Recent revelations [1] about the culture within big-four firm EY provide a stark reminder of how important informed oversight is and how damaging errant behaviour can be.

Hands down, the most persistent governance challenge is the obligation to exercise oversight over workforce culture. [2] 

It is, of course, a narrow and limited perspective to consider culture only as something to keep out of the headlines. More important is the ongoing operating environment within the organisation. 

The Gallup 2024 State of the Global Workforce report [3] notes that only 22% of the workforce in Aotearoa New Zealand is engaged with their role, 66% are not and 12% are actively disengaged. It also estimates that low employee engagement costs the global economy US$8.9 trillion, or 9% of global GDP: 

The majority of the world’s employees continue to struggle at work and in life, with direct consequences for organisational productivity [4] 

This would suggest that cost cutting and headcount fixation are short-term approaches. The real gain is in having engaged—and therefore productive—people in the organisation.  

Gallup focuses on the quality of managers, attributing to them 70% of engagement variance. Individual managers can themselves be disengaged or simply poor at what they do, but good ones will make a major difference. 

In a survey [5] of financial executives (not HR practitioners), 92% said that improving their culture would increase their company’s value but sadly just 16% thought their culture was where it should be. The same research pointed out that the issue generally lies in the gap between espoused values (formal policies and statements) and what actually happens on the ground. Disenchantment, cynicism and disengagement are short steps from there. 

This is consistent with the work of the Barrett Values Centre. [6] Its research has demonstrated that beyond a certain point the mismatch between personal and corporate value sets becomes an accurate predictor of organisational failure and likely collapse. 

It’s a forlorn and misguided belief that values and behaviours can be imposed from on high. As organisational culture practitioner Geoff Marlow notes, [7] each individual comes to the workplace with their own set of beliefs, skills, experience and sense of self at work. These may change to some extent in the context of a new workplace. Marlow’s view is that culture is an outcome of ‘vast, and frankly unfathomable complexity of the interactions between the mindsets of the dozens, hundreds, or thousands of people within an organisation’. Also, that while a culture of shared values may sound good, what actual happens in practice is a system of shared mindsets. 

An article [8] by New Zealand practitioners Winsborough [9] pointed out that an organisation’s proclaimed values bear no relationship to its financial performance. However, employee perceptions of managerial ethics and trustworthiness did predict productivity, profitability and the state of industrial relations. The article cited a sobering MIT study [10] looking at 1.2 million reviews across 500 companies. It concluded that there is no correlation between the cultural values a company emphasises and how well the company lives up to those values in the eyes of employees.  

The author highlights this profoundly dispiriting finding, emphasising the level of correlation as Zip. Zilch. Nada. ‘What a firm says it values and how people describe experiencing it shows no correlation at all.’ 

So, what does work? The MIT study alluded to notes five seemingly obvious things: 

• employees feel respected 

• leaders are supportive 

• the firm offers job security 

• leaders live the core values 

• absence of toxic managers. 

Interestingly the assessment of the top leadership team by staff shows the behaviour of that group is the key determinant by a factor of four in predicting a company’s culture. In his Stuff piece, Dave Winsborough outlines four simple things leaders can do: 

• Make sure your own behaviour is an exemplar of what you want others to do. 

• Make sure the values are actionable. Integrity is nice, but how do you do it? How should someone on the shop floor do it? 

• Explain why these values matter. Are you virtue signalling, or is there a reason to care and commit energy to behaving in these ways that benefits me, my whānau, friends and community? 

• Don’t be an ‘American planner’. Get out on the ground and understand the daily reality of life for people in your company.  

In the boardroom? 

So, what does this mean in the boardroom? The title of Bob Garrat’s seminal book still rings true, The Fish Rots from the Head. [11] It starts with the boardroom outlining and modelling expectations. Most high-profile culture disasters have been slated back to poor or negligent governance.  

Setting a framework of values and behaviours is not a quick job. It should involve those who must operate within it. The tablets-of-stone approach simply will not work. But, once such a framework is in place, the board must have a clear and transparent process for maintaining a line of sight across organisational culture and desired ethical behaviour within it. 

