Reputation and the Board: Bridging the Gap

Thank you to all those who attended the annual Henley Reputation Conference last week. The theme was 'Bridging the Gap' between the organisation and the board. An excellent day run by the John Madejski Centre for Reputation saw some excellent presentations and strong debate amongst the mainly private sector delegates.

On behalf of the Governance Beyond Boardroom network, I gave a presentation and panel session on the results of the project. For a version of the presentation, see here.

The panel session afterwards brought together Simon Culhane (Chief Executive, Chartered Institute for Securities and Investment) and Peter Montagnon (Senior Investment Adviser, Financial Reporting Council). The panel tackled two particularly pertinent questions from the practitioner audience:

1. How do you apply the analysis of governance culture?
The audience seemed keen to see the fuller toolkit approach to be posted soon on the project's website. However, a delegate from a big four bank said that their induction focuses on the corporate culture but this learning fizzles after a few months when it is not backed up by the behaviour of senior managers. She concluded that there is a disconnect in large banks between what the HR function tries to promote in terms of a strong governance culture and what operational functions actually practice. A number of other delegates from FTSE100 companies agreed with this sentiment.

2. Does the person who draws up the corporate culture own the governance function?
This question focuses on an essential causal direction and is particularly pertinent in light of the Mansion House conference last month (see previous post). While the event was held under Chatham House rules (so I cannot attribute comments), there was a split in the debate between those who argued that culture is a supporting part of the GRC function and those who believed that governance rules and procedures should be tailored towards producing a culture that supports board strategy. Of course, there is considerable crossover here and the potential for some productive future research.

Both questions are key for organisations seeking to realign their governance culture with corporate strategy. Please let me know if these themes chime with your organisation's requirements so we can take forward the project's work together.

Regulator in the Boardroom?

Hector Sants, "Culture Inspector"?

You may have heard a rumour circulating that the FSA wants to put a 'culture inspector' on the board of banks and other financial institutions. As Anthony Hilton writes in the Evening Standard recently, this is a canard but it is not necessarily a bad idea.

...trust won't be restored until people have confidence in the City's ethics and in many cases these are inseparable from the firm's culture. So, vague though the term is, culture is going to be a continuing concern for regulators, politicians and the public.

This continuing concern can be traced more accurately to a speech last month by Hector Sants, Chief Executive of the Financial Standards Authority when he said:

It is crucial that we improve behaviour and judgements. To do this we must address the role that culture and ethics play in shaping these.

Sants went on to suggest how this might work:

For regulators, the starting point should be that we want the firm to have a culture which encourages individuals to make the appropriate judgements and deliver the outcomes we are seeking... The regulator's focus should therefore be on what an acceptable culture looks like and what outcomes that drives... It is neither feasible nor desirable for the regulator to specify the type of culture a firm has, nor the measures and metrics by which this should be assessed. What should matter to the regulator are the outcomes that the culture delivers and that the firm can demonstrate it has a framework for assessing and maintaining it.

This is the crux of the issue - can firms demonstrate that their culture governance framework (assuming they have one!) is robust, accurate and produces a culture tied closely to its corporate strategy. Of course, this is much harder and complex than at first glance. Just think how such a framework might work in your team/department before considering how such a framework can be rolled out across a major institution, and still retain its usefulness.

Developing such a culture governance framework is further complicated by Sants' further correct observation that:

... a box-ticking approach to regulating culture will not work. The regulator must focus on the actions a firm takes and whether the board has a compelling story to tell about how it ensures it has the right culture that rings true and is consistent with what the firm does.

So where does that leave Boardrooms in the City? Simply, they need to act rapidly to develop a culture governance framework that can stand up to regulatory scrutiny. While the FSA won't proscribe a framework tool, boards need to develop one based on leading academic research and best practice. In this, board members should look to the Governance Beyond Boardroom network for where to start.