Magazine article

Alan Deans: How would you define corporate culture?

Malcolm Broomhead: I define it as the behaviours and values that everyone in the organisation has to follow for it to meet its strategic intent.

Cathie Armour: I think it’s about the implicit norms that drive the organisation’s behaviour.

Yvonne Willich: Culture is about people and what people consider to be important – the overt and covert messages about what really matters here.

Quentin Digby: The expression that captures it best for me is “the way we do things around here”.

Mark Korda: Yvonne has been working with us for 12 years as a full-time psychologist concentrating on our people, what we’re all about and the way we go to market – as Quentin says, our culture is the way we do things.

David Gonski: I agree with Malcolm’s comment about behaviour and values for everyone to follow but I would add that you also need to consider the behaviours and values of the corporation as a whole. I have seen people act properly as individuals but improperly as a group.

I believe that corporate culture has to be explicit, and that culture changes over time. For example, in the late 70s and early 80s, companies that were not actively reducing their tax were regarded as having a lazy balance sheet. There is a very different attitude today.

Mark Korda: Culture also changes according to context. The culture of our insolvency practice is built on being empathetic, remembering we’re dealing with other people’s money and trying to save it rather than liquidate it, but it will be different for our forensic accountants.

Quentin Digby: I think the fact that the regulators have taken an interest in culture has elevated its importance. Licence to operate issues are also much more significant now, especially in resources and financial services. We have seen examples of how much reputational damage can be done by the media and social media when a company does get it wrong.

Victoria Weekes: In recent years, both social media and globalisation have created a great deal more transparency. Now, when people see behaviours that aren’t in line with the corporate culture, they call it out. We are being held more accountable.

Quentin Digby: But sometimes the community view of corporate culture is a little troubling. A television current affairs show recently featured a segment about a company that had found a way to reduce the cost of its inputs. The commentator described it as having a dreadful corporate culture because it didn’t pass the savings on to its customers, but I don’t think that has anything to do with corporate culture. Companies make a profit by charging what customers are willing to pay.

Alan Deans: So how can you be both nimble enough to keep up with the times and also ensure you’re taking into account that different areas of your organisation might need different cultures?

Victoria Weekes: I think you need to listen to a very broad range of stakeholders, not just your customers, and be open to thinking about things differently.

Yvonne Willich: I think the most important feature of organisational culture is a genuine appetite for the truth and willingness to address any challenge. However, this is hard to measure. I’ve seen organisations try to build some positive behavioural measures into key performance indicators (KPIs) – and I’ve seen some not particularly good leaders who just manage what is being measured.

Quentin Digby: This raises the subject of incentive-based remuneration and, particularly, short-term incentives. The KPIs may have been achieved but how they were achieved reflects the culture and, sometimes, the measuring process doesn’t pick that up.

Cathie Armour: Part of this is having leaders with a vision for the corporation that focuses on the long-term objective of creating a sustainable business. Often this means incorporating broader community interests into your strategic objectives but, frequently, at the factory floor level, the key KPIs are quantitative ones that don’t take these other factors into account.

Yvonne Willich: Another thing I’ve observed is that the businesses that are able to take a longer term view seem to drive better behaviours than businesses that have that shorter term view.

Victoria Weekes: I think that KPIs are necessary but not sufficient. One should never take them as being absolute. For example, having a number of complaints could indicate a problem, but it could also indicate that you’ve got a good culture because complaints are being dealt with and responded to.

Yvonne Willich: One of the key variables in any organisation is how much confidence the staff have in processes that influence culture, such as whistleblowing. So one of the things a reputable staff survey ascertains is the extent to which staff consider people who deal with complaints to be both independent and have integrity.

We like to ask people at every level of the organisation which leaders they trust, and we’ve done this with companies that have as many as 7,000 employees. We generally get the names of about 20 leaders who are widely perceived to be behaving with integrity, and these are not always the most senior executives.

I think one of the foundations of trust is evidence that someone is acting contrary to self-interest in the interest of the company. It’s hard to trust someone who continues to drive a Porsche at the company’s expense even when the business is distressed.

Quentin Digby: One thing I find interesting is the difference in the way Australian and US companies approach whistleblower policies in practice. Here, from primary school on, our culture is not to be a “dibber dobber”. In that context, Australian companies aim to reassure employees that it’s “safe to speak up”. In the US, we see companies that have gone well beyond the “safe to speak up” objective into the “please speak up” space. They promote the idea that speaking out benefits the whole organisation and is genuinely helping the company. The danger in Australia is that, if employees are not actively encouraged to speak up internally, they will have more incentive to speak to the media or regulators instead.

Alan Deans: What role does the board play in ensuring that everyone within the organisation knows and understands the culture?

Cathie Armour: The board can model some of the behaviours it is looking to see. For example, if the board wants more openness in conversation it can model that in discussions with the executive team.

Malcolm Broomhead: The best way for it to gain traction in an organisation is for the chief executive officer (CEO) to go out personally and ask groups of employees what they think the company does well, what it doesn’t do well and what needs to change. This can then be summarised and incorporated into the performance management system. I believe that the culture of the company reflects the CEO and that’s why it’s important that it’s made explicit. If a board thinks that the culture is bad then you might give the CEO a couple of goes but, at the end of the day, you probably need to change the person in that role.

David Gonski: I think the board has a role in setting expectations. We’re very used to the risk appetite statement – perhaps we could have some sort of cultural aspiration statement. But I think this has to come from the bottom up to the board. It’s not something that I, as a board member, can make up and impose. And I don’t think that, if there is evidence of bad behaviour, the board can simply tell management to stamp it out because the board may not have all the details and nuances. Also, demanding that one thing be stamped out could suggest something you haven’t stamped out is acceptable. A framework for stopping bad behaviour is probably a better solution than blanket demands to stop it.

