The role of culture, values and behaviors in corporate governance is on the rise. For the past two decades, the quality of boards of directors has been associated with structural board factors, such as the number of independent directors, the separation of the roles of the board chairperson and CEO, and the organization of board committees. These variables may be relevant, but do not guarantee per se better decision making and governance. In fact, in several major recent corporate governance crises, the boards involved had many of the structural characteristics of effective boards. Yet their companies crashed.
Currently, there is a growing consensus on the positive role of corporate culture on effective governance. Institutional investors are demanding that investee companies disclose indicators of the firm’s culture. In some recent corporate governance guidelines, regulators refer to the positive role of culture. The main problem is that there is neither a shared definition of culture, nor a reference on how to measure it.
The 2022 IESE Center for Corporate Governance Survey on Boards of Directors(1) included a chapter and questions about corporate culture at the board level. Board directors were able to identify a number of qualities that reflect a firm’s culture. The top factors identified were trust, transparency, compensation, employee development and work collaboration. There is no doubt that these factors have a significant influence in shaping the culture of any organization. The paradox is that participant board directors expressed that there is a low correlation between culture and certain board decisions. In other words, culture seems to be important but is not always reflected in a board’s actions. A possible explanation of these results is that the translation of culture into corporate decisions is not easy to pin down. Moreover, culture is just one more factor affecting decisions, together with the concern for improving performance or addressing a potential crisis. Culture is important for boards but is not the only relevant factor.
There is a huge need to better understand the role of culture in corporate governance. This was the theme of the 2022 IESE ECGI Corporate Governance Conference(2), held on IESE’s Barcelona campus on October 3rd. The conference program featured five dimensions of culture and their relationships with governance and board effectiveness. The dimensions directly connected with the 2022 IESE survey mentioned above.
The first dimension was the culture of boards of directors and how board members interact, as well as their effects on performance. Paul Healy (Harvard Business School) presented evidence that a board’s effectiveness is shaped by the directors’ engagement, interpersonal relations and board meeting management.
The second dimension was the connection of culture with the notion of purpose and a pro-social orientation that is pursued by the board, together with financial performance. Rodolphe Durand (HEC, Paris) discussed the conditions under which firms with a clear culture support a purpose and can achieve better performance. The main mechanisms described were employee engagement, customer appeal and support from other key stakeholders.
The third dimension was the role of executive compensation. Alex Edmans (London Business School) presented the results of a large survey on how CEO compensation has evolved over the years, the level of pay, role and form of variable compensation, and the relevance of long-term performance-based incentives. In his presentation, Edmans discussed how compensation also shapes the notion of fairness inside an organization and influences corporate culture.
The fourth dimension centered on organizational design, boards and senior managers – what Harvard professor Alfred D. Chandler defined as “the visible hand”. Robert Gibbons (MIT) presented a model of organizational design – with the visible hand of governance leading the organization and where culture becomes very influential in organizational design effectiveness. Culture affects how people work and perform in organizations. Consequently, culture can derail good strategies. Nourishing corporate culture and caring about its interaction with governance and management are key for effective organizations. 
The final dimension focused on the presence of women on boards of directors and its effects on organizational performance. Jillian Grennan (Santa Clara University and University of California, Berkeley)  presented empirical work highlighting the positive effects of board diversity on employee diversity and improving the culture of community building. In particular, she noted that an important outcome of board diversity is cognitive diversity, a quality that helps improve decision-making effectiveness.
While the papers presented at the conference are still works in progress in the field, they share two major features. First, they discussed and confirmed the role of key dimensions of corporate culture in effective decision making at the top. Board dynamics, executive compensation, corporate purpose, organizational design and diversity are features of a corporate culture that can have a positive impact on the quality of board decisions. Second, boards of directors and institutional investors should reflect more deeply on the dimensions of each firm’s culture that may impact the quality of decision making and, eventually, performance. 
The rising role of culture greatly expands the monolithic lens of financial dimensions through which shareholders and boards look at corporate performance. The conference underscored that culture variables have a considerable influence on the quality of decision making and should be taken seriously in corporate governance.

(1) See Y. Kasai, G. Ormazabal and J. Canals (2022):  IESE Survey on Boards of Directors: Corporate Purpose, Culture and Strategy. IESE Publishing.
(2) Visit the 2022 IESE ECGI Corporate Governance Conference Website here.