Governance as an Extension of Culture
Susan Singer, SCPM
(For questions or feedback contact Susan at: singerscpm@gmail.com)
Veteran journalist Bill Moyers recently wrote an article with Michael Winship, president of the Writers Guild of America, East; entitled “Money Throws Democracy Overboard,” the piece focuses on the role of Super PACs in the 2012 US presidential election cycle. However, the authors quote economist Frederic Bastiat in concluding “[w]hen plunder becomes a way of life for a group of men living in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it.” 1
The quote can be paraphrased to apply to an organization’s governance arising out of its culture. When specific behaviors, memes, or iconic leaders predominate, these will be codified in the governance authorizing and glorifying them as policy.
Professor Gideon Kunda, in a lecture at Stanford University some years ago, noted that culture is a learned body of tradition within a society or microcosm thereof; it consists of concrete, observable artifacts and the complex set of rules that arise from the artifacts’ interpretation. Every workplace has a culture in which causal structures drive the organization and in which managers make predictions and take actions based on those structures. The structure, the culture and the corporate entity’s engagement in and responses to its environment become codified; how it is done is often reflective of its highest echelon. (Schein2; Deal & Kennedy3)
Corporate cultures usually originate with the company’s founder, or with a long-time or especially influential CEO. Examples of these include Southwest Airlines’ Herb Kelleher, who encouraged a relaxed and “fun” environment while, at the same time, running an efficient operation that could turn around a recently-landed aircraft inside of 20 minutes. Richard Branson is of this mold also; having somewhere around 300 ventures running under the Virgin umbrella, he delegates authority, entrusting important business decisions and, indeed, entire operations to individuals who share his values of “doing well by doing good” and, more recently (as his latest book’s title attests), “screwing business as usual”.
John Richard Bell, in his article “Why Directors Should Give a Damn About Culture”4, says:
“Imagine Apple without innovators or Zappos neglecting service or Whole Foods selling a slew of processed foods loaded with saturated fat. Generally, founders instill the culture. And when they are long gone, the culture is left to the CEO to nurture. He or she perpetuates ‘the way’ or makes changes depending on the environment… I am simply advocating that culture should be as important to a company’s Board of Directors as the business strategy. After all, culture is the strategy.”
In his 1984 tome Endless Enemies: The Making of an Unfriendly World, Jonathan Kwitny details numerous examples of corporate culture – and thus policy – run amok. Dole and United Brands, among others, effectively leveraged their power to influence US international policy, giving rise to the so-called Banana Republics. Kwitny, in an appearance at the Center for the Study of Democratic Institutions in 1985 said:
“In 1954, UN Ambassador Henry Cabot Lodge lied to…cover up the overthrow…of a democratically chosen government in Guatemala that was seeking to break up the United Brand monopoly; he…concealed the fact that his family were major shareholders of United Brands and that his cousin was a recent president of that company.
I think Henry Cabot Lodge believed that what was good for General Motors – or in this case United Brands – was good for the country.” 5
The corporate culture described in the book was supported by governance that legitimated collusion and, in Kwitny’s estimation at least, violated free market principles to the detriment of the citizen. It was also a culture in which executives were “fattening their wallets” through close association with and intense pressure on government officials. No consideration was given to what is now termed Corporate Social Responsibility (CSR).
Fast-forwarding through time, the results of a 2011 governance survey conducted by the National Association of Corporate Directors6 still demonstrates that a small percentage (1.5%) of corporate directors value the concept of Corporate Social Responsibility. The same survey found that just over 11% of the respondents’ boards collected data that would allow them to objectively assess ethical risk; boards expressed a sense that disclosure and reporting requirements are “excessive”.
The tide may be shifting, however. In that same year, Forbes Corporate Responsibility Best Practices Study found an increase in the number of firms having a CSR policy (defined as maximizing positive impact while minimizing or eliminating the negative). Likewise, the vast majority (86%) of CEOs believe that Corporate Responsibility is an issue of great importance7.
Returning to the Virgin Group, their website states that
“Virgin Group companies are part of one big family rather than a hierarchy. They are empowered to run their own affairs, yet the companies actively help one another, and solutions to problems are often sourced from within the Group. In a sense they form a commonwealth, with shared ideas, values, interest and goals.”
This would indicate a significant – although still a minority view – shift in the corporate governance paradigm. In the conventional model, rules that arise from organizations’ cultural artifacts are expressed through hierarchy, peer groups, centrality, relationships and environment. The Virgin model, by contrast, runs counter to the majority of these expressions.
There are other signs of movement toward cultures of more transparent and effective governance. In the article How High CEO Pay Hurts the 99% 8, UMass Professor William Lazonick and journalists Ken Jacobson and Lynn Parramore aver that top US executives “rake in obscene sums by not doing their jobs” and delve into how the public might “take control of the business corporation and make it work for the real economy”. Tackling the “runaway compensation train” and accountability within corporations’ environments would demand entirely different governance and accountability protocols than are being currently employed.
