Improve culture using ‘five caps’ thinking

Dec 03, 2019
Boards increasingly need to show how they measure their organisation’s culture, but the key information is likely already available within the business, writes Ros O’Shea.

The South Sea Islanders have a word, “mokita”, which translates as “the truth that everyone knows, but nobody speaks”. Other notable definitions of culture include “a system of beliefs, shared values and behavioural norms”, “the way to do things around here” or even the “mood music” or “resting heart-rate” of an organisation.

Whatever the definition, stakeholders, still shaken by a litany of corporate scandals including endemic ethical failures in financial markets, now recognise that, as Peter Drucker said, culture does indeed eat strategy for breakfast – and arguably for lunch and dinner too. Their demands have led to concerted efforts in recent years to rebuild trust and restore integrity to the heart of the enterprise. Figure 1 highlights some of these welcome developments, which go way beyond extending the rule book or adopting a tick-the-box approach to compliance.

Restoring-integrity-in-enterprise

It seems everyone has seemingly landed on the same page, which says: you can have all the rules in the world but there is no substitute for character. Much has been written already about how to cultivate character and foster a values-based culture. Indeed, Chartered Accountants Ireland published my book on the topic, Leading with Integrity, in 2016 and has issued several related guides and research papers since.

As organisations seek to embed cultural change, the question everyone is now grappling with is: how do you measure it? How can those charged with governance determine if the tone from the top is being cascaded through the ‘muddle in the middle’ and reflected via the ‘echo from the bottom’? Is it possible, with any degree of accuracy, to properly calibrate an organisation’s mood music or gauge its steady-state operating rhythm? 

The answer is yes.

My ‘5 Organisational Culture Caps’ (5OCC) approach aims to do just that. Loosely based on Edward de Bono’s ‘Six Thinking Hats’ system (where coloured hats represent different modes of thinking), with 5OCC, each cap is assigned to one of five different stakeholders. By donning each cap in turn and thinking about culture from each of these perspectives, a holistic view is developed of how your espoused values align with how your organisation behaves towards these key constituencies in practice. Four caps are pre-assigned – your customers, staff, shareholders and community all deserve their own headgear. You get to pick who wears the last cap, and your choice is likely to be heavily influenced by the sector in which you operate. For example, financial services firms may well pick the regulator; key vendors may be a valid choice for those downstream in the supply chain; whereas for other organisations, agents or brokers, or other business partners on whom they rely to deliver products or services, may get to wear a cap.

Once you determine the full suite of stakeholders, the next step is to select key metrics that best capture their unique expectations of your organisation’s culture. Let’s don each cap in turn.

The customer

Arguably the single best way to actively test the consistency of stated values with the customer experience to attempt to buy the product or the service. Or you could try to make a complaint and follow what happens. Other key cultural indicators from the customer perspective include:
  • Customer surveys;
  • Net promoter scores;
  • Complaints statistics;
  • Feedback from customer focus groups;
  • Social media and press coverage;
  • Litigation and claims; and
  • Awards and ratings.

The staff

Here, staff is defined in its broadest sense (i.e. from the boardroom to front-line employees). Again, boards should recognise that only so much governing can be done within the confines of the boardroom, and one of the most effective means of assessing the organisation’s tempo and temperament is to get out and about and engage with staff at all levels. Ideally, this should be done in informal ways and settings (such as townhalls or listening lunches, for example) so that site visits don’t become ‘state visits’.

The HR department will be a deep reservoir of information to help you understand and monitor the extent to which values are truly lived across the organisation. There are many possible metrics under this heading, some of which are set out below:

  • Staff surveys, engagement indices and culture audits;
  • 360 reviews of senior management and board evaluation surveys;
  • Remuneration and incentive policies;
  • Ethics training and communication strategies, and their effectiveness;
  • Statistics on staff turnover, absenteeism, safety and disciplinary actions;
  • Whistleblowing and grievance reports, and relationships with unions;
  • Diversity and inclusion data;
  • Recruitment processes, succession plans and promotion decisions;
  • Integrity awards or similar; and
  • Online employee feedback (e.g. via Glassdoor and exit interview notes).

The shareholder

The nature and extent of shareholder engagement will very much depend on the type of organisation, and metrics will need to be calibrated accordingly. For private, charitable or state-owned firms, it may be a relatively straightforward process to monitor the strength and success of the relationship with the organisation’s owners, trustees or relevant government department – most likely by being party to regular discussions. Some of the following metrics may also be relevant and will certainly be pertinent for companies with a larger and more dispersed share register:
  • Governance structures and board performance;
  • Correspondence and engagement with key shareholders;
  • The AGM experience;
  • Internal and external audit reports;
  • Independence and competence of risk, compliance, audit and legal personnel;
  • Investor or analyst reports;
  • Industry benchmarks; and
  • Transparency and disclosures of financial and other reports.

The community

Here again the relevant community may be local or global, or somewhere in between, and metrics will need to be commensurate with the organisation’s scale and footprint. Particulars will differ but overall, they will aim to measure the extent to which the business is contributing to – and valued by – the communities in which it does business. Specific metrics are more elusive under this heading, but assessment of culture wearing a community cap will include discussions around:

  • CSR activity in the community;
  • In-house ‘green’ initiatives;
  • CSR ratings and ESG credentials;
  • Sustainability reporting;
  • Progress towards committed UN Sustainable Development goals;
  • Carbon footprint, water use and waste; and
  • Local press coverage.

A.N. Other

As outlined earlier, you get to pick who wears the fifth cap. If, for example, suppliers are an important stakeholder group for you, measures such as promptness of payment, supplier audits and feedback from key vendors would be important to consider. If the regulator is to wear the cap, relevant areas of focus could include the number of fines, regulatory breaches, risk appetite exceptions, inspection reports and the general tone of correspondence. Metrics can also be devised for any other stakeholders by considering what aspects of your culture are likely to matter most to them. Such metrics may best be ascertained by directly canvassing their opinions.

The most helpful aspect of the 5OCC approach is its practicality. Most, if not all, of the information required for the various measures will already exist in your organisation. It is simply a matter of collating and synthesising these valuable, but currently disparate, sources of data to provide a five-way mirror back to the organisation showing how the espoused values are truly living and breathing.

There is no doubt that what gets measured gets done. Metrics matter. Boards and directors will increasingly need to prove and publish how they measure and monitor their organisation’s culture and I hope this model is a helpful aide in that endeavour. But again, we must remember that there is no substitute for character. All the KPIs in the world won’t displace the board’s most important role, which is to ensure they have the right leadership team who will do the right things for the right reasons. You can’t cap that.
 
Ros O’Shea FCA is an independent director and governance consultant.