On 20 July, the Financial Reporting Council (FRC) published a report on the results of its study of the relationship between corporate culture and long-term business success in the UK, ‘Corporate culture and the role of boards’.

The FRC explains in its press release:

• ‘stakeholders and society in general have a vested interest in healthy corporate values, attitudes and behaviours that lead to sustainable growth and long term economic success’

and the report:

• ‘explores the importance of culture to long-term value and how corporate cultures are being defined, embedded and monitored.’

The key findings of the study include:

1. The need to recognise the value of culture. A healthy culture – how we do things around here – is described as ‘a valuable asset, a source of competitive advantage and vital to the creation and protection of long-term value’. It remains the role of the governing body (or board) of the organisation to determine its purpose and ensure that its values, strategy and business model are aligned. The board should not wait for some organisational crisis before focusing on culture.
2. Leadership. Leaders, in particular the chief executive, must embody the desired culture, embedding this at all levels and in every aspect of the business. Boards have a responsibility to act where leaders do not deliver.
3. Integration. The values of an organisation need to be integrated throughout every aspect of its activities, to inform the behaviours which are expected of all employees and suppliers. Steps should be taken to empower and resource those whose role it is to embed culture and to assess its effectiveness. This includes HR, internal audit, ethics, compliance and risk functions. The company secretary or governance professional has a particularly important role to play here.
4. Measurement. It is a cliché that what gets measured gets done, but it is nonetheless a truth. The governing body is responsible for understanding behaviour throughout the organisation and to challenge management where the desired culture and actual behaviours are misaligned. Boards should devote sufficient resource to evaluating culture and consider how they report on it.
5. Openness and Accountability. These are critical to good governance and will be demonstrated in the way in which the organisation and those who act on its behalf conduct themselves, and how they engage with and report to a wide range of stakeholders.
6. Alignment of values and incentives. This alignment must happen so that only good behaviours are rewarded.
7. Effective exercise of stewardship. Culture is not solely the responsibility of the board. Investors and other stakeholders should challenge themselves about the behaviours they are encouraging in companies and to reflect on their own culture.

The full report is available on the FRC website http://bit.ly/2a4f74Q