Tales of companies’ executives acting badly have been proliferating in recent years. Who or what is to blame? Such events stem not only from individual behaviour but also from surrounding complicity. Therefore, risk and compliance professionals have rightly come to consider ‘corporate culture’ as a source of risk.

Our 2017 ‘Report of the NACD Blue Ribbon Commission on Culture as a Corporate Asset’ defines culture as a “series of assumptions individuals make about the groups in which they participate, visible through artefacts, including public statements, organizational structures and key processes, stated goals and aspirations and basic (i.e., taken-for-granted) beliefs”, crediting sociologist Edgar Schein as the source.

These cultural assumptions can be broadly shared. In the words of Peter Drucker, also quoted in our report, culture is based in assumptions that are shared broadly. Drucker’s classic Harvard Business Review article on ‘The Theory of Business’ wrote of the “assumptions that shape any organisation’s behavior, dictate its decisions about what to do and what not to do, and define what the organisation considers meaningful results”.

And corporate cultures do not just emerge from a vacuum and continue without variation. They are often the result of ever-changing strategic intentions, organisational structures, incentives, performance-management systems and leadership styles. “Culture eats strategy for breakfast” is another famous Drucker quote, but in today’s volatile business environment it is often aggressive, win-at-any-cost strategies that trigger excessive risk-taking behaviours.

Clearly, some assumptions motivate behaviour that can cause reputational and financial losses – risk in 11 syllables. But just as the negative aspects of a culture can pose a liability, its positive aspects can contribute to the value of the enterprise. To use a balance sheet analogy, leaders can increase such assets and reduce such liabilities to maximise ‘equity’ – company value.

Apr-Jun 2018 Issue

National Association of Corporate Directors