Corporate governance and culture: Moving beyond box ticking

Cliches become cliches for a reason, and ‘culture eats strategy for breakfast’ is one such example. As experts within the people profession, you will know culture is multifaceted; that it is hard to define, harder to measure – but that it is everything.

Since the release of its 2016 paper Corporate Culture and the Role of Boards (on which the CIPD was a partner), the Financial Reporting Council (FRC) has taken an ever increasing interest in people issues, with a recognition that culture is a critical enabler of sustainable long-term performance. The recently updated Corporate Governance Code requires PLCs to provide information on employee engagement and how they are capturing employee voice. For large private companies, the Wates Principles provide similar guidance.

This all presents a huge opportunity for HR leaders to play an integral, expert and unique role at board level, representing as they do (or at least should) people and cultural expertise within the business.

At this critical time for the profession, the CIPD is delighted to be collaborating with the FRC, as the regulator develops practical guidance and insight around how businesses have adopted the revised corporate governance code and how organisations define, assess and monitor culture more widely. We are holding a series of discussions with senior people professionals and the FRC to gather insight, give feedback and share ideas.

I write this fresh from our first fascinating discussion, convened by CIPD Scotland in Edinburgh, where participants agreed that boards are taking more of an interest in people and culture issues. This has been fuelled in part by a number of external push factors – gender pay gap reporting, the revised code, increasing public and governmental scrutiny over executive pay, investor pressure and high profile corporate failures. One attendee also reflected that as boards become more diverse, the interest in people and cultural issues has increased. Those who have not come through the traditional route to chairman (and it is usually still a man) tend to see things differently, questioning how systems need to change to become fairer and more inclusive.

To be truly impactful, interest in these issues needs to go beyond box ticking. While the requirement to report gender pay gap, for example, is a good motivator, what matters is less the number than the narrative around it, the conversation it inspires and the action it leads to. As David Styles, FRC director of corporate governance, reflected, there exist plenty of examples of businesses that have viewed compliance with the code as a box ticking exercise – and then been damaged by a public corporate scandal.

Hearteningly, our discussion uncovered some innovative examples of businesses going far beyond box ticking. One has changed board reporting templates to start with an assessment of how the issue at hand relates to organisational purpose and values. Another has launched a colleague advisory panel, chaired by a non-executive director, which includes a diverse range of people from around the business (including contractors), and meets twice a year to discuss key strategic issues, feeding back to the board.

Outside of this discussion, I know one people director who has played a key role in reforming her organisation’s board committees, replacing RemCo and NomCo with a single ‘people and development’ committee (similar to what the CIPD recommended in our recent RemCo Reform report). Another has qualified as a company secretary, so sure is he of the opportunity for HR to take the lead on corporate governance.

This increasing appetite for people insights from boards has major implications for HR. Data is a critical component and we know from previous research that capability and governance around people data remains weak. The ability to present information to boards in a concise and compelling manner is also key. This is about influencing and wielding soft power, especially as the HR function is unlikely to have an executive seat on the board.

A lack of people expertise on boards can often mean, as one participant pointed out, that board members ‘don’t know what they don’t know’ when it comes to people and culture. That creates a space for HR leaders to step up, be brave and provide a push in the absence of a clear pull, creating compelling narratives of value in the face of sometimes vague and unfocused questioning.

I truly believe this is a now or never moment for the people profession: seize this opportunity and that ‘seat at the top table’ is a given. Let it pass by and risk being relegated to the operational and tactical. I hope more HR leaders will choose to join this conversation.

The FRC is developing practical guidance around the monitoring and assessing of culture in line with the corporate governance code. The CIPD is convening a group of HR directors in London in October to input into this work. The CIPD is also developing further research and thought leadership. If you are an HR leader interested in getting involved, email k.jacobs@cipd.co.uk

To get involved with CIPD Scotland activity, email Lee Ann Panglea on l.panglea@cipd.co.uk

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