The tone from the top - Organizational Consulting...can quote Peter Drucker, culture eats strategy...

The tone from the

top

www.kornferryinstitute.com

Taking responsibilityfor corporate culture

02

ContentsIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Conversation with… Vivek Bhatia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Conversation with… Paul Brasher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Conversation with . . . Elizabeth Bryan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Conversation with . . . Melinda Conrad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Conversation with . . . David Crawford . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Strengthening culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Conversation with… Tom Gorman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Conversation with… Brian Hartzer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Conversation with… Christine Holgate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Conversation with . . . Jayne Hrdlicka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Aligning culture, strategy, and talent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Conversation with . . . Greg Medcraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Conversation with . . . John O’Neill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Conversation with . . . Andrew Pridham . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

10 red flags . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Conversation with . . . Simon Rothery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Contact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

1THE TONE FROM THE TOP

IntroductionConsider this: Somewhere in the world, right now, it is likely that someone

is breaching the culture of the company that he or she represents . The

transgression may be minor and it may pass quietly, or it may be so

grievous that it bursts to the top of the organization and attracts viral

news coverage and widespread condemnation .

The response to such a possible corporate crisis reveals much about the

culture of the organization . Blame is often assigned to a “few bad apples,”

a “rogue employee,” or a “random event .” It may appear in the early days

of an unfolding crisis, that culture is the hardest word to say . Instead,

the focus often turns to looking for someone at fault, punishing them,

and considering the problem solved . The emphasis is on who, when the

greater need is to look deeper and to ask how and why . Conversely, the

media may put their focus higher and deeper—toward executive teams

and boards, questioning their knowledge, or ignorance, of the breach and

the system failure that enabled it .

There was a key finding in a recent global culture survey conducted by

Korn Ferry .1 The majority of the 500 business leaders surveyed (72%) said

that culture was extremely important to organizational performance, yet

just 32% said their organizational culture aligns to a great extent with

their business strategy . This means that two-thirds of executives believe in

culture as a driver of performance, yet just a third believe it should closely

align to strategy . The gap between these contradictory findings should

concern business leaders, board directors, and executive teams . It is

where risk and ambiguity thrive and where small cracks in culture widen,

until something, somewhere, falls through .

Korn Ferry interviewed 13 business leaders who serve on boards or are

CEOs of organizations in Australia to gain their insights on the strengths

and weaknesses in organizational culture . The firm sought to understand

where these leaders think responsibility for organizational culture belongs

and how boards and executives can work together to ensure that the

culture set at the top permeates throughout an organization .

The conversations explored the relationship between strategy and culture

and how fault lines can form in organizations that allow toxic subcultures

to flourish . The business leaders helped to identify the warning signs—the

smoke under the door—that should cause concern for executives and

directors .They outlined ideas and practices on how organizations can

achieve cultural alignment from the top down . Their views are illuminating,

and their approach to cultural transformation will be of interest to anyone

with a stake in the power and role of culture and the impact it has on

performance .

1 http://www .kornferry .com/press/15195/

2

Conversation with...

Vivek Bhatia

Vivek Bhatia is CEO and managing director at icare NSW.

“Start with culture. If you don’t have your culture right, your strategy is pretty meaningless.”

KF: Who is responsible for the culture of an organization?

VB: Undoubtedly, the senior leadership, because accountability for

culture starts at the very top . In my opinion, the leadership at the

board level sets the tone, which is then cascaded by the executive

team to the rest of the organization . I strongly believe that the

leadership team needs to “live” the culture and set the example, not

just talk about it or have posters on kitchen walls .

KF: As a board member, you are part of the group that sets the tone . As

CEO do you have much influence over what that tone is?

VB: It is my responsibility to inform the board and influence my

colleagues around the boardroom table on the most appropriate

culture for an organization of our shape, size, and scope . This

is driven by my personal value and belief that a leader needs to

espouse the culture they want the organization to be . There is a

long-standing mantra of, “Be the change you want to see .” If you are

not, then don’t expect it .

KF: How would you describe the culture at icare?

VB: We’ve had a very interesting journey over the last 15 months . I joined

a previous incarnation of the organization after a parliamentary

inquiry, which found that harassment and bullying were systemic in

this workplace .

One of my key objectives upon joining was to understand the root

causes that were impacting on or influencing that culture . Very

quickly I learned it wasn’t everywhere, and it wasn’t everyone .

And that is always the case . There are always challenges in a fairly

large organization and people tend to generalize the organization’s

culture . We need to find root causes rather than purely addressing

the symptoms .

Organizations don’t have one culture; there are numerous

subcultures . But there is something thematic in those subcultures .

They are typically influenced by the worst behavior that is tolerated .

I believe an organizational culture is driven by the worst behavior

that a leader allows to happen .

My first course of action was to apologize for what had happened

in the past . Then, I started an open, honest, and transparent way of

operating, which includes a weekly blog that I write to all employees


Key factors that strengthen culture chosen by Vivek Bhatia:

• Leadership from the CEO

• Engagement from the board

• Included as an intergral part of strategy

and an email address they can all write in to ask me any question . It

is a huge time commitment from my perspective . But if I don’t have

time to listen to my people, I am spending my time on the wrong

things . If I can’t answer any questions, I prefer being honest in saying

either “I don’t know, we are working on it” (and it’s OK to admit

that!) or I can’t talk about it due to confidentiality reasons . We have

to build trust within the organization, that’s the foundation stone of

culture .

KF: Is that the key to turning around a toxic culture? Call it out, apologize

for it, and start again?

VB: We said everything is not bad, everything is not broken, but there

was an incident that impacted a lot of people . Let’s call it, let’s

apologize, draw a line in the sand, and let’s move forward . We do

not want to constantly be looking back . But we need to bring people

with us to move forward . Regaining trust does that best . I added the

value of respect to our set of values . It is a pretty simple term, almost

a hygiene factor . But in the context of where the organization was

at the time, it needed to be elevated . We ran programs that helped

to embed respect into our day-to-day behaviors and operations . I

opened direct communication channels with the employees . I heard

what works, what doesn‘t work, and what people are feeling . I also

outlined across the organization my expectations of people leaders

in leading teams and building a constructive workplace culture .