Alan Deans: Can I go back to regulators and the role they have to play in corporate culture?

Cathie Armour: At ASIC we don’t believe that we can or should regulate culture. We see our job as dealing with issues such as poor conduct in financial markets and the capacity for Australians to invest with confidence. But we often look at the outworking of issues that may be driven by problems with culture. We do think we have a role in starting a conversation about corporate culture and that we have an obligation to flag any problems that come to our attention both to the management of the organisation and, when we have an opportunity, to the board.

Malcolm Broomhead: Whether culture should be regulated is an issue I feel incredibly strongly about. If you define culture as values and behaviours and how people think then, if governments get into the business of regulating that, the last time I looked it was totalitarianism.

Victoria Weekes: I think it’s a good thing that the regulators are raising the issue of culture and encouraging debate because sometimes a bit of controversy is a good thing – it makes organisations stop and think, and it can prompt proper discussion at board level. But I also agree that culture can’t be regulated – not just because it can’t be reduced to a series of black and white statements but because the more we prescribe that, as long as you do A, B, C, D and E, everything is okay, the higher the risk that boards, management and staff will focus on what they have to do rather than what they should do.

David Gonski: I would say that keeping the lines of communication open with the regulators is much better than closing the doors. I also think that “if not/why not” is a good way to go so that, if the regulator or someone like Mark does suspect failures, they can ask the question “Why aren’t you doing this?” which the company must publicly answer. If the company has a good answer then, fine, the shareholders can decide; if they don’t like something they can remove the chairman or change the CEO or sell their shares.

Victoria Weekes: I might be naïve, but I genuinely believe that, for the most part, what the regulators and the community consider to be good behaviour will be aligned with good performance outcomes – over the longer term if not always the short-term. Coming back to something Malcolm said, I think the trick is to define what will help you to achieve your business strategy. If you can articulate that clearly and take steps to ensure that everyone in the organisation understands it, the light bulb will click on for them. It’s not a choice between making money and doing the right thing, it’s thinking through how the two actually work together.

Alan Deans: We’ve mentioned that the media and social media are quick to pick up on poor corporate culture, but how can a company communicate a positive culture and the impact this has on their financial performance?

Victoria Weekes: The media do like exciting stories and, from time to time, most organisations will have something published that they don’t like. But, if you behave in a certain way and have outcomes that are consistent, with a culture based on respect, integrity, customer service and performance, your overall reputation shouldn’t be tarnished.

Yvonne Willich: Psychologically people don’t mind bad news but they do dislike feeling manipulated when they sense that a business is trying to massage the message.

Malcolm Broomhead: The community accepts that big organisations make mistakes provided they are very open about it, say they’re going to fix it up and then keep people informed. People also want to know what you have learned from your experience.

David Gonski: I think we need to build the culture of, at times, accepting failure, as they do in America.

Cathie Armour: How do you manage to resist blaming people?

Yvonne Willich: I believe that has to come directly from the top. I can think of an example within our business where something went very much as it shouldn’t have and Mark sent out an email saying: “we are not interested in blaming people, we are interested in understanding this”.

Alan Deans: An article in a recent issue of the Harvard Business Review said that, if the company has a problem, you have to start by fixing the business and then the culture will follow.

Malcolm Broomhead: I disagree with that. I think you’ve got to change the culture to fix a company. I have worked with a couple of turnarounds and, in my experience, people fix the company because they know what must be done. In one case we needed to get profit up by 400 per cent. If you just tell people something like that you won’t get a response but, if you explain the problem and then ask what we can do, you can get some very, very powerful results.

Mark Korda: Typically companies in crisis change many of their senior people. And, often, when you take out the top level of management, straight away all of the executive general managers that actually know about the business start running it. It’s amazing how quickly change can happen.

Alan Deans: If you could do one thing to improve a company’s corporate culture what would it be?

Mark Korda: I would incorporate a psychologist or someone similar to be responsible for checking the culture and helping everyone in the organisation to understand and develop it.

David Gonski: I would remove the fear and admonition of honest failure. We have to be happy to own up to our failures, we have to learn from them and we have to work together to make sure they don’t happen again.

Yvonne Willich: I would piggyback that by being really rigorous in ensuring that the senior leaders are the kinds of people who are capable of behaving that way. You also need fairly rigorous feedback processes to ensure that what you want to happen is actually happening.

Quentin Digby: I think that something as simple as asking to what extent a person lives the values we aspire to can refocus attention and help to make sure that people are genuinely doing things in the right way.

Cathie Armour: My nirvana would be a world where, whenever it was appropriate, everyone felt empowered to challenge the behaviour or norms with people at the next level up and were confident that they would be listened to and respected.

Malcolm Broomhead: I would like to see a culture that is driven by the CEO, involves employees in its formulation, is explicit and is considered equally as important as financial and other outcomes.


Mark Korda
PARTNER, KORDAMENTHA

Yyonne Willich
CORPORATE PSYCHOLOGIST, KORDAMENTHA

David Gonski AC FAICDLife
CHAIRMAN, ANZ BANKING GROUP; COCA-COLA AMATIL; UNIVERSITY OF NEW SOUTH WALES FOUNDATION

Quentin Digby MAICD
PARTNER, HERBERT SMITH FREEHILLS

Victoria Weekes FAICD
CHAIRMAN, ONEPATH SUPERANNUATION AND FUNDS MANAGEMENT

Cathie Armour GAICD
COMMISSIONER, AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Malcolm Broomhead FAICD
CHAIRMAN, ORICA; ASCIANO

Alan Deans
DIRECTOR, LAST WORD COMMUNICATIONS