Why does the board need to know the company’s culture?

Hint: to make sure it’s an asset, not a liability

Publication
July 17, 2024

While corporate culture has always been an important boardroom topic, the profound shift to remote and hybrid working propelled by the pandemic has put a brighter spotlight on it. A healthy culture can support business strategy and enhance brand reputation, while a dysfunctional culture can be a liability. But assessing, tracking, and monitoring culture can be challenging.

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We’ve outlined four key questions that directors can address in exploring the board’s oversight role:

An assessment of the corporate culture should be on the board’s agenda at least annually so all board members can weigh in. Given the importance of culture in executing strategy, monitoring it really should be a responsibility of the full board. However, board committees also play a critical role: - here is why:

Audit committee

Discusses culture-related aspects of internal and external audits, compliance reviews, employee hotlines and whistleblower reports, and regulatory examinations. Together, these provide insight into the ethics, safety and attitudes toward risk and compliance that can characterize a company’s culture.

Compensation committee

Considers the impact of compensation plans on culture. The company reviews incentive programs at all levels of the company, focusing on those that could encourage high-risk behavior, discourage innovation or otherwise impede achieving a strategically-aligned culture. The chief human resources officer regularly provides metrics and insights relating to culture.

Nominating/governance committee

Ensures that board guidelines and committee charters articulate how each board committee oversees culture as well as how the board’s ongoing work will incorporate cultural oversight.

A formal assessment of the culture may be conducted internally or by a third party to determine how it aligns with the company’s purpose, values and strategy.

Based on the culture assessment, the board will want to discuss with management the key existing cultural traits that may be helping or hindering the company’s strategy and performance.

Since it’s difficult to influence more than a few behaviors at a time, management should seek to identify “the critical few.” These are three to five behaviors that, if a critical mass within the company adopts them, would have the greatest impact on creating the culture the company needs to achieve its business goals.

Download the full report for a detailed example of how to create cultural change that aligns with strategy.

Inevitably, directors will likely assess company culture at least partly with qualitative and intuitive assessment. But qualitative assessments are insufficient. Whether the goal is to improve culture or sustain an already strong one, boards need quantitative data to assess whether the corporate culture is strong or whether there is an issue that needs to be addressed.

Download the full report for an understanding of what metrics and data points directors can use to evaluate corporate culture.

Boards themselves can have a major impact on corporate culture, setting the tone at the top. Directors’ actions reverberate throughout a company, creating accountability and sending signals to employees at all levels. Directors need to be aware of their influence and ensure their decisions and actions align with company strategy —otherwise, they can unwittingly impede growth and innovation.

The bottom line:

Getting culture right can make it one of a company’s greatest assets, and a strong competitive differentiator. Ask yourself whether your board really understands the company’s culture and how the culture needs to evolve to position the company for even greater success.

Why does the board need to know the company’s culture?

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Ray Garcia

Leader, Governance Insights Center, PwC US

Reid Carpenter

Managing Director and US Lead, The Katzenbach Center, PwC US

Paul DeNicola

Principal, Governance Insights Center, PwC US

Barbara Berlin

Managing Director, Governance Insights Center, PwC US

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Hint: to make sure it’s an asset, not a liability

We’ve outlined four key questions that directors can address in exploring the board’s oversight role:

The bottom line:

Why does the board need to know the company’s culture?

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