Why is it important?
Investors recognise that poor corporate culture represents a material risk to the value of their investments. A healthy corporate culture can contribute to brand value, attract talent and promote performance and productivity. Poor corporate culture can have a profound impact on a company’s reputation, social licence to operate and value. Loss of social licence to operate puts companies at risk of reputation damage, intervention by regulators, and loss of customer and community support.
Our view
There are many factors that influence corporate culture, including the role of directors and senior management in setting the tone, and the development and implementation of systems and processes to facilitate ethical culture. Ultimately, responsibility for good culture rests with the board. Companies should articulate and disclose their values to assist in setting the behavioural expectations of employees, contractors, suppliers and other partners.
Codes of Conduct and whistleblowing systems are also important resources that a company can leverage to support good corporate culture. A Code of Conduct can support the organisation’s purpose, values and principles, and act as a behavioural guide for employees and others who influence the organisation’s reputation (including contractors and suppliers). Effective whistleblowing systems support a healthy corporate culture by encouraging detection and correction of any poor conduct.
Boards should regularly assess culture to identify any issues, address the issues identified and assess whether any action taken has been effective.
Companies should disclose the action taken to encourage and support a healthy corporate culture, as such disclosure provides valuable information for investors and further emphasises the importance of corporate culture.