Now is the time for boards to take culture risk seriously and begin to find ways to understand it in advance of a toxic culture truly damaging an organization. The recent examples of bankruptcy at The Weinstein Company and the rapid loss of $2 billion in market cap at Wynn Resorts only serve to underscore the close connection between leadership and culture and toxic leadership and toxic culture with reverberations and repercussions not only on shareholders but stakeholders of all types.
In this second part of this blog series addressing culture oversight, I suggest three practical tools for boards to exercise proactive oversight on culture issues to enhance discussions that may already be in process. Embedded in these tools are the top ten questions the board should ask management about culture, as well as some of the key dashboard metrics a board should consider getting.
Tool One: Arming the Board With the Right Information From the Right Members of the Management Team
Your chief ethics and compliance officer (CECO) and another executive (perhaps the chief learning, human resources or talent officer) are all good resources to report to the board from time to time and regularly on issues of culture. Indeed, an empowered CECO may be the best bet as she should be reporting to the board (or a committee thereof) on a quarterly basis anyway. His or her dashboard of ethics and compliance metrics should also include some of the key culture metrics described in tool two, below.
Moreover, the board or appropriate committee (audit, risk, compliance, regulatory affairs) should have regular executive sessions with the CECO and perhaps develop more informal methods of regular communication such as a phone call check-in between the CECO and the chair of the audit committee, for example, something I have done in my executive career and to great benefit of the organization.
When a company of a certain size, maturity, and complexity does not have an executive of the appropriate stature taking care of culture issues, it may indicate that the CEO doesn’t think culture is that important. Moreover, if there is an executive who should be thinking about culture issues proactively but is not or is not allowed the ability and resources to do this (for example, budget for a culture survey), that presents another potentially serious culture red flag. Last, other red flags may emerge when senior executives are not able to provide the arguably correct answers to the top ten culture questions the board should ask (listed below).
The Top Ten Culture Questions the Board Should Ask:
For the CEO: What does culture mean to you, and what is the importance of culture to you personally as the leader of the company? How would you, as the CEO, characterize the culture of the organization? Is it healthy, improving, ailing, or under serious stress?
Does the company have an explicit culture program in place and, if so, what does it consist of? Is it intertwined and integrated with the company’s mission, vision, values, and strategy?
If there is no current culture program in place, what is management’s plan to deploy one? What is the plan’s timing, budget, leadership, and details?
How do you measure culture at the company?
How do you keep management at the highest and middle levels accountable on culture issues?
Is there a member of senior management or the c-suite with an explicit remit to manage corporate culture?
Does the company’s performance management program and incentive structure incorporate cultural considerations and metrics? If so, how? If not, what is the plan to incorporate such considerations?
What are the top culture issues at the company today (good, bad, or ugly)?
When there are difficult culture issues (the bad and ugly kind), how does management handle them?
Is management aware of investor, employee, customer, and other stakeholder concerns or perspectives regarding corporate culture? Has there been any stakeholder reach-out on this issue?
Tool Two: The Customized Culture Dashboard
The company’s board should be reviewing a customized dashboard that is updated regularly. Such a dashboard should be unique to each organization but should include many of the following qualitative and quantitative considerations and metrics.
Ethics and Compliance (E&C) Metrics
E&C risk assessments – key data, key topics
Helpline or hotline trends and key issues
Training and communications trends and topics
Pulse surveys on ethics and compliance program
Investigations – type, process, and outcome
Periodic internal and external evaluations of the effectiveness of the E&C program
Employee and Culture Survey Metrics
Culture climate metrics geared at workplace issues including supervisory relationships
E&C program benchmarking against peers
Human Resources Data
Performance management results (with financial and non-financial metrics, as well as environmental, social, and governance metrics, included)
360 leadership assessments or the like
Tool Three: Benchmark Your Company’s Cultureand be Prepared to Intervene
Understand where your organization fits in the spectrum of workplace culture. An example of useful benchmarking may involve using the Ethics Research Center’s Global Business Ethics Survey. Get a culture survey done. Slice and dice it, and work to understand its results. Ask management about the culture climate, the temperature and how it is reflected at different divisions, business units, and more. Do your company’s culture surveys have consequences or are they merely window dressing? If the latter, why do them? If the former, what are the actual concrete consequences? Do “golden boys/girls” who are abusive get counseled, disciplined, or terminated when infractions occur? Or are they ignored or merely slapped on the wrist for things that get others fired?