KF: Was this intuitive on your part or was it a more strategically

structured process? How did you know how to do what you did?

VB: It was a bit intuitive . But throughout the 17 years I have been

working, I have learned that certain leaders inspire, and certain

leaders don’t . Over the years, I started to think about what I would

do when I got the opportunity to lead an organization .

In 2008 when I was appointed to my first CEO role, I conducted

a trial with an open culture, in terms of making the workplace

transparent, accessible, and a place where it is OK to talk about

things that are not going well without the fear of being judged . If I

can quote Peter Drucker, culture eats strategy for breakfast . Start

with culture, because if you don’t have your culture right, your

strategy is pretty meaningless .

KF: How do you set a new cultural tone for icare?

VB: It is about setting clarity around what you want to be and engaging

as many in the workforce as possible to contribute to the culture

they want to be a part of . The foundation of icare is that we are

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here to deliver a world-class service to our customers . Everything

we do places the customer at the center . Most of our customers are

vulnerable . They have been injured, and it is hugely important that

when we deal with them that we do so with utmost empathy and

a very clear focus on how we can help them get their life back to

as normal as possible . We say: “We have a commercial mind and a

social heart,” and that juxtaposition for us is the most critical thing

that sets the tone for what we want in our organization . We are here

to deliver a very strong social purpose and we can make a difference

to people’s lives . It’s a huge responsibility and we need to deliver the

best possible outcomes for the people and communities of the State .

KF: Are you seeing improved productivity from your cultural change

process?

VB: Undoubtedly . It is well known and well researched that stronger

culture results in better engagement and better engagement results

in better productivity and through-put . We did an engagement

survey this year and during a 12-month period we saw a quantum

improvement in our engagement .

KF: Do you recruit for culture?

VB: Absolutely . It is most important to us to recruit somebody who is the

right fit . For me, the right skills get you to the table . But what gets

you into the organization is the right fit . It is really important that

people come in with the right mindset, and feel equal responsibility

to make sure that their teammates and their colleagues are as

successful as they are . If they are successful at the expense of their

colleagues then that is not success to me .

KF: What role do you see for HR in cultural change?

VB: I see the role of HR as an enabling function or service . I don’t see

the role of HR as the owner of culture in the organization . It is the

collective role of the leadership team and a point of accountability

for the board and me . I believe the only reason we can’t deliver a

world-class service is because of our own selves . We cannot blame

anybody else . We take out the plausible-deniability levers and we

say: We are the owner of our own destiny, how are we going to

deliver what we aspire to deliver? Do we know what good looks

like? And if we know what good looks like, what is stopping us from

getting there?


Conversation with... Paul Brasher

Paul Brasher is the Chairman of Incitec Pivot Ltd., a NED of Amcor, and the Deputy Chairman of Essendon Football Club.

“The minute the CEO does something that contradicts a cultural value, you are set back years.”

KF: Culture appears to be gaining a more formal place in conversations

on how companies are run, particularly in relation to governance . Is it

important for companies to properly define their culture?

PB: It is interesting that there is a lot spoken about values but not about

culture in annual reports . I think that is because culture can be

difficult to describe without trotting out a bunch of platitudes . I see

culture as an aggregation of how people behave and live particular

values . In a corporate environment, it is how a company first of all

enunciates its values, and, more importantly, lives them .

KF: How important is understanding culture to managing risk?

PB: I don’t think you can seriously address risk without having some

regard to culture throughout the organization . For example, in

certain situations you may have subcultures that are inconsistent

with the overall culture you are trying to achieve in an organization,

which can lead to disaster . Some of the recent high-profile issues

where things have gone wrong involved a smaller group with their

own culture . It didn’t matter what people thought the company’s

culture was, this group thought it was something else .

One of the hardest things to deal with is when you have a subculture

in a part of the organization that has been incredibly successful . The

temptation is to say, “Just leave them alone, you don’t want to upset

them, they are doing all right .”

Well, you can pay a big price for that and they can become a law

unto themselves if no one is prepared to break down the silos and

challenge these cultural terrorists .

KF: Some subcultures may be absolutely fine and are welcome, but when

the subculture doesn’t marry up to the overall culture there is risk of

a breach . How do those at the top of an organization identify these

strong, potentially risky subcultures?

PB: That’s the $64-million question . I think every director worries about

how you might “smell the smoke coming under the door .” How can

you know what is going on three or four levels away so you will be

able to sense when there is something amiss? You can rely upon

some of the indicators . For example, most companies now have

whistle-blower programs that provide an avenue for people to report

behaviors that shouldn’t be occurring . But perhaps not . You might

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Key factors that strengthen culture chosen by Paul Brasher:

• Cultural leadership from the CEO

• Penalizing/calling out work and/or behavior that contradicts cultural values

• Inclusion in leadership and development programs

• Frequent communication of culture-related programs

find that the people in the particular group think it’s wonderful but it

is contrary to the values of the rest of the organization .

KF: How much weight do you place on intuition in recognizing a cultural

breach?

PB: You won’t make drastic moves based on intuition alone . But if you

are sniffing a bit of the smoke under the door at the same time

people are raising matters that they intuitively feel might be an issue,

you will take notice, and you will make further enquiries .

In this regard, one thing I have found very useful when I have chaired

audit and risk committees is to have regular, informal conversations

with, for example, the internal audit manager or the external

auditor . These are along the lines of “Tell me what you are sensing

in our company, even if you can’t necessarily back it up with hard

evidence .” Often this leads to a discussion around culture issues .

KF: If a director hears something, or sniffs something, can they talk to

their fellow directors and the chair?

PB: Yes, and they should . Some of the celebrated disasters in corporate

history have people wise after the event . The number of people

you hear say something like “I knew they were a bunch of crooks,

everybody knew that .” Well, somehow or other, you don’t tend to

hear those insights before the event .

KF: What do you think are the key factors that strengthen culture?

PB: I think leadership from the board, and particularly the CEO, is

absolutely critical to strengthening culture . If the CEO is just paying

lip service to it, then you have no hope of embedding a distinctive

culture .

