This session was chaired by Aleen Gulvanessian, Corporate Lawyer and Chair of Macfarlane Group PLC. Panellists were Laura Whyte, Non-executive director, Macfarlane Group, Tanya Gass, Partner at Norman Broadbent, Rafal Budzinski, independent consultant and former Senior Policy Associate, Corporate Governance and Stewardship at the FRC and Annabel Gillard, co-founder at LSE FORGOOD and advisory council member at the Institute of Business Ethics.
Building positive company culture
There has historically been evidence of resistance from boards on wanting to put culture on the agenda because they do not think they can reach a consensus. However, the UK Corporate Governance Code, last updated in 2024, now asks boards to report on actions and outcomes (eg, Principle C: Governance reporting should focus on board decisions and their outcomes in the context of the company’s strategy and objectives).
The Financial Reporting Council’s (FRC) Guidance to the Corporate Governance Code 2024 states that ‘A ‘positive’ working culture, one based on transparency, trust, respect and inclusion, supports better organisational resilience and performance’. A culture that is not aligned with the company’s purpose, values and strategy is simply unsustainable.
The FRC defines Culture as: a combination of the Values, Attitudes and Behaviours manifested by a company in its operations and relations with its stakeholders. Authentic and actionable business values are integral to organisational culture and companies should measure success using metrics based on those values.
There is a growing body of research into what makes a positive company culture
Culture is a huge driver of an organisation’s success and improved well-being. It should thus be included in valuations. Annabel published a report on this subject last year.
Alex Edmans’ 2012 report on Great Places to Work evidenced a link between employee satisfaction metrics and companies outperforming the rest of the asset market.
Recent Oxford research has found that the top 100 firms for wellbeing outperform the rest of the market by 1.8% per annum. Failures and scandals highlight negative cultures but we now have a growing evidence base around good culture too. Motivated and purpose driven staff deliver better productivity. Inclusion is linked to psychological safety and a ‘listen up’ culture to innovation. This is all about optimising the organisation’s most important asset: its people.
Culture as a means to ensuring long-term company sustainability
Good culture is integral to company sustainability. Growth, innovation, value and strategic direction are delivered by people.
As we have seen, it takes decades to build a trusted brand but can take a day to destroy it. For example, regarding the Post Office Inquiry: Edward Henry KC said that it was the “malignant culture” of the Post Office that destroyed the lives of the victims of the Horizon IT scandal, not the system itself.
Talented candidates will ask about a business’s culture before joining the organisation to ensure there is alignment with their own values. This means having a solid culture in place is crucial to attracting top talent.
John Lewis case study
John Lewis is known for its strong culture, especially in terms of its partnership structure. The company’s values are supported by behaviours. Pre-2008, John Lewis was looking at a big expansion programme and did not want to risk diluting the organisation’s cultural DNA.
Instead, the Partnership produced six values/behaviours and wrote them into the appraisal system to make sure it mattered.
What should be measured
Culture means different things to different people so can be hard to define but common metrics can be identified (eg, in FRC guidance). Measurable metrics can be found in Principles A-R of the UK Corporate Governance Code and boards have a range of tools at their disposal. Noting the ‘comply or explain’ basis of the Code, the following Principles highlight the emphasis that boards need to place on purpose and culture:
Incentives breed behaviour via KPIs. Whilst management and the board shape culture via HR, employees themselves need to be empowered to sustain, embed and measure culture on the ground. To this end, boards should not have a culture separate to the culture of the business. Employees have an employment contract and are subjected to the employment handbook. However, both executive and non-executive directors are subject to service agreements and not the handbook. This misalignment must be carefully managed. A mistake can be seeing culture as a project rather than embedding it into the company’s strategy and operations on an ongoing basis.
Employee attitude feedback needs to have at least a 65% participation rate to be statistically valid. Looking at metrics like voluntary and involuntary employee turnover, measures of sickness absence, safety observations and accident rates can help in this regard. Helpful tools and frameworks include the Corporate Governance Code and its Guidance, the QCA Corporate Governance Code, the Wates Principles for large private companies and the FCA has integrated culture into its supervision framework.
Culture can be hard to measure but must not be considered in a vacuum or it can fall by the wayside until there is a crisis (by which point, it is too late).
The relationship between culture and technology
New techniques via emerging and evolving technology can give reads that were not previously available on a company’s culture (going beyond reliance mainly on company surveys).
The London School of Economics is working with the Financial Conduct Authority on what you can tell from the exact words used in complaints as a culture indicator. Glassdoor and LinkedIn offer insights into company culture too.
Arguably, the one key indicator of culture that a company can look at today is the question of how innovative the company is as this relates to levels of psychological safety (listening, openness to challenge and inclusion breeds innovation).
Considering the wider stakeholder base beyond investors
Customers put brand equity value in a retailer they can trust to do the right thing and reputational damage can diminish an otherwise viable product. Internal culture for staff, like at John Lewis, helps with customer retention too. Internal culture improves external customer delivery. Interest in culture from investors is also key as they hold boards accountable.
It is well understood now that the sustainable running of a business also involves taking steps to improve the economy and society that companies operate in.
Tips on shaping company culture
It becomes problematic when a company does not act in line with its stated values and purpose or does not have regard for its stakeholders. It is important not to only prioritise high commercial delivery in ways that can become unsustainable. This is why shaping culture is so important for a company’s success.
- Ask yourself and your board how important you think culture is and compare it to how the company is treating it – is there a gap?
- Assess your culture regularly using technology and quantitative and qualitative data.
- Consider metrics of culture, innovation and technology together.
- Ensure you are hiring people with values, sense of purpose and behaviour that fit the company’s culture.
- Holding managers and executives accountable to the same standards of conduct and behaviour as other workers, lends credibility to the company’s culture.
- Regarding UK/western companies operating in regions where societal norms are different: values have to be authentic and aligned throughout an organisation but can also be locally appropriate. Nowadays, if one office has tensions then tech can unearth that.
- Use developments in behavioural science to your advantage.
- NEDs may be less involved in the day-to-day running of the company but they are still members of the board and can help assess whether values are being demonstrated. For example, NEDs can circulate at events where employees are present, can observe interactions between staff and executives and can help set up whistleblowing procedures.
- Hiring external consultants to conduct board effectiveness reviews and cultural surveys can deliver greater depth to board evaluations. The Code requires that external board evaluations occur at least once every three years.
- Work with your company secretary to look into providing board training on ethics and culture.
- It should never fall to one director to set up culture. Everyone has a role to play.
- The Institute of Business Ethics has produced a briefing on how boards can evaluate culture.
On the role of culture in long-term value creation, Rafal Budzinski said, "Robust governance and a positive culture are the cornerstones of sustainable business and long-term value creation. What unites them is a clear, aligned strategy. In times of stress—when attention often shifts to short-term goals—strategic alignment helps ensure that culture is not sidelined. When supported by technological advancements and insights from behavioural science, this sustained focus on culture equips organisations to manage risks more effectively and unlock previously untapped opportunities.”
