Why Don’t More Boards of Directors Pay Attention to a Company’s Culture?

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Jan 27, 2015

Twenty-first Century corporate governance is a busy job.

Acting on behalf of shareholders, boards of directors are paying attention to an escalating list of risks and rewards from a company’s undertakings. Like many activities within any organization, “the squeaky wheels get the grease.”

Other than in desperate situations such as “turnarounds,” culture seldom ranks as a pressing matter in the boardroom. That’s a big mistake.

During my tenure as a CEO, my Board of Directors never posed questions pertaining to corporate culture. I wasn’t surprised in the least. Jacobs Suchard Directors expected me to run their North American operation as an entrepreneurial enterprise, and as long as the returns were favorable, they assumed I was doing just that.

Boards pay attention to shareholder value

As with most Boards, their primary interest was shareholder value. As such they were keen to discuss the “hard”  variables – profit margins, efficiencies, head count, labor climate, and strategic initiatives.

Maybe it was the times; a quarter century ago, culture was beginning to come of age. And even though culture is a vital determinant of business performance, today’s Boards fail to give it the attention it deserves.

That is not the case at Google, Zappos, Whole Foods, and several other new age companies.

Envision Google without innovators, or Zappos cutting corners on customer service. Imagine Whole Foods selling processed foods loaded with saturated and trans-fats. This is difficult for us to do because of the cultural disconnect to what these organizations stand for.

Founders infuse corporate values

Founders infuse corporate values. In the early days of Zappos, Tony Hsieh asked his employees to help define the company’s culture. Ever since, employees submit a few paragraphs on what Zappos means to them.

These musings are added to a culture book that is updated annually. Zappos gladly ships this book anywhere in the world at no cost.

Has the Zappos culture improved business performance and shareholder value? Jeff Bezos thought so.

In 2009, Amazon bought Zappos for $1.2 billion. Bezos wanted Hsieh to stay at the helm, for good reason. In 2013, Zappos continues to amaze under this culturally insightful leader.

John Mackey of Whole Foods understands culture. In 1986, he instituted a policy whereby any employee can look up the salary and bonus of others, including the top management. Seemingly, if workers understood what types of performance and achievement earned certain people more money, he figured, perhaps they would be more motivated and successful, too.

Mackey admits to being constantly questioned about salaries. “People want to know why they aren’t earning as much as someone else.” Mackey tells them it’s because “that person is more valuable. If you accomplish what this person has accomplished, I’ll pay you that, too.”

Boards CAN help with a company’s culture

When the founders are gone, the culture baton is passed down a long line of chief executives. These leaders are responsible for perpetuating “the way” or making changes depending on the market environment or the needs of the enterprise.

Some do it well. Others do not. Boards can help. They determine that next line of CEOs and they keep an eye on corporate performance.

Boards are charged with providing perspective and input into the long-term business strategy, imparting strategic direction to management, and identifying risk and overseeing mitigation. There’s not a better way to deliver against these objectives than bringing insightful cultural discussions into the boardroom.

What do you think? Are corporate boards starting to pay more attention to culture? Do we need a new director recruiting criteria to realize greater attention to culture in the boardroom?

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