Every quarter Grant Thornton surveys more than 2,500 businesses in 36 economies on key economic trends such as optimism, profitability, employment and wage growth. When we recently asked about the role of culture, we found that that half of businesses have culture as a standing item on their board agenda, while 71% are now establishing internal controls that address culture and employee behaviour.
From the UK Financial Conduct Authority’s spotlight on culture as a driver of customer outcomes, to the Securities Exchange Board of India’s insistence that boards set the values for the company to follow, regulation is playing a key role in pushing culture up the boardroom agenda. Regulators recognise that culture shapes employee attitudes and behaviour in a way that rules alone can’t. A tick box approach to compliance isn’t enough. Regulators are keen to ensure that the right culture is fully embedded into governance and risk management.
Yet as we explore in our new report, Beyond compliance: The building blocks of strong corporate culture, regulation is only part of the story. The world’s most successful businesses are marked out by the strength of their culture – defining aspirations, spurring innovation and inspiring confidence. When management guru, Peter Drucker, reportedly said that “culture eats strategy for breakfast” he didn’t mean that strategy isn’t significant – rather that it can’t be executed effectively without the foundations of a strong culture. It’s telling that when we asked IBR survey participants what factors are most important to their reputation and brand image, some of the attributes that rated above culture, such as the conduct of the senior management team and relationship with employees, are fundamental building blocks of a healthy corporate culture. So even if firms don’t rank their culture as one of the top factors affecting their reputation, it still has a decisive influence on conduct, performance and product and service quality.
So what defines culture and how can it be moulded into a valuable source of competitive strength? Culture has many facets, but ultimately it comes down to the values, attitudes and behaviour that guide your operations. While some people think that culture just happens, our experience and research underlines the extent to which it can be actively shaped, embedded and reinforced through four key building blocks:
- Understand your culture - This not only includes examining the formal drivers of culture such as leadership and people management, but also evaluating whether your culture is enabling or holding back strategy.
- Set your culture - The bedrock of which is a code of conduct. It includes clear expectations about required behaviour and supported by open communications among employees.
- Test your culture - Culture should be tangible and practical. A good way to test how it’s working in real life is to pick a key business challenge and judge whether you’re confident you can tackle it. If there’s any doubt, you can evaluate the impact culture is having on your ability to achieve results.
- Refine and improve your culture - A living culture is built into senior managers’ objectives and strategic decisions. You can support this by asking them what impact culture has on their daily decisions and activities.
Lastly, cutting across these building blocks is the critical importance of authenticity – a culture that comes from within rather than being defined by regulators. Your people will see your culture as something they want to live up to. In turn, customers, regulators and other external stakeholders will be clear about what you stand for and be confident you can deliver.