Bruce McCowan on firstname.lastname@example.org or 0407 998 105.