It is almost as important to have somebody standing next to the

CEO to act as the champion and driver of culture, who will cajole the

CEO to do what he or she needs to do . This person will act as a kind

of intermediary between the CEO and the organization .

Penalizing behavior that contradicts cultural values is also really

important, and in the context of the CEO it becomes imperative .

People read messages into what the CEO does, so the minute the

CEO does something that contradicts a cultural value, you are set

back years in what you are trying to achieve in an organization .

Everything is amplified many times over in relation to the CEO .


KF: Culture or strategy? Which comes first?

PB: I think they run in parallel . I struggle to see how you could sensibly

define a culture without having some regard to your strategy . If I

think about culture as defining the way we do things around here,

you would define that by the various values that you enunciated

and hopefully perform to . For example, if one of your values is

innovation, that is presumably aligned totally to your strategy,

because that’s what your markets and customers demand .

KF: Do you think there is a difference in how culture and leadership

works in sporting organizations?

PB: I think the difference with a major sporting organization is that its

success has to be immediate and it is closely scrutinized every single

day in the media . No corporation gets that kind of scrutiny . Coaches

are on short-term contracts and have a minuscule window in which

to achieve success, so they may be tempted to be more focused on

immediate results than on building a sustainable culture .

Having said that, sports clubs now recognize the importance of

having a strong leadership group that will act as cultural guardians

while playing their part as sports people . With the right people, that

can be really powerful . If you really believe your leadership group is

committed, then you will trust them to have a big say in how to deal

with people who are not living the culture .

KF: Is there anything you would like to change about the culture in

organizations you have knowledge of?

PB: Probably not in terms of defining the culture that is right for the

organization—most companies do that pretty well . However, where

a company is implementing a program of cultural change, people

sometimes have an attitude that they may need to sacrifice short-

term profits for longer-term success . I don’t agree with that—a well

thought out, defined, and lived culture is fundamental to success in

both the long term and the short term .

8

Conversation with... Elizabeth Bryan

Elizabeth Bryan is Chairman of Virgin Australia, Deputy Chairman of Insurance Australia Group, a NED of Westpac and former Chairman of Caltex. She is a member of the Australian Securities and Investments Commission's Director Advisory Panel and the Takeovers Panel, and is the president of YWCA. NSW.

“You cannot manage a complex organization unless you manage through the tool of culture.”

KF: How important is it that companies focus on culture?

EB: Culture is the environmental setting required by society as part of

your license to operate . And any company that has a culture that

is at odds with those societal expectations is going to wind up in

trouble . That is where society’s relationship with businesses has

evolved to . It hasn’t always been there, but it is there now .

KF: How can companies improve their understanding and application of

culture?

EB: The best analogy for what will have to happen with “company

culture” is what has happened with “safety culture .” There used to

be a time when there wasn’t much focus on safety culture . That has

changed . A good safety culture in industrial companies has become

a critical “must have .”

Take a company in a dangerous goods industry like Caltex . Safety

is embedded in absolutely every aspect of the business—in the

language, in the format of the board meetings and all management

meetings, in any type of assessment or response to issues of the

day-to-day business, in score cards, in management practices, and in

all work processes . If you can’t talk the language and walk the talk of

safety you cannot survive in that company, because safety drives the

business .

I think company culture has to take the same journey, and we are

way behind . Many companies are only just beginning to even

discuss culture . It has got to become embedded in organizations .

For that to happen, you need an understanding of how to make

culture work for an organization .

KF: There are various opinions of what culture is .

EB: It is what we are, it is who we are, it is how we do things around here,

and, it is how we do things around here when no one is looking .

You don’t have to think about it, it is just there . In a safety culture,

if something goes wrong, you immediately consider: What didn’t

happen to prevent the accident; why didn’t it happen; if it was an

individual misjudgment why didn’t all the checks and balances

work; why did the system that was put up around that individual to

help them fail to do that? You need a similar thought process for

company culture and you need to be able to talk about it, and talk

about the details .


On strengthening culture:

“Every link in the system has its own job to do. The links that sit on the board have the job of espousing, communicating, monitoring, making sure the systems and procedures are right, making sure culture is discussed down the line, and making sure it pervades all the different things we do.”

— Elizabeth Bryan

KF: What do you believe are the key factors that strengthen culture?

It is all the factors you have on your list [see page 17], and if you

miss one of them, then you’ve got a hole in your system . One factor

is not more important than another; the strength comes from how

you weld all of them together in a system . So every link in the system

has its own job to do; the links that sit on the board have the job of

espousing, communicating, monitoring, making sure the systems and

procedures are right, making sure culture is discussed down the line,

and making sure it pervades all the different things we do .

Culture needs to be explicit . That is what instills it and makes you live

it day by day .

KF: The CEOs of some companies involved in high-profile governance

breaches are distancing themselves from the crisis by saying they

knew nothing about it, that nobody told them what was happening .

Is that a valid defense?

EB: Of course not . The CEO is responsible . Someone not knowing

something is no excuse because you can’t ever know it all . But you

are responsible for the culture and the system that allowed the

breach to occur . Were they not told because the culture doesn’t

allow that dialogue to happen? If, for example, the breach occurred

because the sales targets were impossible to reach any other way,

then the leadership need to be wide open to hearing that and acting

on it . The ability to have those conversations has to be part of the

culture . Bad news has to flow to the top quite quickly, which is very

hard to do in big organizations . And people should not be fearful of

transmitting that information .

Tone is very important, particularly in how you acknowledge

achievements . Who do you seek out to be a hero? Is it the person

who against all odds hits ridiculously high sales targets, or is it

someone who raises a problem and discusses it with you? Those

choices send a cultural signal from the top .

KF: How much do boards get involved in engagement surveys, whistle-

blower data, or social media monitoring?

EB: Boards should monitor those measures because they need to know

how their company is being seen by different stakeholders . NEDs

also need to know how to interpret this data, and they need to

understand the business model and the behaviors it encourages .

KF: That is a constructive way to talk about culture . It elevates it .