If and when a culture issue threatens to suffuse the wellbeing of an organization and its leadership, the board must be prepared to intervene in a crisis—before or after it unfolds. The board’s keeping its finger on the cultural pulse and temperature of the company is vitally important to the long-term viability and sustainable profitability of a company.
With Gloom Also Comes the Promise of Light
With all the doom and gloom that toxic workplace culture issues raise, I would also underscore a hopeful note to boards and executives struggling to deal with the organizational cultural issues so clearly brought to the fore in 2017. Unlike the regulatory responses to the excesses of 2002 (Sarbanes Oxley) and 2008 (Dodd-Frank), I would suggest that the appropriate response to cultural issues that are emerging is not new regulation but self-regulation, a voluntary upping of the corporate cultural ante by elevating the importance of ethics, compliance, and risk management within organizations, powered and driven by a strong culture of accountability and “walk the talk” from the top. This entails a voluntary, value-creation mindset at the executive and governance levels of an organization that aligns a strong and resilient culture with sustainable profitability and that likewise recognizes that a toxic culture will in the short and long run lead to value and reputational erosion and possibly destruction.
Thankfully, there are positive tales to be inspired by. A case in point: Microsoft Corp. Under its relatively new CEO, Satya Nadella, who recently wrote a book on the company’s culture, has instigated culture change there that by all accounts has had dramatic and beneficial impacts on all stakeholders, internally (employees) and externally (customers) alike. Nadella’s moves have also benefitted shareholders. When he became CEO in 2014, the share price was around $35; today, Microsoft’s share price is at $92.
With all the negative news, 2018 represents a rare opportunity for management and boards to understand, acknowledge, and tackle workplace cultural issues head on and in a more systematic and conscientious way. Culture is the fabric of an organization and that fabric can either be healthy and sustainable, able to contribute to the development of resilience and creation of value, or brittle, weak, and toxic, leading to financial and reputational vulnerability, value erosion, or even ruin. It is the direct responsibility of leaders—both management and board—to make the right choices on workplace culture.
Dr. Andrea Bonime-Blanc is founder and CEO of GEC Risk Advisory, a strategic governance, risk and ethics advisor, board member, and former senior executive at Bertelsmann, Verint, and PSEG. She is author of numerous books including The Reputation Risk Handbook (2014) and co-author of The Artificial Intelligence Imperative (April 2018). She serves as Independent Ethics Advisor to the Financial Oversight and Management Board for Puerto Rico, start-up mentor at Plug & Play Tech Center, life member at the Council on Foreign Relations and is faculty at the NACD, NYU, IEB and Glasgow Caledonian University. She tweets as @GlobalEthicist. All thoughts shared here are her own. This blog series borrows in part from her forthcoming book with Routledge/Greenleaf (2019), Gloom to Boom: How Leaders Transform Risk into Resilience and Value.
It seems recently that one can’t escape reading stories about poor leadership gone wrong. It’s time for action from the boardroom, and it’s no longer good enough to ask unstructured questions about a company’s helpline. Nor is good enough to rely on one’s own experience, instinct, and blind spots in the boardroom to hold management accountable for a healthy culture.
Trust-but-verify culture might be a good way for boards to move forward. While it is critically important to have trust in the CEO, blind trust can only lead to blind alleys where bad cultures can fester and become toxic. The board needs to be equipped with a way to periodically and in a customized and simultaneously adaptable manner understand the company’s culture.
The need for directors of companies to get under the skin of the culture of their organization has never been greater—or more necessary and daunting. Witness the many culture disasters we have recently seen from Uber, Wells Fargo & Co., The Weinstein Co., and Wynn Resorts. Over the past 25 years as a corporate executive, advisor, and board member, I have witnessed and advised on responses to similar instances of culture gone wrong—the good, the bad, the ugly, and, in one or two cases, the uglier. And I have also seen what a good culture can do to propel a company to greater reputational and financial heights (and returns).
