The 10 years since the financial crisis and subsequent recession has seen much change in UK business. Political and social flux, economic variability, new business models and ways of working fuelled by relentless technological innovation are all challenging business to be more agile and develop new capabilities. But the issues of mind set, behaviours and corporate cultures that lie at the heart of sustainable businesses, and in rebuilding trust, are proving both harder to understand and harder to fix.

Corporate culture, which perhaps most critically is manifested in how decisions are made and actions taken, but also in how people are engaged, aligned, and give of their best, has risen much more to the collective attention. Ongoing corporate scandals and behaviours continue to challenge us all, but we can also see the apparent continued short term profit focus of business versus longer term investment in sustainable business – particularly in the investment in the workplace and skills that is strongly linked to the UKs productivity challenges. Addressing these issues is clearly vital, particularly in the context of a post-Brexit world.

For the average employee or worker, trust and engagement have been eroding not least because take home pay remains stagnant against rising inflation and the quality of jobs in the economy is not improving (CIPD, 2017b; HM Government, 2017). At the same time reward for those at the top of the biggest UK business continues to grow disproportionately (CIPD, 2017c). It isn’t only pay where inequality is felt. Stress levels are rising, and wellbeing and engagement for many has been declining.

So it’s clear whether looked at through the lens of the individual worker (present and future) as a key stakeholder, or the wider economy and society, that how businesses behave and the context in which they make decisions is of interest to all. The question then is how can we encourage businesses and business leaders to change, and how can change to culture be achieved.

Encouragement will need to come through corporate governance (are Boards and executives understanding and measuring the right things), greater transparency (gender pay gap reporting is an interesting example), and key external influencers including investors and regulators. It must also happen through recognising the multiple stakeholders of a business, not just the interests of the financial stakeholder. Not only are employees a key stakeholder, but so are customers and suppliers, and the communities in which businesses exist, as well as the environment.

UK regulators, including the FCA and Financial Reporting Council, are now looking at approaches to corporate governance with corporate culture more in mind. The FRC Culture Coalition project explored the concepts of corporate culture and regulation (Financial Reporting Council, 2016a) recognising that the traditional corporate codes and the philosophy of comply or explain need to be positioned more alongside principles that can guide good practice and behaviours.

Understanding cultural change

Culture is not one dimensional, fixed, or singular in its nature. It is the result of interacting people, processes, procedures, systems and networks (CIPD, 2016). Many decades of behavioural science research have shown that prescriptive rule-bound environments don’t build towards positive cultures and can lead to unintended and unwanted consequences e.g. following rules without any sense of individual accountability or understanding of outcomes, or even ‘gaming’ the system (CIPD, 2015).

Culture change needs to start with clarity of the principles which should guide the business and the HR and people management practices. These should be articulated through corporate value statements, as well as a refresh of what the wider purpose of the business is (that understands the multiple stakeholders). For the board this means that an organisation’s business model is geared towards developing cultures which enable value creation and value capture for all of its stakeholders, not just the few (CIPD, 2017a; Edmans, 2011).

These are the foundations to lead culture change and should be widely communicated (e.g. Levin and Gottlieb, 2009 or Sangiorgi, 2011). There must also be honesty and objectivity about where the organisation’s culture is today. Solid evidence and qualitative measures of culture and organisation development such as staff surveys alongside quantitative indicators should be consistently used and reported (Barends, Rousseau, & Briner, 2014). These can be correlated with value outcomes such as customer satisfaction, productivity or innovation drivers.

Principles and values are then reinforced through practices and processes, including training and communications, but particularly performance management and reward. What gets measured and what gets recognised or rewarded, gets done. Culture change starts from the top, so consistent tone, narrative and actions from the top send the signals throughout the organisation.

There must also be clear alignment between individual roles and objectives and wider purpose, strategy and outcomes. Managers at all levels need to live the espoused values and support their teams, as well as holding them to account. Employee voice is critical – are people able to contribute and challenge, be listened to, and therefore also to be treated fairly.

By considering multiple stakeholders, drawing on professional expertise, and building engagement into culture change, it is possible to shift cultures but it takes time and consistency. For leaders the opportunity is clear – inclusive, engaging and productive workplace cultures are good for positive business outcomes, foster trust, and provide greater opportunities for employees to benefit from work too.

This article was first published within a group of essays, 'Transforming culture in financial services' (12/03/2018), by the Financial Conduct Authority.

By Peter Cheese, CEO, CIPD and Ed Houghton 

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