Ruth Sullivan writing for Board Agenda [12] notes some areas where boards commonly go wrong. These include:  

• not accepting that a healthy culture is part of their stewardship role and leaving it to the chief executive 

• seeing culture as an occasional rather than continuous issue 

• not taking quick action when things go awry. 

We suggest that organisational culture should be a permanent agenda item. Health and safety is almost invariably, so why not this? Culture can be added to the critical elements of the risk register. Make very clear to the chief executive the board’s ongoing interest in the area. 

Of course, mechanisms—including secure whistleblowing channels—for spotting truly bad behaviour are needed, preferably before it hits the headlines. While necessary, if these are enacted then something deeper is wrong. 

Governance codes around the world have been updated to reflect the board’s role. 

The UK Corporate Governance Code notes: [13] 

The board should assess and monitor culture. Where it is not satisfied that policy, practices or behaviour throughout the business are aligned with the company’s purpose, values and strategy, it should seek assurance that management has taken corrective action. 

Much of the workplace environment in Aotearoa New Zealand falls under the Health and Safety at Work Act 2015, which places very specific duties on boards. All directors should be familiar with these. 

In terms of ethical oversight, the King IV code [14] from South Africa is useful: 

The governing body should exercise ongoing oversight of the management of ethics and, in particular, oversee that it results in the following: 

1. Application of the organisation’s ethical standards to the processes for the recruitment, evaluation of performance and reward of employees, as well as the sourcing of suppliers. 

2. Having sanctions and remedies in place for when the organisation’s ethical standards are breached.

3. The use of protected disclosure or whistle-blowing mechanisms to detect breaches of ethical standards and dealing with such disclosures appropriately. 

4. The monitoring of adherence to the organisation’s ethical standards by employees and other stakeholders through, among others, periodic independent assessments. 

A practical checklist 

This may help boards keep a strong focus on this area: 

• Maintain organisational culture as a permanent agenda item alongside health and safety (grouped as people and organisational culture). 

• Include an annual deep dive into this area on the board’s work plan. 

• Add culture to mission-critical items on the risk register. 

• Broaden directors’ understanding of their health and safety obligations to include culture. 

• Clearly state values and publish them widely, together with the reasons for each item. 

• Create and publish a code of ethics. 

• Include in your annual report the statement of values and the board’s approach to ensuring these are lived within the organisation. 

• Provide opportunities for board members to experience the organisation at all levels. 

• Ensure recruitment processes are clear on the culture of the organisation and the behaviours that are consistent with the values required. 

• Include relationship and culture questions in a regular stakeholders’ survey. 

• Broaden the chief executive’s performance review to include internal and external opinions on lived values. 

• Have the board commission occasional, independent verification of organisation culture and workplace climate. 

• Establish clear, secure whistleblowing processes that flow through an independently monitored channel—and ensure the board has visibility of these. 

• Adopt zero tolerance of behaviours inconsistent with espoused culture and values. 

• Continue to drive for diversity in the boardroom and within senior teams. 

Notes

This article draws from an earlier resource commissioned by SportNZ entitled  
The Boards’ Role in Organisational Culture [15], which is sport-specific but broadly applicable. 

1. Stuff March 31 2024  
2. Peregrine, M. ‘The most persistent of all governance challenges’. Forbes.  October 2018. 
3. State of the Global Workforce  
4. Ibid 
5. Columbia Business School Ideas and Insights January 2019 
6. https://www.valuescentre.com/  
7. Marlow, G. Create Future Fit Culture blog. July 2023 
8. Stuff 2021  
9. https://www.winsborough.co.nz/  
10. MIT study  
11. Garratt, B. The Fish Rots from the Head. Harper Collins Business. London. 1996 
12. Sullivan, R. Board Agneda. 2017 
13. Financial Reporting Council. The UK Corporate Governance Code. London. 2018 
14. King IV Report on Corporate Governance for South Africa 2016. Institute of Directors in Southern Africa, 2016. p. 45. 
15. The board’s role in organisational culture