10

EB: Culture is hard edged, just like safety is hard edged . Safety is

all about not killing people, and a safe industrial enterprise is a

profitable one . Once you start to have safety problems, you have

consequences and costs that build up all through the system . The

same levers will drive culture . If the culture is right, then your cost

base doesn’t have to be so heavy . But your business model has to

be right, it has to be set to succeed .

KF: When you have such a strong culture of safety—zero harm—then you

have something that anchors a tough decision . You can walk away

from an overseas partner who has different safety rules, or walk

away from potential revenue sourced in a country that doesn’t work

the way you do .

EB: It becomes an absolute no-go; this is our culture, we will not breach

our culture, if we do, we are putting it at risk .

KF: How long is the journey that culture has to make to match where

safety is today?

EB: It is long . There is no coherent framework that I know of around

culture as an influencer . But there is, particularly in service

industries, demand from many powerful stakeholders that boards

know and own their cultures . We must accept culture as a tool for

managing complex organizations . I think you can argue that you

cannot manage a complex organization unless you manage through

the tool of culture .

KF: What is strategy done in absence of culture worth?

EB: Nothing . How do you work from that? Success is no longer sufficient

if you go outside an acceptable value system to get there .


Conversation with... Melinda Conrad

Melinda Conrad is a NED of OzForex Group Limited, the Reject Shop Ltd., the Garvan Medical Research Institute Foundation, the Australian Brandenburg Orchestra, and has previously served on the boards of David Jones Ltd. and APN News & Media Ltd.

“The board and management must collectively own culture, with the CEO and management team delivering those values on a day-to-day basis.”

KF: What are the most important factors that strengthen an organization’s culture?

MC: Cultural leadership from the CEO is, without a doubt, the most important way to influence a company’s culture . In my view, the board must mutually agree on the vision, behavioral expectations, and boundaries of the company’s culture . And then appoint the right CEO who is able lead the organization to deliver on that vision . Because while the board is there to uphold the vision on culture, on an everyday basis, it is the CEO who sets the cultural tone .

The next most important factor is recruiting senior executives with the right cultural attributes, and the board does have some influence here . In all the boards I have been involved in, members of the board who are most aligned with that particular function will also meet the final candidates . This helps give the CEO another perspective on the candidate and provides an opportunity to engage on what the board expects of management .

KF: How can you determine what the right cultural fit looks like? Is it through assessment benchmarking that examines desired cultural attributes or is it more intuitive?

MC: The data from some of the more scientific assessments provides a useful perspective . However, in the end, one’s intuitive judgment is just as important . Observing the small actions and the signals they send provide the best clues . In my experience, there can be a very big difference between the talk of culture and the action of culture . I’ve seen many times that it ends up being just words, whereas it is actually when actions support those words when culture comes alive .

I knew a CEO who prided himself on thinking he had created the best culture in the company . But further investigation revealed that the reality didn’t match the rhetoric . This is a classic example of saying all the right things, but not having any substance . The worst thing you can do is set aspirational views on what the company’s culture is, go to the effort of putting the meat on the bone of what that means in terms of specific values and behaviors, and then when it comes to the crunch, you have not followed through on it . Such inconsistency can create a lack of unity and trust in the culture and values of the organization . In contrast, when there is consistency, a sense of pride and focus on performance builds, which can be incredibly powerful .

12

KF: How do you identify the gap between words and action in relation to culture?

MC: It is challenging for boards, as directors aren’t there for the day-to-day actions and are less exposed to the little signals that make up what the culture really represents . In the extreme, you can be shielded from it by management so, you have to find ways to be actively talking to all of your stakeholders . Interactions with employees, customers, suppliers, shareholders and competitors all provide insight into how the organization is delivering .

KF: How do you receive enough signals to know there is a problem?

MC: I am operating on the assumption that, as a director, I am probably the last to know; so if I hear a little snippet, it has the potential to be the tip of the iceberg and I need to be digging pretty quickly . That’s why it is important to be attuned to all those seemingly little things, and then use your judgment to assess whether it is just an isolated example or is representative of a bigger issue which needs to be explored .

KF: Singularly they probably don’t mean a lot, but collectively they mean something .

MC: It is challenging for a director to identify a cultural issue early, yet we need to accumulate enough clues to give us enough confidence to act . Board meetings can be very scripted and run to a strict timetable, and people presenting to the board are well prepared . So opportunities to explore the “snippets” occur at the dinner afterward, walking the halls of the company, chatting with people, and being on the shop floor hearing what people say . Or when talking to customers or watching the CEO and management team interact . Once you put your collective snippets together, you then consider, am I still comfortable, yes or no?

KF There is extensive research that suggests in many organizations, culture is in one box and strategy in another . Do executives truly understand the impact of culture on achieving strategy?

MC: I think it depends on your definition of both . Everyone has his or her own definition on what strategy is and everyone has a different view on culture . It needs to be defined and collectively agreed upon . For example, are you talking about a culture of interpersonal behavior or a culture of risk? Are you talking about a culture of compliance or culture of accountability? Those are all elements that make up a kind of synthesized definition of culture .

KF: That’s a really good point . You’ve got to question how organizations can genuinely move forward in the right way if they don’t

Key factors that strengthen culture chosen by Melinda Conrad:


• Recruiting executives with the right cultural attributes

• Taking swift action on work and/or behavior that contradicts cultural values


understand that it’s not just about culture but about its component parts .

MC: Culture is made up of a whole lot of different elements . You can have a culture of collaboration and a culture of risk and these things aren’t mutually exclusive . It’s the collective that makes up the corporate culture . Most important is a culture of mutual respect, because if you don’t have that, nothing really quite works .

KF: Another way of viewing culture across all the silos is a clear understanding of: “This is how we do things around here” and ensuring employees have a clear understanding of that .

MC: This is where the conduct of CEOs is so important . It is their job to say, “This is who we are, this is how we are going to behave, and this is what is acceptable and not acceptable . And the way I am going to conduct myself is the way you need to model yourself .” The executives gain a direct understanding of what is acceptable through the actions of the CEO . It filters through .

KF: How much influence do you think the board has on driving the culture of a company?

