Following the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, there is no doubt that culture is firmly a boardroom issue. Boards are now looking at the complex issue of how they should set the organisation’s culture and the framework to govern culture.
The Hayne Royal Commission Final Report concludes that ‘supervision’ of culture must include:
- assessing culture and identifying deficiencies;
- ‘holding up a mirror’ to organisations and educating them about their own culture; and
- agreeing cultural changes to be implemented by the organisation, and supervising that implementation. (Final Report, Volume 1, p. 377)
The Australian Institute of Company Directors (AICD), in a post on 20 June 2019, described the focus on institutional investors on the governance of organisational culture and seeking greater engagement with Chairs on Human Capital Management issues.
The post quotes, Iris Davila, Head of Investment Stewardship at Blackrock (the world’s largest asset manager) Australia, says the firm is having more conversations with boards about culture.
BlackRock is very interested in how boards approach organisation culture and it’s something we will be spending a lot more time on. We don’t expect directors to micro-manage on this issue, but we want to know how they assess their organisation’s culture and look under the bonnet on it. What we don’t want to see is a meaningless reference to organisation culture on page 95 of a Sustainability Report.
Investors are increasingly putting culture on the agenda and are wanting to invest in organisations that have a good culture and good people. Ed John, from the Australian Council of Superannuation Investors (ACSI), in the same AICD post states that:
A listed company could disclose a framework of how it assesses its culture, the key performance markers it looks at, and the data behind that performance. The board would disclose the steps it takes to assess that framework and the culture performance.
The governance framework for assessing and monitoring culture is not just an issue for listed companies. The AICD and the Governance Institute of Australia (GIA) have written extensively on the issue, making it an issue for all organisations.
deliberatepractice has spoken to clients and boards specifically about their process and framework for assessing culture. It is an area where practices are evolving. Some organisations are well progressed and that has led to a range of changes including changes to remuneration to include non-financial measures (refer to APRA’s draft prudential standard CPS511) and changes to terms of reference and composition of sub-committees.
We have previously written that HR needs to demonstrate its role in supporting Boards in their supervision of culture.
Over the coming weeks, deliberatepractice will be conducting a survey into how HR functions are responding and what information they are providing to Boards and what has changed since this unprecedented focus on culture.
If you would like to participate in the confidential survey, please email Bruce McCowan. All participants in the survey will receive a copy of the report.