Boards lack awareness of overall company culture, research suggests

Corporate culture is increasingly being targeted as a means to ensure companies behave effectively, ethically and within the rules, but new research indicates that in many cases boards’ understanding of their company’s culture doesn’t extend beyond the upper echelons.

Although 87 percent of directors in a recent survey say they have a good understanding of their company’s tone at the top, only 35 percent say they have a good understanding of the mood in the middle, and just 18 percent report having a good grasp of the health of the culture at lower levels of the organization.

This lack of understanding of the company’s culture at its operational levels can lead to serious problems in areas such as compliance, says Friso van der Oord, director of research with the National Association of Corporate Directors (NACD), which conducted the study.

He points to methods boards can use to gain a more objective picture of the organization at all levels, but notes that fewer than half of respondents say they are using these. For example, only 41 percent say they have confidential discussions with members of lower management to help directors understand the challenges they face and concerns they have. Forty-seven percent of respondents say they review the results of employee surveys on issues such as compliance and ethics, and 48 percent visit operational sites to try to gain a picture of the culture.

Meanwhile, the study finds that directors see macro-level shifts and technological issues as having the biggest impact on their company – and therefore on their board – in 2018. Fifty-eight percent of 587 directors polled by the NACD point to ‘significant industry change’ as one of the trends they expect to have the greatest effect on their company over the next 12 months. They cite technology disruption, industry consolidation and shifting regulations as key drivers of this change, according to the authors of the report.

The next most-frequently cited issue to have a major impact is business model disruption (mentioned by 46 percent of respondents), followed by changing global economic conditions (46 percent), cyber-security threats (38 percent) and competition for increasingly scarce talent (36 percent).

Van der Oord tells Corporate Secretary that, aside from economic conditions, these top-rated trends are interrelated in that they are each tied to technology and how technological developments can affect all industries. This can include changes such as technology firms moving into different fields where they might not have been expected to operate.  

In addition to citing cyber-security as a top concern, directors indicate that they are less bullish about their company’s cyber-risk preparedness than they were a year ago. Only 37 percent of respondents say they are confident or very confident that their company is properly secured against a cyber-attack, down from 42 percent last year.

Van der Oord says this finding is in part a result of the increasing understanding boards now have about cyber-threats. As directors know more and become more sophisticated about cyber-security, they are more skeptical that any defenses can be fully relied upon and are more realistic about the seriousness of the threats they face – which are also increasing, he explains.

Shareholder activism has been a hot topic in the governance community during 2017, following a number of high-profile proxy tussles, but only 14 percent of directors polled point to the issue as likely to have the biggest impact on their firm during 2018. Van der Oord explains that activism ‘is a very big deal for a small number of companies’, and that many activist targets are small companies, which are cheaper and easier to influence. But he adds that some boards still don’t give activism the attention it deserves – by, for example, failing to have a written plan for responding to becoming a target.