MC: In my view, the board should uphold the vision for the organization’s culture, set boundaries, and measure performance against expectations . Ensuring the role of the remuneration committee more broadly encompasses the evaluation of people, and culture is an important way to formalize this accountability . And ultimately if the board doesn’t believe the agreed cultural expectations are being upheld, our job is to either help change the CEOs' behavior or change CEOs .

KF: Who on the board should be most proactive in helping to shape culture?

MC: It is like strategy, everyone has to own it . It starts with the board and CEO agreeing on a collective vision, followed by the executive team fully understanding and engaging with those values . On a day-to-day basis, the CEO can then work with the head of HR whose, role is as a facilitator and as an advocate . However, as soon as you say culture is something that HR owns, you’re dead . Everyone has to buy into it .

KF: It’s a journey isn’t it?

MC: Yes, and culture is not a fixed concept . It is constantly evolving as the organization changes . And depending on the size and life cycle

of the organization, the pace and style of that change varies .

14

Conversation with... David Crawford

David Crawford is the Chairman of Lend Lease, South32, and Australia Pacific Airports Corp.

“Culture is not something you can stop and think about, it should be part of your DNA.”

KF: How do you describe culture in a business context?

DC: Culture is a very common word, but it has a huge range of meanings

for different people in different organizations . I believe culture

is fundamentally important to the success or lack of success of

corporations . Unless an organization has a set of fundamental

principles by which it operates, then all the people in the

organization will not know how they should behave and what is

necessary in the interests of the organization, and the community in

which they operate .

KF: What are the main factors that strengthen culture?

DC: Leadership from the CEO is absolutely fundamental . Leadership isn’t

just about presenting to the community and addressing the troops,

it is actually the way in which the leader and the team work day to

day . Many companies I am associated with have a culture of safety . It

is a top priority and non-negotiable . This extends to not working in

countries where you cannot get the people you are working with to

treat safety as a fundamental part of your culture . The companies I

work with believe that every employee who comes to work (and their

family), has the right to expect that they will return home in the same

condition they went to work .

KF: How difficult is it to have alignment between the people who might

be described as the chief custodians of the culture? What is the role

of the board or the chairman in culture?

DC: The board has to be absolutely committed to it, totally supportive of

the principles involved, and the CEO needs to have their full backing .

KF: What work is required to ensure the full board and executive team

is also aligned on culture? Is it a deep and specific exercise or is it

wrapped up in strategy?

DC: You don’t sit down and say, “Let’s talk about culture today” or “Let’s

talk about strategy today .” That is not the way it happens . When

you appoint board members, you look for people who have similar

values and similar views about those fundamental things .

KF: We often hear more about a company’s culture after a crisis . There

may have been a moral or regulatory breach that is first described

as random but later is seen as systemic . Does it take a crisis to turn

people’s attention very firmly on culture?


DC: Possibly . With my background as a corporate receiver, I have had

a lifetime of fixing stuff-ups . And mostly you would say those

businesses had no decent culture or values . Almost without

exception, they were businesses that were run for the benefit of the

individuals at the top . There was no overarching culture of doing the

right thing .

KF: Is “We didn’t know” an excuse from leaders when a breach occurs on

their watch?

DC: I come from a harder school than that and say: “Why didn’t they

know?” They should have . I have been called in over the years to

perform reviews for all sorts of organizations, and it is quite plain to

me, and no surprise, that the people at the top were either too busy,

didn’t want to know, or the boards weren’t chosen with due skill,

care, and attention .

KF: What are the fundamental ways to mitigate cultural risk?

DC: I often use the phrase—if you’ve got good governance and structure

in place, you’ve got a chance for success . If you don’t have it

in place, you’re going to struggle to ever have success . This is

particularly so in not-for-profit or sporting bodies .

It is interesting how often executives get caught up in their own

little world, and are doing something that they perceive is in the

best interests of the corporation because it is going to improve the

bottom line . You might ask: “Let’s look at this more broadly . What

will it do to the company’s reputation?” The answer may be “That’s

not my issue, that’s for somebody else to worry about .” Well, it is for

you to worry about, it is fundamental . It is a question not addressed

often enough by senior executives because they are not focused on

their broader role .

KF: Do those executives think that cultural issues are handled

somewhere between corporate affairs and human resources? Is it

considered a delegated task?

DC: Some people don’t even get that far to say that it is somebody else’s

job . It just isn’t on their radar . But culture is not something you stop

and think about, it should be part of your DNA .

Key factors that strengthen culture chosen by David Crawford:

• Cultural engagement from the board



16

KF: What do you think are the red flags, and how can an NED who has

limited access to the inner workings of an organization investigate

something that might not be right?

DC: One has to think about the role of an NED . Some people think

it is about reading the papers, turning up, answering questions,

responding to issues, and going home . To me, the role of the NED

these days is a 24/7 role . That is not to say I’ve got to be thinking

about the companies I represent all day . It is about having an

awareness of what is going on around you that will trigger you to

ask a question: Is this something relevant to your business? Is it

something the business might suffer from? Being an NED is not just

come to work, do your boards, and go home . The trigger points are

out there .


Strengthening culture

Cultural leadership from the CEO

Inclusion in leadership development programs

Culture is measured

Our culture is aligned with our customers' expectations

Linking all of the factors listed above

Defined clearly, internally and externally

Rewarding work and/or behavior that represents cultural values

Penalizing work and/or behavior that contradicts cultural values

Frequent communications of cultural values

Culture included in strategy discussions

Cultural engagement from the board

Recruiting executives with the right cultural attributes

Korn Ferry asked the business leaders who assisted with the Tone from the Top

research to review a list of options provided by the firm and to nominate three or four

leading ways to strengthen corporate culture .1

1The leaders were: Vivek Bhatia, Paul Brasher, Elizabeth Bryan, Melinda Conrad, David Crawford, Tom Gorman, Brian Hartzer, Christine Holgate, Jane Hrdlicka, Greg Medcraft, Andrew Pridham, John O’Neill, and Simon Rothery . Some nominated more factors, some ranked them, and some didn’t; one interviewee didn’t distinguish among the listed factors . Interviews and data collection occurred September-November 2015 .

