Why is corporate culture important for investors?
Corporate culture plays a key role in driving company performance and good outcomes for employees, customers and stakeholders, while history demonstrates that corporate misconduct can have dire consequences for shareholder value. Poor corporate culture can facilitate that misconduct.
Conversely, a robust corporate culture can contribute to the attraction and retention of talent, the development and maintenance of reputation and trust and support the effectiveness and efficiency of operational management. All these elements can contribute to financial strength and resilience with research linking positive company cultures and better long-term company performance.
In the same way companies protect their financial capital, they should also protect, value and develop their workforce. The health, wellbeing and engagement of a company’s workforce can strongly influence the success of a company, and as more flexible ways of working are adopted, companies should be particularly careful that corporate culture is robust and well-managed.
How do we engage with companies on corporate culture?
Corporate culture presents unique and often intangible risks which can be challenging to identify, manage and measure. The destruction of value is easier to demonstrate than the creation of value.
ACSI’s Governance Guidelines clearly outline our members’ expectations about the governance practices – including culture – of the companies in which they invest.
These expectations include values the creation and enforcement of codes of conduct tailored to the risks faced by the business. Companies should have whistleblowing and bribery and corruption policies. A ‘speak up’ culture should be developed, in which concerns can safely be raised and investigated, with poor behaviour disciplined where necessary.
Corporate culture, supported by the board and the CEO, should encourage the organisation to be quick to learn from mistakes and change practices. The diversity within a company should be reflective of the society in which it operates.
We encourage company boards to regularly assess organisational culture, address any issues and ensure any action taken is effective. We also encourage companies to disclose the actions they take to support a healthy corporate culture, as disclosure further emphasises its importance. Overall, we believe that the board and senior management set the tone of culture and should monitor the drivers that shape culture and seek insights into how culture is aligned to the organisation’s values.