7 tips for building a better business culture

20 July 2016 -

New research from the Financial Reporting Council shines a light on how a healthy corporate culture can lead to greater prosperity

Matt Scott

Businesses need to give more importance to corporate culture and values if they are to be successful and add value to the economy, according to a new report from the Financial Reporting Council (FRC).

The report came out with seven recommendations for businesses to improve the way they manage company culture:

Recognise the value of culture: A healthy corporate culture is a valuable asset, a source of competitive advantage and vital to the creation and protection of long-term value. It is the board’s role to determine the purpose of the company and ensure that the company’s values, strategy and business model are aligned to it. Directors should not wait for a crisis before they focus on company culture.

Demonstrate leadership: Leaders, in particular the chief executive, must embody the desired culture, embedding this at all levels and in every aspect of the business. Boards have a responsibility to act where leaders do not deliver.

Be open and accountable: Openness and accountability matter at every level. Good governance means a focus on how this takes place throughout the company and those who act on its behalf. It should be demonstrated in the way the company conducts business and engages with and reports to stakeholders. This involves respecting a wide range of stakeholder interests.

Embed and integrate: The values of the company need to inform the behaviours which are expected of all employees and suppliers. Human resources, internal audit, ethics, compliance, and risk functions should be empowered and resourced to embed values and assess culture effectively. Their voice in the boardroom should be strengthened.

Assess, measure and engage: Indicators and measures used should be aligned to desired outcomes and material to the business. The board has a responsibility to understand behaviour throughout the company and to challenge where they find misalignment with values or need better information. Boards should devote sufficient resource to evaluating culture and consider how they report on it.

Align values and incentives: The performance management and reward system should support and encourage behaviours consistent with the company’s purpose, values, strategy and business model. The board is responsible for explaining this alignment clearly to shareholders, employees and other stakeholders.

Exercise stewardship: Effective stewardship should include engagement about culture and encourage better reporting. Investors should challenge themselves about the behaviours they are encouraging in companies and to reflect on their own culture.

Sir Winfried Bischoff, chairman of the FRC, said: “A healthy corporate culture leads to long-term success by both protecting and generating value in the UK economy. It is therefore important to have a consistent and constant focus on culture, rather than wait for a crisis. A strong culture will endure in times of stress and change.

“Through our research, it has become clear that establishing the company’s overall purpose is crucial in supporting and embedding the correct values, attitudes and behaviours.”

CMI chief executive Ann Francke said business leaders need to wake up to the importance of culture and ‘show more commitment’ to changing behaviour for the better.

“This is an important issue, and firms need to stop dancing around words such as culture and integrity and show more commitment,” she said. “Real leaders will understand this means more than a change of wording, and use it as the jolt to the system to drive real change in employee and board behaviour.

“Worryingly a sizeable minority of firms have actually pulled back on employee welfare, equality and skills reporting in the last three years, with our own research revealing that 24% of employees don’t believe in their company’s values, and only 61% feel fairly treated by their employer.”

To keep up the pressure on business to enact these changes, CMI is working on new research investigating the link between management and business culture.

Francke said: “New CMI research set to be published this September shows that there’s a communication gap between senior leaders and middle managers in far too many businesses, which is leading to lower levels of trust and weakened company cultures. It adds to the weight of evidence of why culture matters.

“Simply put, companies cannot shelve these recommendations as ‘nice-to-have’.