18

Conversation with... Tom Gorman

“You have to find the person who is going to do the right thing, and I don’t mean the right strategy and the right tactics, I mean do the right thing in life.”

KF: Do you recruit for culture at Brambles?

TG: Very much so . Part of our process involves psychometric testing, and

there have been candidates who got through the general interview

process but we rethought the offer based on the psychometric

results . We do the testing because when I came in as CEO, we had

a number of people from the outside who did not have the right

behaviors for our culture, and we ultimately had to exit them from

the company . Early in my time as CEO, we churned through quite a

number of leaders, which had less to do with capability and much

more to do with culture . I am very happy with the team we have now,

but we also need to make sure there’s a place for those who have a

different point of view .

KF: Does culture also feature in how you remunerate people?

TG: We’re all incentivized to support the culture as part of our bonus

structure . There are cultural components for the senior leadership

around employee engagement and satisfaction and safety . Safety

is a big driver in the company in terms of culture . Additionally, we

focus on customer centricity as a key cultural need and measure

Net Promoter Score for all key business units . This too is part of our

compensation system .

KF: Can you easily describe the culture at Brambles?

TG: Yes, I believe we can . In addition to the annual Brambles employee

survey, we have conducted research that examined different

organizational archetypes and which archetype best represents the

culture at Brambles . The archetype that most suited Brambles was

that of the architect and the builder . Nobody was surprised—this is an

archetype that makes sense because people here don’t wait around

to be told every detail of what to do; that’s not in our culture . What

our people really like is to have a general plan, which they execute

locally .

We give people freedom within a frame; they have freedom to do

things, but there are parameters in which we measure and monitor

performance .

KF: How can the leadership team and the board be connected with

what’s happening a long way away from their world? What alerts you

when people act against your culture?

Tom Gorman is the CEO of Brambles.


TG: Often I talk about the three “I’s” in leadership . These are: intellect,

because we want smart people; intensity, because you have to have

energy to tackle the opportunities we have; and integrity . Now,

everyone takes integrity as a given but you shouldn’t . Every now

and then there are violations of what you hold dear in terms of your

culture . We have a “speaking up” process throughout the company,

and whenever there’s a speaking up matter it gets discussed at the

board level . We have removed individuals for a violation of integrity

and the executive leadership team member who owned the business

unit presented to the board on why he took the decision to exit

the employee . So whenever there is a violation there is a board

discussion .

KF: Who is responsible for setting the culture in an organization? The

CEO or the board?

TG: The board doesn’t run the company, the CEO does, and therefore the

CEO has a bigger role in setting the culture . But the board needs

to understand what the culture of the company is and you can’t

understand that without getting out into the business . Half of our

board meetings are held offshore, and every one of those meetings

has opportunities for the board to interact with employees and

customers . Every director has the freedom to visit all the operations .

I think if your CEO says: "I don’t want you meeting with my people," a

red flag should go up immediately .

KF: Given the board is responsible for appointing the CEO, doesn’t the

board ultimately own the culture of the company?

TG: While I said earlier the CEO is more directly responsible for setting

the culture, the board must understand and agree or the CEO gets

removed . So yes, the board does own the culture as well . The board,

when hiring the CEO, needs to thoroughly know what makes that

person tick . They have to find the person who is going to do the right

thing, and I don’t mean the right strategy and the right tactics, I mean

do the right thing in life .

There are things that are right and wrong . When we talk about

management development I spend a lot of time with the board

discussing the makeup of our people . The board’s responsibility is to

spend quality time with the leadership team—not just reviewing and

watching Power Points but actually sitting down and getting to know

them . We’ve been fortunate enough to be able to do that here over

the last couple of years .

Key factors that strengthen culture chosen by Tom Gorman:

• Cultural behavior from the CEO

• Rewarding work and/or behavior that represents cultural values

• Penalizing work and/or behavior that contradicts cultural values

20

KF: Who do you think has the most responsibility for implementing

culture? Is it the CEO, HR, or the entire executive team?

TG: I think virtually everything regarding culture emanates from the CEO .

The execution rests elsewhere, and HR and the executive leadership

team have to be on the same page as the CEO .

KF: How does one “speak up” in the speaking up process?

TG: There’s a system in place (protecting individual anonymity) and every

business unit has access to it .

KF: That could be a very effective way of identifying a cultural issue

somewhere .

TG: If you receive a number of repeat comments, then you have to spend

the time to understand what’s really going on . For example, in some

of the emerging markets the issues are less behavioral and really

about the fact that we are holding people accountable who are not

used to being accountable . It is not about any behavioral issue other

than “My boss is too tough on me .” So is that really a speaking up

matter, or is someone being held accountable? It was important

that I spend time trying to understand the cultural differences in the

emerging markets .


Conversation with... Brian Hartzer

“The essence of cultural transformation is how you build trust and give people the skills to build trust with each other.”

KF: How do you define culture?

BH: I think the word culture is now being used by so many people in

so many different contexts that it is important to say what you

actually mean . During my career, I have spent a lot of time on cultural

transformation . It boils down to how people work together .

I believe for an organization to achieve its potential you need high-

quality people and you need an environment where those people

work effectively together and have the best chance of achieving

their individual potential . The organization must, individually and

collectively, work effectively . It is no good having a bag of Ferrari

parts unless the car is put together well and oiled well . Otherwise you

just have a bunch of parts and that’s not going to work . In the same

way with companies, it is one thing to have a nice structure on paper

and theoretically high-caliber people, but if the culture isn’t right, and

people don’t engage with each other well, it’s not going to work . For

me, it all stems from making the organization as effective as possible

at whatever it is trying to do in its market .

KF: How do you approach this?

BH: You need a set of practices and rules of the road and expected norms

of behavior . These set expectations of people for what you need and

allows them to understand what they need to do to be successful in

the company .

The single biggest thing I learned from a cultural transformation

program I was involved in years ago is that the tone from the top is

very important … for the organization taking culture seriously . But I

would also argue that the leadership is less important when culture is

built from the ground up .

