Why do we engage on corporate culture issues?
Corporate culture can have a profound impact on a company’s reputation, social license to
operate, and commercial value.
Poor corporate culture can lead to misconduct, which can impact corporate sustainability, profitability and reputation and impact the value creation for investors.
Equally, a robust corporate culture can contribute to the attraction and retention of
top-end talent, improve performance and productivity and appeal to investors as
a more desirable and sustainable option to their competitors.
Our focus includes the financial impacts of poor culture, along with how the board oversees and guides corporate culture.
How do we engage with companies on corporate culture?
Corporate culture presents a set of unique (often intangible) risks and opportunities which can be challenging to identify, manage and measure. With this issue, the destruction of value is easier to demonstrate than the creation of value.
Unhealthy corporate cultures can develop within departments or operational ‘silos’. If high risk behaviours go unchecked, this can lead to major financial losses.
ACSI’s Governance Guidelines set out a clear statement of our members’ expectations about the governance practices of the companies in which they invest, including on culture.
Key expectations of companies include articulating their values to assist in setting the tone for behavioural expectations of stakeholders, creating a ‘speak-up’ culture that allows for detection of poor behavior, and encourage a ‘no blame’ culture where it is safe to make
mistakes and learn from them.
We encourage company boards to regularly assess culture to identify any issues, address the issues identified and assess whether any action taken has been effective. We also encourage companies to disclose the action they take to support a healthy corporate culture, as disclosure further emphasizes the importance of corporate culture. 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.
How are companies responding?
ACSI has engaged with numerous companies over the last few years and seen key improvements in standards of codes of conduct and whistleblowing systems.
In 2019, ACSI and our members identified 13 companies as engagement priorities on corporate culture. ACSI engaged with these companies, in some cases numerous times, and by year end, all had made improvements to their practices.
Prompted by ongoing revelations of poor conduct in the financial services sector and our own research, ACSI continued our discussions with seven companies on improving disclosure and/or implementing codes of conduct and whistleblowing systems. Over half of these updated, or are
updating, their codes of conduct and improved whistleblowing systems after we raised our concerns.