How the Board of Directors Should Be Involved With Creating a Healthy Corporate Culture

Nicholas J Price
5 min read

The work that board directors do in the boardroom toward identifying risks, overseeing the company's operations, and short- and long-term planning culminates in the goals of growth and profitability. As important as success is to the company, the board, its employees and its shareholders, sustainability and profitability don't necessarily go hand-in-hand with trust. Customers trust companies that care about their employees, the environment and other causes. Shaping corporate culture starts with companies thinking about the people who work for them before considering the impact of how culture affects customers.

A visible, healthy cultural environment produces efficiency because it improves productivity, which adds value and protects shareholders. A consistent corporate culture leads to trust because it gives shareholders the confidence in knowing that they can rely on the company to maintain a consistent environment around that culture. The company's words and actions stand as proof of that trust. The end result is that a healthy corporate culture will encourage continued investment in the company's products and services.

What Is Corporate Culture?

Corporate culture is a combination of values, attitudes, beliefs, customs and behaviors that exist in the operations of the company and within the relationships between board members, managers, employees and shareholders.

The messages that an organization sends and the values that top leaders express through their words and actions reflect the corporate culture. Corporate culture, whether it's good or bad, is reflected squarely in the company's operations and activities. A healthy culture reflects the interactions that board members have with top executives and shareholders. On the reverse side, unhealthy subcultures can undermine the strongest efforts toward building a solid corporate culture.

While culture isn't a palpable matter, it's easy to see the effects of it. With a little bit of effort and determination, a poor or average culture can be molded into a healthy corporate culture that matches the company's values.

Connect the Company's Purpose and Strategy to Corporate Culture

Board directors play a primary role in developing their company's purpose. Something they don't often pay as much attention to is how the company's stated purpose dovetails with the company's values and behavior. Board directors need to carve out time in their agendas to have some focused discussions about corporate culture as it pertains to overseeing the values and behavior of people inside and outside of the company.

A strong and healthy corporate culture holds tightly to the company's values, which helps to drive the expected behavior in every facet of the company. The board directors and senior managers should set the precedent of the culture's tone, but establishing the right corporate culture starts even before that. In a board's work of recruiting and refreshing board members, committees should give a candidate's views on corporate culture a solid look to see if their views match the company's culture.

Aligning Values and Incentives Promotes the Corporate Culture

An important way that boards can promote the corporate culture is to motivate managers who demonstrate the culture in word and deed by aligning their performance with financial incentives and non-financial rewards. Boards should also look to recruit managers or other company leaders who support the company's culture through their views on the company's purpose, values and business model. Top executives and senior managers set the tone for the culture by using shared vocabulary with board directors that reflects the company's cultural values.

Board Directors Lead the Corporate Culture by Example

Beyond promoting the corporate culture, board directors can keep the culture healthy and active by setting an example of the proper tone starting with themselves. Board directors should be mindful that their speech and behavior should display good ethics and integrity at all times, even in their personal lives.

The tone starts right in the boardroom by encouraging trust and constructive engagement during board discussions. Board directors may use their annual board director self-evaluations to get a pulse on the strength of the company culture as it manifests in each board director and in the board as a whole.

Another way that board directors display their commitments to the company culture is by showing respect to senior managers and others in the boardroom, even when they disagree.

As important as culture is inside a company, it's just as important externally. The way that investors, vendors and other stakeholders conduct their behavior is also a reflection of a company's culture. Board directors or managers may need to educate their vendors and affiliates about how their behavior affects the health of the company and encourage them to display proper behavior while conducting business.

The Selection of the CEO Reflects Corporate Culture

The CEO is the most visible person who models corporate culture. One of the main tasks of the board directors is recruiting and hiring the CEO. It's important to recruit and select a CEO who already has values and philosophies similar to those of the company. The board chair and the CEO work together closely. Both parties and the company will benefit when they incorporate culture into the relationships between them. In planning for CEO succession, board directors should consider whether candidates have values and ideals that are similar enough to the corporate culture to make sure that new relationships get off to the right start.

Mergers and Acquisitions Have Major Impact on Corporate Culture

It's imperative that early discussions about mergers and acquisitions include in-depth discussions about cultural fit. Mergers and acquisitions may look great on paper, but cultures that are not closely aligned with each other can produce rocky roads and devastating financial loss in the near future. Initial discussions should include strategies for how to integrate the cultures and embed them into the combined company to strengthen, rather than weaken, corporate culture. Board directors will need to collaborate about strategies and time frames of how and when to develop a corporate culture that brings the companies closer together and makes them stronger.

Even when corporate cultures seem to align rather nicely, the beginning talks about mergers and acquisitions should identify the potential cost to the company if the cultures don't align as directors expect. It's better for a board to walk away from a deal than to try to align cultures that are too far apart.

Final Words on Board Involvement Toward a Healthy Corporate Culture

Board directors need to assess all aspects of the corporate culture from top to bottom, as well as how culture extends horizontally to shareholders, customers and vendors. Culture should be embedded in all company activities, interactions and processes. A healthy corporate culture will be visibly beneficial to the company and its employees, customers and shareholders.