It is important to share some of the tools, lessons learned, and insights on how the board can peel back the layers of the culture onion to begin to understand what is going on inside their companies, above and beyond the surface that boards are usually privy to. We start with a look at what happened in 2017 to understand the workplace culture maelstrom that the #MeToo moment has ushered in and crystallized.
A Year in Culture Dysfunction
2017 was a year filled with tales of organizational culture gone wrong. We learned about negative and destructive behaviors in the workplace, mostly perpetrated by powerful leaders, causing serious human, economic, and reputational costs for people and organizations. The toxic workplace cultures extended from the pinnacles of political power to the front lines of manufacturing facilities.
Powered by the ubiquity and raw reach of social media, the #MeToo story quickly became universal—told first by the more glamorous denizens of Hollywood and then extending to the most vulnerable hotel, restaurant, and factory floor workers. All of them were victims of a toxic workplace culture of abuse of power, shame, and lies. Worse still, many victims are submitting to terrible work conditions, are sidelined from needed jobs, or are permanently derailed from pursuing desirable careers and professional passions.
Time magazine’s choice for the 2017 Person of the Year, the “Silence Breakers,” said it all. Though sparked by the Weinstein exposé, the #MeToo story represents the culmination of decades of pent-up workplace silence, lies, cover-ups, manipulation and anger. The overwhelming impact of the #MeToo phenomenon can only be explained by the explosion and maturation of social media, which has led to the amplification and acceleration of reputation risks tied to workplace culture.
Why 2017 Stands Out
Two other relatively recent periods of corporate cultural moments, if we can call them that, come to mind: 2002 and 2008. The downfall of Enron, WorldCom, and others resulted in an uproar about financial accountability and the adoption of Sarbanes–Oxley in 2002. Nearly six years later, we witnessed the downfall of financial giants Lehman Brothers Holdings and Bear Stearns Cos., leading to the humiliation of the U.S. financial sector in general for the massive mortgage and derivative-related scandals, leading to social awakenings such as Occupy Wall Street and the adoption of the Dodd-Frank Act.
While these two watershed moments were important, 2017 was arguably the most momentous year yet for matters of corporate culture. In both the 2002 and 2008 cases, the cultural issue revolved around financial malfeasance. The cultural issue of 2017 is qualitatively different. Challenges are being made against toxic personal behaviors in the workplace perpetrated mainly by leaders against their subordinates, and those actions demand a qualitatively different approach to oversight that is more proactive and requires the ability to look behind the numbers and the dashboards.
By 2017 we had also arrived at the convergence of two other significant developments not fully present or developed before:
the rise of the importance to business of environmental, social and governance (ESG) issues (especially in the US, as Europe has long focused on ESG); and
the acceleration and amplified impact of reputation risk associated with ESG risk (which includes workplace cultural issues) because of the age of social media and hyper-transparency.
Companies can no longer reactively manage their reputation in this hyper-transparent environment. Companies have to earn it proactively and watchfully, and getting to the bottom of the culture of their organization is of paramount importance for the C-suite and board.
In this era, the excuse that only shareholders matter no longer holds. Boards and management are responsible to all of their stakeholders for ESG results as well (shareholders, employees, customers, and beyond), which include proactively maintaining and nurturing a healthy workplace culture. In the age of hyper-transparency, it does not pay to turn a blind eye or to wait for a crisis to hit. The rapid-fire downfall of not only Harvey Weinstein but of his entire company, including its damaged board and board members, is the cautionary tale of the day.
On the positive side, there is plenty of evidence that while a toxic culture destroys value, a strong and resilient culture fully championed and embodied by the very top of the organization (read: CEOs and directors) can and will add long-term sustainable value to the company’s reputation and financial bottom line. Such values protect the organization from the crises that will inevitably come and add bottom line financial value, as the famous Johnson & Johnson Tylenol case first demonstrated.
Is our Current Culture Moment Fleeting or Momentous?
We are certainly witnessing a cultural moment. The real question is this: will this moment pass with no more than a whimper, or will it become momentous?
