Topics:   Corporate Governance

Topics:   Corporate Governance

December 8, 2017

Culture: The Board’s Expanding Frontier

December 8, 2017

With headlines trumpeting high-level firings for “inappropriate behavior” in a variety of domains, it’s become more obvious than ever that corporate culture matters, and that boards should oversee it. So what exactly is corporate culture, and how can it be overseen? These questions might sound new, but they are as old as the corporate governance movement that began some 40 years ago when NACD was founded. Indeed, for the past four decades, the role of the board in overseeing corporate culture has been growing in breadth and depth, and much can be learned from history.

  • The Foreign Corrupt Practices Act of 1977 made the board a vigilante against foreign bribes. The original law made it illegal to do business abroad “corruptly” and required “internal controls” through oversight of books and records.
  • In 1987, the Committee of Sponsoring Organizations of the Treadway Commission put the board on alert against misdeeds not just in faraway lands but down the hall: its Treadway report required independent audit committees to prevent fraud in general.
  • Another decade later, in 1996, the Delaware Chancery Court’s decision In re Caremark International Inc.said that directors have an affirmative duty to seek reasonable assurance that a corporation has a system for legal compliance. Soon thereafter, NACD published its first handbook on ethics and compliance, authored by NACD pioneer Ronald “Ronnie” Zall, an attorney and educator then active in the NACD Colorado Chapter, which later established the Ronald I. Zall Scholarship in his honor.
  • In late 2007, as global equity markets went into panic mode, NACD forged Key Agreed Principles of Corporate Governance for U.S. Public Companies, highlighting all areas of agreement among management (the BRT), directors (NACD), and shareholders. Our report, published in 2008, stated that boards must ensure corporate “Integrity, Ethics & Responsibility.NACD Southern California Chapter leader Dr. Larry Taylor began writing on “tone at the bottom,” publishing a series of articles and books on the topic over the next several years.
  • And now, in 2017, board oversight of culture has become more important than ever. Our NACD 2017 Blue Ribbon Commission Report on Culture as a Corporate Asset provides useful guidance.

NACD’s 2017 Commission made 10 recommendations, starting with this one:

The board, the CEO, and senior management need to establish clarity on the foundational elements of values and culture—where consistent behavior is expected across the entire organization regardless of geography or operating unit—and develop concrete incentives, policies, and controls to support the desired outcome. The Commission report explains that these foundational elements involve two sets of standards: first, the values and behaviors that help the company excel and that are to be encouraged, and second, the behaviors for which there is zero tolerance.

As I write this blog in December 2017, the business media are continuing to report firings or sabbaticals for executives—some 20 in the past eight weeks alone—over reportedly inappropriate conduct or speech. Many of these pertain to sexual harassment, but the corporate desire to clean house seems to be spreading like wildfire to other domains. One executive was recently fired for making a disparaging remark about regulators in private conversation to a former employee. Could a policy have prevented this? I think so.

Click to enlarge in a new window.

The NACD Commission urges a proactive approach backed by policies and training. The good news is that many companies are taking preventive action.  A Wall Street Journal article titled “Harassment Scandals Prompt Rapid Workplace Changes” cites numerous companies that are instituting training to avoid bad behavior in the workplace. Some like Vox Media and Uber Technologies are responding to scandals. Others like Dell, Facebook, Interpublic Group of Cos., and Rockwell Automation are acting more proactively.

Boards in these companies and others are starting to oversee culture in proactive ways, but they still have a long way to go. Our most recent 2017–2018 NACD Public Company Governance Survey found that oversight of culture is stronger at the top than at lower levels, but that boards are taking steps to correct the imbalance.

The best cultures don’t happen by accident. They are intentional. They happen when a company makes a concerted effort to foster a good culture.


Bruce Doueck December 09, 2017

Tone and culture absolutely matter and are guided the team at the top. I have seen this first hnd manifest firsthand with five different CEOs working to achieve desired results in a variety of situations.

sankar krishnaswamy December 09, 2017

Excellent summary of corporate culture by Peter how it being shaped by NACD since the last 40 years and what more needs to be done.

As the world is shrinking into a global village with internet culture, social networking, diverse workforce interacting all across the company, mere accommodating the various culture, minorities and women will not be enough. Every great company wants to celebrate the diversity and culture – be it Diwali for Indian workforce, Cinco de Mayo for the Mexicans workforce, chinese new year for Chinese etc, by all employees with well thoughout fanfare, ensuring at the same time, that company still could deliver great customer service and bottomline results. When we bring unity from diversity, the workforce can enjoy meaningful collaboration and understanding each other esp. the culture and diverse background will reflect in their positive contribution towards the overall success of the projects for the company.

In addition, more encouragement and accommodation need to be given to minorities, women , by appreciation in public forum, encouraging scholarships for their children, more promotions and providing more opportunities in the management.

Finally, just as we like management staff to go thru ethics & behavior on a periodic basis, we need to augment it with more awareness on cultural and any other discrimination issues and what help is provided by the company to assist employees and management alike. As Peter suggested, this emphasis is likely to reduce imbalance on cultural understanding by non-management staff.

In my opinion, every Company and Board should take the corporate culture as an opportunity to go beyond what is expected on corporate culture norms but showcase to the world what classy company it has become mastering corporate culture behavior of all of its employees, management and Board.

Hal Shear December 08, 2017

Your recounting of corporate governance history from the perspective of culture is dead on. It makes clear to all directors that they need to place culture, in all it’s components, at the top of their agenda at every opportunity.