Saturday 6 August 2016

Where Corporate Culture Has A Role In How A Company Is Run

Those who had lived long enough would have observed crises come and go, including those in the financial markets. While some could have forgotten about the global financial crisis triggered by the sub-prime loans in 2008, the side effects from that crisis are still unfolding and some of the mysteries are still unrevealed.
Last year, the Bank of England released the Fair and Effective Market Review Report which covered the wholesale fixed income, currency and commodity markets where their value and scale affected many people globally through their influence over borrowing costs, currency exchanges and commodity prices, yet these markets remained a mystery to most people on the streets.
The report, among others, recommends that the standards, professionalism and accountability of individuals involved in those industries need to be raised. Obviously, such recommendation is aimed at ensuring their conducts and behaviours remain in check.
Last week, the Securities Commission Malaysia (SC) issued the draft Malaysian Code on Corporate Governance 2016 (MCCG 2016) for public feedback. What is interesting is that the MCCG 2016 is adopting an “apply or explain an alternative” by emphasising on the intended outcomes of the respective principles of corporate governance practices instead of just the recommended processes.

These two documents, when put together, would provide us with the idea of how regulators are focusing on conducts and behaviours of institutions under their regulations. If we extend this further, culture is now considered an important component of governance, as culture in a simple definition, is “how things are done here”. 
This does not suggest that culture was not important before. It could also been that principles and protocols established in many organisations were overridden by the “accepted day-to-day practices”. So, culture could also work in negative ways as well.
Why should the board of organisations, for profits or otherwise, be interested about the culture in the organisations which they lead? 
In the words of the South African governance icon, Mervyn King: “You all have heard of ‘the tone at the top’. I talk about ‘the tone at the top, the tune in the middle, and the beat of the feet at the bottom’. The board and top management have to make sure that the whole company has bought into the strategy and is facing in the same direction. 
“I know from my executive days that if you get your strategy right and you get buy-in, you get ordinary people to achieve the most extraordinary things! But if you don’t get it right and it doesn’t fit in with the milieu of the day, you can have the most extraordinary people, but you won’t even achieve ordinary things.”
Perhaps, we could have overlooked the fact that conducts of organisations are the results of the collective behaviours of the people who work for them, right from those in the boardrooms, the C-suites to those running the factory floors and selling things to customers. 
As most organisations are recognised as separate legal entities by law, our minds could have been deceived by the legal structures and kept on perfecting rules and regulations on the conduct and behaviour of these structures but less on the essence, the hearts and minds of the people which form the structures.
If culture is critical to ensure organisations behave in ways which benefit their stakeholders, how would the board ensures the culture in their organisations is as such? 
Before we go even further, the first question that needs to be asked is whether culture has appeared on the agenda of the board before? If not, perhaps incorporating such discussion in the next board meeting would be a great start.
While management is responsible to ensure the objectives set are met, the kind of questions asked on the ways such objectives are achieved during board meetings could also set the tone for the right culture. 
If management is challenged on the effects of their operations on environment and people living within their operational areas, such interests from the board would remind the management that the ways business are operated also matter, not just the profits which they generate. 
This strong stand from the board about getting the right results using right ways would certainly influence the “tune in the middle” which in turns would determine the “beats at the bottom”. This should also be applied in other areas such as anti- corruption and gender equality.
While rules and regulations could provide deterrence for misconducts, culture could be more effective and cost-efficient in ensuring that values are created in the most beneficiary ways for the corporations and their stakeholders. The board certainly have their hands on the levers of culture and should not abdicate this responsibility in lieu of short-term gains and immediate bottom lines results.
This article was published in The Malaysian Reserve under the column Boardroom View

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