The 2017 stories have definitely awakened awareness at the very top of corporate leadership—at least for now. In one day in December at two major governance gatherings sponsored by NACD in New York City—at Leading Minds of Governance and the NACD Director 100 Gala—this author witnessed how the #MeToo movement was top of mind for directors in general and dominated discussions both public and private throughout that day. Energized directors and experts who were present underscored the importance of action in this moment for the boardroom, and how this topic must be addressed in the long term as part of the board’s responsibility.
Thus, I would argue that this moment is not a fleeting one. The importance of this moment cannot be over-emphasized. It’s one that will be captured by responsible leaders and boards. Indeed, this is a unique time for leaders to step up to their responsibility for creating and owning a healthy workplace culture and for boards to acknowledge and embrace their responsibility: exercising proactive oversight of—and holding management accountable for—creating and maintaining a healthy workplace culture.
The Culturally Attuned Board
The culturally attuned board is one that is organized to understand the company in depth and to leverage that understanding for the success of all its stakeholders. What does that mean in real terms? It means, first, that the board has the tools necessary to understand what the culture really is—to peel that onion to get to the heart of what the tone is not only at the top (in the C-Suite), but also at the grass roots—including among entry-level employees. Second, it means that the board is aware of the red flags that might tip them off to a culture issue or problem. And third, it means that the board does not rest on its laurels but makes the culture conversation a permanent fixture of its work with the CEO, C-suite, and employees generally.
The next blog in this series will describe three specific tools that boards should implement, as well as the ten questions the board should ask to dig deeper and what should be on the board’s culture dashboard.
Dr. Andrea Bonime-Blanc is founder and CEO of GEC Risk Advisory, a strategic governance, risk and ethics advisor, board member, and former senior executive at Bertelsmann, Verint, and PSEG. She is author of numerous books including The Reputation Risk Handbook (2014) and The Artificial Intelligence Imperative (April 2018). She serves as Independent Ethics Advisor to the Financial Oversight and Management Board for Puerto Rico, start-up mentor at Plug & Play Tech Center, life member at the Council on Foreign Relations and is faculty at the NACD, NYU, IEB and Glasgow Caledonian University. She tweets as @GlobalEthicist. All thoughts shared here are her own.
This is the second post in a series addressing the short- and long-term impacts of the 2016 presidential election. Read the first post here.
Directors gathered to discuss the impact of the recent presidential election on November 16, 2016 with audit and risk professionals from accounting firm EisnerAmper. While immediate-term changes were pressing on the minds of directors, they also discussed strategies to address societal and business challenges that coalesced around the following topics.
Can Corporations Bring Back Modern Manufacturing Jobs?
Directors were skeptical that the type of manufacturing jobs that have fueled American economic growth since the end of the second World War would ever return—and asserted that changes in trade agreements may directly impact the ability to create jobs.
EisnerAmper Chief Risk Officer Peter Bible outlined how the developing administration of President-elect Donald Trump could affect the ability of American companies to export their goods. The Trans-Pacific Partnership (TPP) “is basically on hold now” said Bible. “He wants tariffs on China and Mexico, wants to renegotiate NAFTA, and reconsider the U.S.’s involvement in international trade agreement.” Bible also pointed out that the president can act unilaterally on trade agreements, thus negating congressional checks on trade decisions.
Jill Wittels, chair at eMagin Corp., voiced concern about the pace at which companies could replace factories to offset the impact of tariffs and build more jobs for Americans. “Imposing currency restrictions and tariffs on goods coming in from China, South America, or other parts of Asia would be highly disruptive,” Wittels said. “You don’t instantly create replacement factories in the U.S. at a comparable cost.”
Robert Klatell, chair of TTM Technologies, concurred. “Realistically speaking, there is not that much flexibility. We cannot create in the United States the scale of manufacturing that exists in China,” Klatell said. “We don’t have the people or the capital to do it. We’ve rarely had a government willing to support manufacturing the same way that China has in the past 10 to 15 years.”
William Leidsdorf, director at Icahn Enterprises, offered a different viewpoint. “I think you have to look at how Congress may change or water down the president’s decisions,” Leidsdorf said. Trump “is a businessman. He’s a pretty good negotiator. He’s going to go in [to the presidency] and say he’ll do a lot of things and then negotiate.”
