Who Owns Corporate Culture?

It depends whom you ask.  The cultural values of a company are transmitted downstream by the CEO, but the Board of Directors names and monitors the CEO and is responsible for the culture evidenced at the Board level.

Since the Board is responsible for selecting the CEO, or replacing the CEO if either performance or cultural issues arise, the buck stops at the top.  But how does the Board, with limited time to spend on its tasks, gather insights sufficient to measure the cultural temperature of the entire organization?  This question occupied much of the attention of the panel convened today in Boston by the New England Chapter of the National Association of Corporate Directors.

Some tools: directors should talk to many executive and non-executive employees not in the CEO’s presence, asking open-ended questions to foster rambling information; directors should obtain detailed metrics on departures from the company by location and job description and sex and ethnicity; directors should ask the Compensation Committee to consider culture and talent, as well as statistical metrics, in awarding compensation; directors should put “culture” formally on their agenda, as ERM tends not to pick up this aspect of performance; as culture starts at the top, directors should establish and enforce a culture of the board room, bearing in mind that even one errant director, or CEO, can alter the content and enforcement of cultural values.

There was brief mention of, but seemingly implicit consensus for, the proposition that millennials are more overtly focused on good corporate culture.  I wonder if that is correct in the long run.  The purity of cultural values for younger generations tend, to my experience, to give way to an acceptance of compromise and expediency; and today there are many more companies founded, led and/or staffed with younger people in our tech economy, creating a sense that the younger players are better at establishing an open and honest cultural enterprise.  But observing the actions of young founders of major companies who are now “aging,” we may be looking at a passing  phase of millennial respect for culture, on the road to its deterioration.  We heard no discussion of whether the reputed millennial focus on good corporate culture is likely to be transitory.  I remain (perhaps predictably) convinced of the value of mature executives and directors applying experience to the task of enforcing cultural standards in the face of the push for rapid results.

The panel also noted that most acquisitions “fail,” largely due to differences in culture between acquirer and target.  It is time-consuming and difficult to change the culture of a target.  It was suggested that acquisitions by PE firms may be particularly culture-endangered; PEs are all about boosting sales and using leverage and exiting the enterprise in 3-5 years, and are often tone-deaf (it was alleged) to different values held by target management (and by, often, multiple successor CEOs who do not appreciate the PE approach).  It was suggested that M&A should stand for “Murders and Acquisitions” as PEs set goals inconsistent with ambient thinking.

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