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Uber’s reputation is suffering following reports of a toxic culture at the taxi app company. Travis Kalanick, Co-founder and CEO, took a leave of absence as the board announced measures to rebuild public confidence and promised greater oversight of its executives. 
 
It shows that despite a brilliant strategy, a company will flounder if its culture is malignant. A common theme among companies that have failed the culture test − whether they’re in the energy industry, financial services, healthcare or retail − is that non-executive directors are too removed from the ‘people side’ of running a business. 
 
Ruth Cairnie, Criticaleye Board Mentor and a Non-executive Director on the boards of ABF and Rolls-Royce, comments: "Getting to grips with culture is important. Companies tend to spend a lot of time on strategy, but if you have not got the culture right, you are wasting your time; they need to be looked at together.”
 
From a NED’s perspective, it’s important to ensure people are not hiding behind corporate jargon. “The board is clearly responsible for culture, however, the executives have to drive it because this is about actions, not words. You can have any number of value statements, but an organisation gauges its leaders on what they do," explains Ruth
 
The Financial Reporting Council’s paper on Corporate Culture and the Role of Boards shows it’s an area of increasing interest to regulators. Julian Goldsmith, Senior Relationship Manager at Criticaleye, who works closely with board-level directors, comments: “The question of culture has traditionally been seen as a ‘soft’ subject in the boardroom, but that is changing, especially in industries such as financial services.
 
“Pressure is growing on NEDs to take an active interest in recruitment practices, performance management, incentives and other rewards. They must also ensure those policies are in line with the company’s values. In many cases, this will require NEDs to substantially rethink processes so that purpose and strategy are integrated with the business model.”
 

People, not Process

The obvious danger is that regulatory measures result in box-ticking. Ruth comments: "I worry about the hype that is developing around culture – it’s becoming something that everyone talks about all the time and I fear that we will end up with companies having to report on culture targets and processes which misses the point completely.

"The more culture begins to focus on compliance, the more it is about process, standards and templates. These do need to be in place for the sake of demonstrating oversight if something does go wrong, however, it is not what moves the needle – the actual risk of bad behaviour has to be managed by leadership."
 
Nigel Keen, Property Services and Property and Development Director at Waitrose, which is part of the John Lewis Partnership, comments: "Culture and leadership are intrinsically combined. I don’t think you can have a strong culture unless you have great leadership. Consistency is important too – John Lewis Partnership was first established in 1929, it’s culture has grown and got stronger over the years; it’s not something that has developed over the last two weeks."
 
The communication between executives and NEDs of a well-functioning board will be open and ongoing. Jane Furniss, NED at the National Crime Agency (NCA) and former CEO of the Independent Police Complaints Commission (IPCC), asserts that “getting culture right is the hardest leadership challenge”.
 
Jane, who is also a Criticaleye Board Mentor, agrees with Ruth that action is what’s needed if the senior leadership team is to make mission statements and values credible. “It’s how people behave that demonstrates the culture, not what is written down on paper – staff follow the behaviour of leaders. One of the things I did in my first three months at the IPCC was to go round the organisation and ask staff, board members and other stakeholders: ‘What one thing could we do to make the IPCC deliver better service for the public?'”

It’s something Jane has continued into her portfolio career. “All organisations have their value statements," she comments. "It is important to regularly test with staff what they think that means, as well as testing it at board level, to see that a company’s values are actually being lived."
 
Perhaps the biggest ‘culture test’ is to let go of a ‘high-performer’ when their behaviour is not in keeping with an organisation’s values. 
 
Bernard Howard, Non-executive Director of property rental company Veeve, says: “It’s easier to see problems in a smaller company. However, as in companies of all sizes, if a company is achieving good results on the back of a bad culture, it can be extremely difficult to address the issue in practice."

It will never be easy to fix but, as the board of Uber has discovered, a business will suffer if its culture is not right. NEDs must appreciate how executives set the tone for communicating with customers, staff, suppliers and other stakeholders. It’s not something that can be assumed or seen as outside the remit of the board. 
 
Ruth adds: “I would expect board members to be encouraged to spend time visiting different parts of the organisation where they can gauge what the culture really is. It’s a good thing to have happening – the primary board task though is really to interrogate the executives.”  


By Robert Leeming, Editor, Critcaleye

These comments were shared during Criticaleye’s recent Non-executive Director Breakfast: The Role of the Board in Setting Corporate Culture

Interested in reading more about board dynamics? What Every Chairman Needs to Know