Educating the Workforce
Re-educating the American workforce has been a ubiquitous topic at roundtables co-hosted by NACD throughout 2016. This event was no exception.
A vigorous discussion about the modern workforce was ignited when Carol Robbins, principal of financial services strategic advisory group CER Consulting, cited the invention of a garment-sewing robot as a groundbreaking technology likely to replace countless garment manufacturing workers around the world. Sharon Manewitz, principal and executive director at Manewitz Weiker Associates, a firm that consults with struggling companies, responded: “But who will make the robots? Will they be made here? We need corporate America to help educational institutions change the nature of education in America” to meet the demands of a knowledge-based economy.
The ability of the workforce to be retrained for modern jobs, and how automation will continue to disappear unskilled and lower-skilled positions, was discussed at length. Klatell, however, looked to the future. “Some people won’t make the transition, so we should be focusing on their children,” Klatell argued. “Hopefully, we can get their kids through school with a more meaningful education to make them more employable.”
Laurie Shahon, president of Wilton Capital Group, placed a board lens on some companies’ struggle to fill open positions in certain fields. “Human capital is an issue boards have to deal with,” Shahon said. “We see jobs available in financial services and other industries, but they can’t be filled because there aren’t sufficient qualified people to fill them.The board can and should present alternate cases in its strategy planning to address these changes.”
If Trump makes good on his campaign promises, deregulation is expected under the new administration and the forthcoming Republican majority congress. How long, though, can directors anticipate deregulated policies to last? Bible pointed out that the current administration might attempt to press through lingering Dodd-Frank provisions. However, he warned that deregulation could cause disruption. “These things are deeply rooted, with a lot of capital behind them,” Bible said. “You can’t just say ‘poof—gone.’ It’s impossible.” Practices that companies have implemented as a result of post-financial crisis legislation [such as the Dodd-Frank Act of 2012] are likely not to disappear as governance best practices because companies invested time, energy, and money to comply with them.
Meanwhile, directors in the room considered what impact deregulation might have on enforcement of the Foreign Corrupt Practices Act (FCPA) and other international business policies by the Department of Justice. Andrea Bonime-Blanc, founder of GEC Risk Advisory, reminded attendees that enforcement of the FCPA, the False Claims Act, and other laws has been on the rise lately. “People are asking, ‘What’s going to happen with FCPA enforcement?’” Bonime-Blanc asked. “Companies can’t just say ‘oh, let’s stop worrying about bribery.’”
Bible responded: “I believe that the FCPA will continue to be enforced as a worldwide standard, and that the new administration’s focus is going to be on executive compensation and on market regulation. I don’t think there will be an increase or a decrease in enforcement.” If anything, Bible indicated that directors should be concerned about the risk of tax repatriation from companies that have moved their headquarters offshore. “Is everyone familiar with how the overseas tax issue works?” Bible asked. “There is $2.6 trillion in money offshore, and $500 billion of that is held by tech companies. There are drives to get that money back into the U.S. economy that can be done without addressing the entire tax structure.”
Don’t Give Up on Culture of Inclusion
The social unrest incited or revealed by the vitriolic presidential election was discussed in the context of the culture of inclusion and tolerance that their companies have invested in building for decades. Aside of the moral imperative felt by many attendees, the disruption of hard-won corporate culture by internal or external actors could present a reputation risk to the company.
Wittels noted that a popular American shoe company had been endorsed by an incendiary website littered with forms of hate speech after a senior manager at the shoe company stated that it felt the country was moving in the right direction under the incoming president. While the company released statements strongly stating its commitment to principles of inclusion, “there are comments about boycott,” Wittels said. “This is a real reputational risk, and a risk with consumers, that could instantly in this communication age go viral and affect the bottom line.”
Klatell returned to the question of the board’s responsibility to ensure that the CEO, his direct reports, and management across the organization are responsible for maintaining a culture of respect, dignity, and inclusion. In the face of employees who may be looking to throw principles of inclusion out of the door, Klatell said: “I’d hope that most companies would stand up and say ‘No, this is what we stand for, and this is how we behave.’”
To see the full list of participants, please click here.