New Board Effectiveness Guidance from the Financial Reporting Council

AretéWork whole-heartedly welcomes the new Guidance for boards and board committees from the Financial Reporting Council.

The guidance covers a lot of ground.

In this brief post we’ll focus on one key element in the guidance:

“The workforce will be a vital source of insight into the culture of the company.”

We agree with this, and it is for this reason that we recommend the use of the Barrett Values Centre’s Cultural Values Assessment (“CVA”) in Ethical Business Practice and Regulation. This is a well-established method of canvassing all employees (and other stakeholders), no matter how large or small the company, to establish the values and behaviours that characterise the culture, as well as the sources and causes of dysfunction and therefore culture risk in the organisation. The use of a CVA creates a common language with which to discuss culture and also a picture of the values that the participants believe would improve the culture and therefore the results of the company. It is a powerful tool that would enable a board to carry out the responsibilities outlined above, including the need to identify areas of good practice, and obtain evidence of alignment (or lack thereof) of purpose, values and culture.

We recognise the need to collect evidence from a variety of sources, and encourage a company to do this; and we find a CVA to be the best way we have seen to tie it all together and understand the forces at work in a culture that may be driving culture risk. As employees become disenchanted, upset, feel they have been treated unfairly, or are otherwise disengaged, they are better able to rationalise misconduct and still feel they are fundamentally good human beings. The way to reduce misconduct is to to reduce their ability to rationalise it by creating a healthy ethical culture that makes people proud to work for the company. A strong social purpose, such as the supply of clean water and effective sewerage, necessary for all life, aligned with an effective strategy, are the remaining elements that create the conditions for long-term sustainability.

Compliance with external rules will never be as effective to motivate the majority of the employee population and indeed an excessive focus on it will have the opposite effect. Other regulators must take note of this and ensure that their regulatory framework does not incentivise companies to engage in tick the box compliance. To do otherwise is to be complicit in lowering, rather than raising standards.

You can follow the Financial Reporting Council @frcnews – and here’s the FRC Guidance for Boards and Board Committees.

Disclosure: Ruth Steinholtz is a fully certified consultant in the use of the Cultural Transformation Tools™, of which a CVA is one. She is not an employee of the Barrett Values Centre.