Before the program commenced, I was quite cynical . I thought here

we go, there will be some posters and it will be a waste of time . But

I became utterly convinced about how important culture was as a

result of the process we went through . I realized that the day-to-day

culture was the sum of the parts of interactions that happened in the

company every day . And that what you needed to do was to give

people skills on how to effectively deal with each other while being

clear at a high level what your expectations were . The culture began

to emerge, in a sense, from the bottom up, through the interactions

Brian Hartzer is the Managing Director and CEO of Westpac.

22

and the training that helped people improve how they dealt with each

other .

The essence of cultural transformation is how you build trust and give

people the skills to build trust with each other .

KF: Do you have a specific culture program at Westpac?

BH: We have started a cultural evolution program . It will roll out

throughout 2016, starting with the group executives then, cascading

throughout the bank . It is about being clear with people on how the

culture needs to evolve . People at Westpac are very proud of the

culture; for us, it is about history and the legacy we have inherited .

It’s also about diversity, sustainability, community orientation,

conservatism as a bank, service, and helping people . We need to be

proud of the culture here while recognizing that the challenges that

we face to transform the company over the next five years are going

to require us to evolve the culture a bit . The world is changing, and we

need to bring in a lot of these concepts of agility, accountability, and

decisiveness to people .

I am also seeing culture manifest in the way that the management

team is working together . We recently worked closely on an issue that

involved a number of executives and culminated in a decision made

by the entire executive team . Every single one of us had a role to play,

and afterwards, when we got back together to discuss how it went,

a number of the executive team members volunteered that it was a

great team experience that left us feeling really connected to and

supportive of each other .

KF: You have just described an inclusive culture . Is that the tone you want

to set?

BH: Very much so . Inclusive is a huge word here .

KF: Can you talk about how culture and strategy go together and how

you want them to intersect at the bank?

BH: I think they are related . The way I think about it, if I had to try to

describe it in a linear way, is that I consider what it takes to be

successful and sustainable . I start with the question: Why do we exist?

My conclusion is banks exist to support economic development . That

is why banks are here, and I believe that a lack of understanding of

that purpose is part of the reason the global financial crisis happened .

The banks forgot why they exist and they just started thinking they

were like any other profit-seeking enterprise . Whereas, for banks

to be sustainable, they have to balance the interests of customers,

Key factors that strengthen culture chosen by Brian Hartzer:



• Inclusion in leadership and development programs


shareholders, employees, and the community . If you try to go too

hard on any one of those things, ultimately all of them suffer . And

so, in the end, my job and my team’s job, is to get that balance right

between those four stakeholder groups in a way that is sustainable .

Considering the context is also important . What is the market

dynamic at the moment and what do we have to do as a company to

be successful in the context of the operating environment? What kind

of people do we need to implement the strategy?

KF: How do you define the best people?

BH: I think the best people have a combination of capability and

skills along with personality and fit, plus an inherent achievement

orientation and inner drive . We need to create an environment

where those people want to work and where they feel welcome . So

one element of the inclusiveness comes from people with diverse

skills and personal characteristics who believe they can thrive here .

Another element is that right now the industry is in a dynamic phase

where technology is bringing incredible opportunities to change the

way we serve customers and creating opportunities for reengineering

our internal work practices and processes . There are some real

existential threats from technology to some aspects of our business,

so we have to be nimble and fast . That implies that the culture needs

to become increasingly agile, tech savvy, flexible and, in order to drive

change, increasingly accountable .

24

Conversation with... Christine Holgate

“When you join us and sign your contract, you are signing to live by our values.”

KF: How do you define culture at Blackmores?

CH: I think it is our culture that separates Blackmores from any other company in our space . We really believe in what we do . We are not just making a product, and a great product, we are making a product that we believe adheres to our values; if it’s not natural, we won’t do it .

KF: How structured is the accountability relating to values?

CH: We refer to how we operate as The Blackmores Way . We have a set of values we call our PIRLS: passion for natural health, integrity, respect, leadership, and social responsibility . Those values underpin our culture and we hold each other accountable to them .

We use the values that underpin our culture to frame our awards system . Twice a year we present a cultural hero award and a performance hero award . We constantly promote it . In fact, when you join us and sign your contract, you are signing to live by our values . Culture has to come before performance because the culture is the very glue that holds the company together .

KF: How important is transparency in culture or strategy?

CH: During my career, I have worked in organizations that had some kind of ambiguous mission statement on the wall but the strategy was confidential . I found that annoying because I never knew what I was supposed to be doing to contribute to the company . If you are a young, ambitious person, you want to know if you are doing the right thing, if you have the right skills, and, how to prepare yourself for a fabulous career . You don’t know how to do this if you don’t know the strategy .

My approach at Blackmores has been to create a strategic framework on one page, developed with the executive team and the board and workshopped throughout the organization . The strategic framework contains our values, our mission, our goals, and the four strategic pillars that deliver those . To help communicate the strategy, we have turned it into a picture, made it into a movie, and put it into different languages . I would put $100 on this table that says you could walk into our head office, go onto the factory floor, and 90% of the people will know what those four strategic pillars are . In my view, if everyone in the organization knows what you are trying to do, you can align people, have open conversations, and create a nice environment to work in .

Christine Holgate is the CEO and Managing Director of Blackmores. In 2015, she was recognized as CEO of the Year by CEO Magazine.


KF: How do you keep a culture strong?

CH: First, people at the top of the organization must be absolutely demonstrative of the culture you are trying to set . You cannot go around saying, “These are our values,” and have the leadership team demonstrating a different set of values .

The next part is recruitment . When we are hiring people into the organization, we work with a partner who finds people who are technically able to do the job . My job is to find the person who culturally fits my organization and will be a success here . The job is just as much about cultural fit as it is about skills .

The final stage of bringing somebody into the organization is a panel interview . We prepare thoroughly for the panel interviews and map out the values that we want from our leaders . We don’t want clones; we want a diversity of skill sets, and you can have that if you are commonly connected with culture .

KF: Are you able to say culture improves productivity?

CH: Most definitely . If you’ve got high labor turnover in your business you are losing skills . You’ve got to train new people and they’ve got to adapt to your organization . When people leave, it’s highly disruptive, and the distraction is costly . Our labor turnover is just 7% for approximately 1,000 staff .

