These eight factors of corporate culture are right up there with financial performance as something high-performance boards track.
Just the title of this article makes governance experts recoil. Boards have always been advised to stay out of organizational management and that includes human resources issues. Yet, as organizational culture continues to emerge as critical to organizational performance, boards are finding themselves having to engage in some non-traditional behavior.
Boards in today’s world are expected to work with the CEO to define the organizational culture expected and the measures that will assure adherence to the values. In October, the corporate consulting firm KPMG issued a report called “OnRisk 2020: A guide to understanding, aligning and optimizing risk”. The report included “talent and culture” as risks of which the board should become more aware.
More and more boards are holding CEOs responsible for leadership development and succession programs, tracking regular measurements of employee engagement and innovation and conducting regular outside reviews of human resources policies, pay and compliance.
No, the board should not be involved in hiring and evaluating personnel other than the CEO. Boards should not write nor review human resources policies no matter how capable they believe themselves to be. Hire an expert if you doubt the quality of your policies. Boards should not get involved in managerial or employee disputes except to assure policies exist for fairness and considerate attention to complaints. Talent considerations creeping into the governance literature does not mean devolving into HR operations but it does mean boards must expand their oversight and performance tracking purview. Let’s explore just exactly what that means in today’s governance practices.
The board bears responsibility for ensuring the values of the credit union’s corporate culture meets its expectations. Corporate culture refers to the way the organization goes about treating its internal personnel and the expectations for behavior across the organization. Defining these expectations is customarily done by working with the CEO to lay out explicit values for how the board wishes the organization to run. Values like integrity, innovation, employee development investments, respect, being member-centric, and stewardship, all tend to show up in culture values statements.
In conjunction with defining the culture expected in the credit union, the board should have regular metrics that confirm the team is meeting the cultural values as defined. Consistent evidence suggests a clear relationship between a high-performing organizational culture (consistency across the values publicly identified) and organizational performance in both financial and member value.
Leadership Development and Succession
The board also bears responsibility for ensuring there is a robust leadership development program and a well-defined succession plan all the way through to front-line supervisors.
According to Gallup, the foremost employee engagement resource, investment in developing leaders pays immediate dividends across all performance factors. Encouraging employee career development and having clearly identified career paths represent some of the most important characteristics of the highest performing organizations.
These aspects of “organizational culture” should not be left to happenstance but should be defined, expected and measured in regular executive reports to the board. The frequency with which a board may check in on development and success is a board’s prerogative. It could range from annual to quarterly in high-performing boards.
Since the 1980s, organizational performance research has zeroed in on “employee engagement” rather than employee satisfaction as a key determinant of overall organizational health and performance. If your board doesn’t understand this difference or is not up-to-date on the employee engagement research, it might make for a good board education session from your executive team. While Gallup has received the most recognition for its research here, many other national and international organizations now provide consulting about employee engagement.
What gets measured gets delivered is the old maxim. If you’re serious about employee engagement, you will measure it throughout the year and include regular management development around employee engagement leadership behaviors.
Everyone talks innovation but not everyone sets it as an expectation and tracks how well the organization does with it. I recently served on a board that took this seriously and had the CEO report quarterly on innovation initiatives and their progress, including those that didn’t work out. I frequently ask managers who consider themselves innovative to identify their most recent innovative initiative within the last six to 12 months. If they can’t rattle off their achievements, they are not being innovative. What’s your organization’s innovation track record?
Respect and Service
These two “values” show up frequently on organizational culture values. Respect certainly speaks to the manner in which we treat one another as well as the member. A board that receives an annual report on employee grievances and whistleblower activity can sense the “respect quotient” in an organization. A board that receives a regular (quarterly?) measure of members’ perception of service can sense consistency of attention to this value and how the executive leadership responds to unwanted fluctuations in service commitment.
With a link to employee engagement, respecting employee ideas and suggestions is one of the top five managerial behaviors that enhance employee engagement. A manager who has not had an actionable employee suggestion in the last six to 12 months is not actively encouraging input. How many innovative ideas for improving quality or efficiency have come from employees in the last year at your credit union? Yes, boards can get an annual or bi-annual report on this as a demonstration of commitment to the organizational value.
While organizations certainly catch such big integrity failures as embezzlement, theft of organizational property or harassment, many small fractures in organizational integrity may be occurring on a regular basis. The integrity issue has become acute in the last decade.
The July-August issue of the Harvard Business Review recently dedicated significant space to examining how organizations are performing on tracking and ensuring integrity in behavior and decision-making. The issue even presents an interesting annual survey of employees that inquires about “observed breaches of integrity” in the organization as a means of tracking how well we walk the integrity talk.
In all, the “talent” issue has made its way to the boardroom as a fiduciary responsibility. These factors of corporate culture are right up there with financial performance and member value performance as a “dashboard” that high performance boards track.
Regular CUES columnist and seminar leader Les Wallace, Ph.D., is president of Signature Resources and author of Principles of 21st Century Governance. He is a governance consultant to boards in the credit union, community banking, healthcare, professional association, manufacturing and governmental arenas.