Culture and governance

Last week I received this email from Tony A.

I just finished reading your book Organisation Culture: Getting it right.

I found the material meaningful although at times thought provoking given my lengthy journey in the corporate world.

I also found it interesting that there was no reference in the material to corporate governance either in meaning or in value. Was this an oversight or do you not see any benefit in having corporate governance in an organisation?

Tony: I've been thinking about your question over the last few days. You're right in that I have not specifically called out corporate governance as a discussion topic. I do think good governance is tremendously important. It's an immense discussion area in its own right and there are as many books on corporate governance as there are on corporate culture. From a technical perspective corporate governance is a field hedged with country specific legislation, regulation, and compliance requirements which require specialist expertise to cut through and explain adequately. I don't have that specific knowledge.

However, I do think that good governance in any country is an outcome of a 'healthy' corporate culture. If organizations have a clear purpose, values that they adhere to, and all the other attributes I mention in the book then, more than likely, their governance structure will be effective and they will be well run.

In fact, it's somewhat chicken and egg – a good corporate culture results in good governance structures, but good governance structures are the result of a healthy corporate culture. In one book Corporate Governance Best Practices: Strategies for Public, Private, and Not-for-Profit Organizations by Frederick and Keith Lipman that I looked at as part of the research for my book, the authors state that

"Resources [for good corporate governance] must be concentrated in areas that have the greatest potential benefit, such as improving the corporate culture and establishing an effective internal audit function. Creating an ethical, law-abiding culture provides the greatest benefit for the organization compared to the relatively minimal costs of establishing such a culture. "

Governance and culture are tightly linked as many books and articles attest. A white paper by PWC presents five best practices for corporate governance one of which is "Embrace a values-driven culture' . They conclude the paper saying:

Perhaps the most important initiative for ensuring strong governance and compliance processes is a company's success in establishing an ethical "tone at the top" that permeates the entire organization. When executive leadership and boards of directors manifest ethical behavior, live according to scrupulous principles, and demand nothing less from employees, they effectively establish ethics and integrity as a vital part of the corporate culture and employees at all levels are more likely to embrace those values.
And, ultimately, the values that lie at the heart of a company's decision-making processes determine how it operates in good times, but, more importantly, in times of difficulty or uncertainty.

If you take a look at the Social Venture Network you'll find a host of materials on values driven organizations and very little specific mention of governance in any of the cases of the well known and well run companies that the site mentions.

On the other hand, there's a nice toolkit from the Global Governance Forum of the International Finance Corporation (part of the World Bank Group) that takes a nuts and bolts look at establishing corporate governance frameworks (within countries). It isdescribed as follows:

Corporate governance codes have effects at both the micro and macro levels; they serve as benchmarks for monitoring and implementing policy and practice within companies and restore investor confidence in markets. Fundamentals for winning investor confidence include ensuring adequate corporate disclosure, guaranteeing investor rights, and ensuring sound board practices.

Using diverse case studies and tools for everything from establishing crafting committees to evaluating the efficacy of codes, this toolkit provides practical guidance on creating and revising codes to fit diverse and dynamic corporate environments.

In a direct answer to your question: throughout the book I reinforce the concept of having and living clear organizational values. My view is that a values driven organization is likely to be well governed. (Assuming the values are 'healthy' as described in the book). More specifically, in the discussions in Chapter 4 of the book – is culture related to business success? you'll find examples of well run, and financially successful companies that illustrate this view. Certainly I think that good corporate governance is not just a benefit in an organization it is an essential and critical success factor.