Directors must drive culture from the top 

Directors overwhelmingly believe greater boardroom focus on culture will lead to better long-term company performance, according to new research from the Australian Council of Superannuation Investors (ACSI) and the Australian Institute of Company Directors (AICD).

The research – Governing company culture: Insights from Australian directors – a first of its kind, is a collaboration between investors and directors to understand how culture is overseen, assessed and influenced in ASX listed companies. 

The research draws on interviews with experts and senior directors of ASX 50 companies to provide perspectives on company culture from inside the boardroom supplemented by desktop analysis of public disclosures. It also provides directors with practical guidance about overseeing, assessing and influencing company culture. 

Report conclusions include: 

  • Culture is the responsibility of directors, not just senior management. Directors can use a range of practical methods to exert significant influence over the company, while recognising that management must take the day to day lead in delivering the boards expectations. 
  • Company culture is an increasingly high priority. There has been a significant shift in the focus on culture over recent years, with it now firmly in the spotlight for directors.
  • Directors see the link between culture and long-term performance. Directors feel that culture is extremely important to the long-term performance of a company.
  • Effective oversight of culture requires active and curious directors. Data and metrics relating to culture can be made widely available, but in order to be effective, individual directors must be curious, persistent and willing to synthesise the many formal and informal sources of information. Directors must be alert to an overly optimistic picture of culture from management. 
  • There is limited public disclosure on culture. Investors would value greater disclosure to discern companies’ cultural strengths and weaknesses. Yet practices amongst ASX 50 companies shows wide variance in public disclosure and there is a lack of market consensus regarding the most valuable metrics to report against. This is an area where there should be further dialogue between directors and investors. 

“Investors have long understood the link between company culture and long-term value creation, and the damage poor culture can have on company performance,” said ACSI CEO Louise Davidson.

“In recent years investors have noticed greater focus on culture by boards, partly due to directors having seen the damage poor culture can cause. We hope that this research will be a useful tool for directors in examining company culture and will strengthen the understanding that boards have of their role in overseeing, assessing and influencing culture.

“The ACSI/AICD research shows that directors overwhelmingly see that culture isn’t just a job for management. The role of the board is crucial.  That wasn’t a common view five years ago.

“Investors are keen to work with directors to promote positive company culture, which will benefit not only long-term company performance but also employees and other stakeholders.” 

AICD Managing Director and CEO Angus Armour, said, “In the Royal Commission final report, commissioner Hayne was critical of a lack of oversight of corporate culture and pointed to a need for a significant shift in intensity in the board’s oversight of non-financial risk.

“Almost two years on and insights from this report show that directors are acutely aware of the importance of culture in driving company performance, and that directors take a sophisticated approach to its oversight.

“COVID-19 has presented many new challenges for directors in this area but it’s apparent that many boards had the foundations in place to successfully manage the workplace shift.

“Now, it is just as important as ever that boards make clear statements about what they are doing to understand the culture and practices of their organisation, as well as taking the necessary steps to ensure effective oversight.

“It is the responsibility of the board to set a clear tone from the top on their cultural expectations of management and of themselves. But they must do more by interrogating a wide range of data points to constructively challenge management’s perspective.  

“It is hoped this research will serve as a useful guide for all directors as they examine their own company culture and seek to build successful, sustainable organisations.”

Media contacts: 

Nathan Robertson (ACSI): 0423 874 662 nrobertson@acsi.org.au 

Maegen Sykes (AICD): 0439 167 567 – MSykes@aicd.com.au 

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