Boards of Directors are being down-sized, modernized and reformulated. They are codifying these changes in their governance and they are responding in varying degrees to the almost-daily articles ranging in subject matter to the benefits of diversity, gender balance, and CSR / Shared Value 9, 10, 11. Tim Carmody, writing for Wired stated: “no matter how successful a company or its stock has become, or how visionary its leadership, investors want input into corporate governance.” This sentiment has translated into yet another paradigm shift as evidenced at an Apple shareholders’ meeting. Henceforth, stockholders will directly elect the board of directors by simple majority vote. Current directors who do not achieve majority vote will be forced to resign and the company’s governance has been amended to codify this change! 12
In the last year, there have been numerous debates as to whether the practice of having the CEO also chair the board and how to potentially utilize succession planning as a catalyst for evolution 13. To spur the evolution of governance along, new organizations are springing up to offer resources to companies seeking them; one such entity, BoardProspects, has adopted the mission of matching prospective board members to appropriate corporations or non-profits. It will, when launched in May 2012, offer tools and educational materials to “propel [boards] into the future” and improve governance. Another organization known as Great Boards determined ten elements to be considered in succession planning; these include objective, metric or evidence-based criteria such as competencies evaluations and skills gap analyses. The protocol also calls for performance-based re-election in addition to term limits.
Board composition can be transformational and there appears to be a redshifting from representational governance to a systems thinking approach. The paradigm that was in play for most of the twentieth century is often viewed as less effective, less transparent, less ethical and less nimble in its ability to support twenty-first century enterprise. Entrepreneurs and innovators are re-writing the rules for conducting business; citizens are demanding a say in the matter. As a culture of transparency, balance and citizenship builds in, it will be codified over time in the governance authorizing and glorifying these values as policy.
CITATIONS
1 Common Dreams. “Money Throws Democracy Overboard” Bill Moyers and Michael Winship, February 14, 2012. http://www.commondreams.org/view/2012/02/14-4
2 Schein, Edgar H. (2010) Organizational Culture and Leadership, 4th Edition John Wiley & Sons, San Francisco
3 Deal T. E. and Kennedy, A. A. (1982, 2000) Corporate Cultures: The Rites and Rituals of Corporate Life, Harmondsworth, Penguin Books, 1982; reissue Perseus Books, 2000
4 In the CEO Afterlife. “Why Boards Should Give a Damn About Culture” John Richard Bell, May 1, 2012. http://www.ceoafterlife.com/leadership/culture-and-boards/
5 Center for the Study of Democratic Institutions, 1985. “Use of the Lie in U.S. Foreign Policy” Jonathan Kwitny http://www.cooperativeindividualism.org/kwitny-jonathan_usa-foreign-policy-history.html (accessed May 2012)
6 National Association of Corporate Directors. “2011 Public Company Governance Survey” http://www.nacdonline.org/Store/ProductDetail.cfm?ItemNumber=3854
7 Forbes “Where CSR Fits on the Board’s Agenda” Richard Crespin, February 10, 2012. http://www.forbes.com/sites/csr/2012/02/10/where-csr-fits-on-the-boards-agenda/
8 AlterNet. “How High CEO Pay Hurts the 99%” William Lazonick, April 2, 2012. http://www.alternet.org/economy/154746/how_high_ceo_pay_hurts_the_99_percent?page=entire
9 Reuters. “Why Facebook – and Every Company – Needs a Diverse Board” Lucy P. Marcus, February 8, 2012. http://blogs.reuters.com/lucy-marcus/2012/02/08/why-facebook-and-every-company-needs-a-diverse-board/
10 CNN. “More Women Needed in ‘Identikit Boardrooms,’ Says CEO” Juliet Mann, February 9, 2012. http://edition.cnn.com/2012/02/09/business/women-in-the-boardroom/index.html
11 US Chamber of Commerce, Business Civic Leadership Center. “So What About the Board?” Nigel M. de S. Cameron http://bclc.uschamber.com/blog/2012-01-11/so-what-about-board (accessed May 14, 2012).
12 Wired. “Apple Gives Shareholders More Input; Will Facebook Get the Message?” Tim Carmody, February 24, 2012. http://www.wired.com/epicenter/2012/02/apple-gives-shareholders-more-input-will-facebook-get-the-message/
13 Harvard Law School Forum on Corporate Governance and Financial Regulation. “Top Concerns for Directors in 2012” Noam Noked, March 24, 2012. http://blogs.law.harvard.edu/corpgov/2012/03/24/top-concerns-for-directors-in-2012/
Misc. Interesting Video Resources on the Web
Bob Sutton vid on organizational behavior
Failing to Success http://blogs.hbr.org/video/2012/04/failing-to-success.html?awid=8068275453268138925-3271
May 20th, 2012 at 10:39 am
Outstanding article. Thank you for saying it so well. We define culture as simply "how we do things here." Culture is the legacy of leadership, and a culture of character is the legacy of what we call triple crown leadership: the effort to build excellent, ethical, and enduring organizations. Boards must understand and embrace their responsibility as stewards to build, nurture, and protect this culture of character. Too few boards do so today, but we agree that the tide is shifting. It may take some years but the board of the twety-first century enterprise must understand that their governance is, indeed, an extension of the culture. It's not enough to just have a tone at the top. The tone must come from the top and pervade the enterprise. Jack Krol and Ed Breen established such a pervasive tone when they assumed leadership at Tyco after the Koslowski scandals. Culture may not be the strategy literally. But culture sets the behaviors for creating and implementing the strategy, so the board must define the culture desired, recruit and promote executives to defend that culture, and monitor the enterprise's actual cultural without micromanaging. A tough job but doable.