Culture is important in any enduring group of people. As Peter Drucker liked to say, “culture eats strategy for breakfast.” It has a powerful and lasting influence on groups of people of every size—nations, companies and teams. It is like the personality of the group. In companies, culture has been defined as “the way things are done around here,” reflecting priorities and values in practice, which constitute its real (not stated) purpose. 

Company culture can also be strategic and serve the long-term objectives of the firm by fostering such critical capabilities as innovation, client-focus, and attracting and retaining talent. Further, culture also represents an informal means of control that often goes beyond policies and procedures, which is why chief executives and board members are expected to set the tone at the top. But just as important is whether the company’s culture and purpose take sufficient account of the firm's responsibilities to its critical stakeholders. For all those reasons, there are increasing calls for boards of directors to pay more attention to their company’s culture. In 2019, State Street Global Advisors told its board members it expected them to be able to articulate, assess and monitor the company’s culture, and, when necessary, change it. BlackRock also asked board members to make culture a top priority. 

The importance of culture is manifest in the recent Boeing crisis. A new documentary film – Downfall: The Case Against Boeing – describes how some corporate decisions led to two fatal crashes of the firm’s 737 MAX commercial airliner.  Some evidence points out that the cause of the accidents, which left 346 people dead, was not just a technical design error or a supervisory failure from regulators. It blames the company's culture. Short-term profits became the top priority, and the company failed to incorporate (costly) processes that would have diminished the likelihood of accidents. The new regime that came to rule Boeing after it merged with McDonnell Douglas tended to exclude engineers from playing an important role in corporate decision-making. According to the documentary, safety and engineering rigor – long the key to Boeing’s success – increasingly took a back seat to profit maximization.

Regulators are now confident the technical problems have been fixed and the Boeing 737 MAX has returned to the skies. And the company has atoned for its sins by paying $2.5 billion in damages. But there remains the urgent question of whether the cultural problem has been fixed. Who is responsible for redirecting the culture at Boeing? If I were a member of Boeing’s board of directors, my main concern would be to make sure that the company has fixed its culture problem, something that takes time. 
What should a board of directors do to improve a company´s culture?

The board can guide the company in deciding what it wants its purpose to be. This means not only extolling the firm’s values but living them; not only declaring a high purpose but implementing it. 

 

 

The chairperson of the board plays a critically important role in improving board effectiveness, as evidenced by the experience of many boards of directors. A new Russell Reynolds report discusses data from a survey on the role of the board chair in developing the board’s culture and driving board performance: Director Performance: The High Impact Behaviors of the Most Effective Directors | Russell Reynolds Associates. Outstanding chairpersons help focus the board on relevant matters and actively facilitate high quality debates.

The transition to a net-zero economy is not easy for companies. Beyond the technology and financial dimensions, boards of directors should think about their firm’s leadership pipeline. Future leaders should not only understand the technical dimensions of climate change but should develop the leadership competencies needed to navigate great complexity. A recent Spencer Stuart article describes some of the leadership challenges of governing climate change in individual companies: Climate change – Addressing the leadership challenge (spencerstuart.com).

Assessing the firm’s environmental impact is a complex issue, particularly when evaluating activities of the company’s global value chain. The EU has recently approved a new EU taxonomy, which aims to determine activities that are green and environmentally sustainable and those that are not. The application of this taxonomy will take time, but will mean the regulatory labelling of businesses as either green friendly or green hostile. FTI Consulting  offers a discussion of this taxonomy that will be useful for board directors. Six Steps to Guiding Corporate Reputation While Responding to the Crisis in Ukraine (conference-board.org).

As discussed in this newsletter recently, the EU and the US are not moving in sync regarding environmental regulation. A  recent report offers a pertinent discussion of the SEC proposal of its climate-related disclosure rule for US listed companies: Different Strokes to Move the World? How the SEC’s Proposed Climate Disclosure Rule Impacts the ESG Disclosure Landscape | Teneo. The SEC’s goal is to help define standards of ESG disclosure for companies and offer investors comparable information. The report also compares the US SEC proposals with the ISSB and EU’s CSRD. Differences between the EU and the US approaches to environmental disclosure remain relevant. 

The horrible war in Ukraine and the resulting humanitarian, political economic crisis have created enormous uncertainty in companies and society. In a recent Conference Board report,  D. Dahloff discusses how companies’ reactions  to the invasion of Ukraine affect their reputation and credibility: Six Steps to Guiding Corporate Reputation While Responding to the Crisis in Ukraine (conference-board.org). 

Shareholder activism continues to grow. Lazard’s Quarterly Review of Shareholder Activism reports on recent data: Lazard.com | Lazard's Quarterly Review of Shareholder Activism – Q1 2022.  This figure marks the busiest quarter on record. Europe recorded 15 campaigns in that quarter, with France registering the highest number (27% of the campaigns). This is an intriguing figure for a country with strong formal and informal government intervention in the economy.

There were 73 new campaigns launched globally in Q1 2022. This figure marks the busiest quarter on record. Europe recorded 15 campaigns in that quarter, with France registering the highest number (27% of the campaigns). This is an intriguing figure for a country with strong formal and informal government intervention in the economy.

Special purpose acquisition companies (SPAC) still spark strong debates. On March 30, 2022, US SEC Chairman Gary Gensler announced a new proposal to strengthen investors’ protection  in SPACs. In the face of SPAC growth over the past two years, the SEC wants  to ensure that investors  in these vehicles receive protection similar to investors in initial public offerings (IPOs):  SEC.gov | Statement on Proposal on Special Purpose Acquisition Companies (SPACs), Shell Companies, and Projections.