It is easy to decide to change the person in the seat when something is going wrong . But it might not be the person in the seat that’s the issue . It could be some other factor, and just changing the person often doesn’t give you the solution . Having low labor turnover works really well for us and I am proud of our deep employee loyalty . When you’re going through a difficult time, the employees will work through it with you when you’ve got a strong culture .

KF: The culture sounds very participative in the way you profit-share, the way you communicate; everyone’s contribution is celebrated .

CH: We also have initiatives to keep women in our workforce . Women drop out of organizations often during the child-raising period . People might say it is because they have had a baby and want to stay at home . But I often wonder if it is because women, after a year out of the organization, find they have a new boss and new peers and they find it confronting . At Blackmores, when a woman is on parental leave, we offer to sponsor an education course, and once a month, we have a morning tea for anyone on maternity leave . They can come back to the office, have morning tea, bring their child in, and we tell them how we are performing . That way, by the end [of

Key factors that strengthen culture chosen by Christine Holgate:

• Culture is clearly defined internally and externally




26

their leave], they are not coming back through the door of a company they haven’t been in for a year . They are coming back to a company they were at a couple of weeks ago . And during that time, they have formed a network with other women in the company they may not have been friends with before . It creates a trusting environment .

KF: These are all small but important connection points that keep people feeling part of the organization . You have really tapped into the cultural piece, and what is really important to us as human beings .

CH: We call it people, passion, and purpose . I believe most cultures that are sustainable have a strong purpose . Our purpose is helping people live better lives through natural health, and we are passionate about it . The combination of purpose and passion are much better [as is] working in an environment like that . Some people might change their job for salary, but they will stay because it feels good to help people .


Conversation with... Jayne Hrdlicka

“You can feel businesses where there’s no cultural core. Their people are less loyal, less passionate about the brand, and less connected to the business.”

KF: Is culture treated seriously enough in business?

JH: At Jetstar, culture is a core part of our business, and the

consequences when people don’t work well in our culture are

significant . The strength of Jetstar’s culture is one of the key

ingredients in growing so rapidly and successfully over the last 12

years .

KF: How can you build an organization of people with shared values?

JH: For many businesses, it comes down to how the business was formed

in the beginning . If you have a clear vision, mission, purpose, and

values, you have an amazing anchor to everything else . You can feel

businesses where there’s no cultural core . Their people are less loyal,

less passionate about the brand, and less connected to the business .

At Jetstar, our core values are straightforward: safe and responsible,

which is an obvious value; energetically efficient, because we are

looking to do things differently and cost-effectively all the time; plus

consistently can-do, genuinely caring, passionate about enjoyment,

and one team .

KF: Do you test for those attributes when recruiting?

JH: Actually, we have inverted the pyramid relating to recruitment into

my team . I interview first, then HR will screen, then I interview again

and arrive at a shortlist, and, then my entire team interviews . Not as

a panel, but in ones and twos . Then we make the decision together .

It’s about whether the candidate has the relevant experience to do

the job, and, also about whether they fit with us and can work the

way we work . We won’t hire somebody only because they can do the

job; they have to fit . So that process has two benefits: We achieve a

good broad test on fit, plus the team owns the success of the person

coming in . And we invest in coaching to help people assimilate into

our culture .

KF: What would you say are the three things that strengthen an

organization’s culture the most?

JH: First, cultural leadership from the CEO, because I think you have to

be a role model and live the culture . It’s high risk if you don’t . Then

recruiting executives with the right cultural attributes; followed by

Jayne Hrdlicka is Jetstar Group CEO and a board member of Tennis Australia.

28

rewarding work and behaviors that recognize cultural values . So you

are recognizing people and always putting on show the things that

are important .

KF: How do you change culture?

JH: Almost everything has to be rewired, including the way you reward

people, the way you talk about what success looks like, and the

way people lead and manage . It is really hard to change the way an

organization’s system works . It’s a journey, and you don’t get there in

six months . You might get there in three to five years, but the work is

probably never really done .

Rewiring takes conscious thought and engagement from the CEO,

the CEO’s team and all the levels down . It’s not that different from

the gender challenge, which involves rewiring people to think

differently .

KF: How can somebody senior in the organization know if culture has

broken down in areas that are remote from their world?

JH: Usually something gives you cause for pause and the early warning

signals will have been rattling around for some time . You may be

losing market share, you’re not as profitable as you used to be, or you

see a disruption on the horizon and you’re not sure the organization

is fit for it . There are usually clues all over the place—engagement

scores, customer scores, and supplier scores .

KF: How do you capture and use those scores?

JH: You have to value them by having a clear vision, mission, and strategy,

and then define what success looks like . With most businesses, there

is some version of the same thing . But if you get it down to the

simple principles of emotion and connection between people, you

have to be measuring both . If you’re not measuring those things, then

you can’t see what’s going on in the business . For example, you may

be financially literate but you miss the early warning signals that the

financials in the future aren’t going to be as strong as they are today . I

don’t think you can identify the issues without a holistic view of what

makes your business tick in the environment it operates in .

KF: Which comes first? Culture or strategy?

JH: I think you have to have both; strategy can’t be done without culture

and I don’t think you can think about the culture without strategy . I

think culture has to be the centerpiece that drives what is possible .

Key factors that strengthen culture chosen by Jayne Hrdlicka:





KF: How do you manage people in key positions who aren’t culturally

aligned with what you want to do?

JH: I call them cultural terrorists . You have to figure out who they are,

allow enough time for the organization to see they have been given

every chance to recover, then if they can’t get to where they need

to be, they should go . And in core positions you sometimes have no

choice but to move quickly .

KF: How do you protect the hard structural work done on changing a

culture? Isn’t it vulnerable to the next leader with a different view?

JH: The beauty of cultural change is, if you do it properly, you’ve changed

all the wiring . As long as the CEO is aligned and believes in the

culture, and believes in empowerment of the front line and all the

things that have got you to where it is aligned, it’s very difficult

for someone to come in and change it . It’s easily spotted and the

organization starts to react—the antibodies come out .

30

Organizational performance emerges from alignment of purpose . To align its culture with its business strategy, an organization must have a clear understanding of:

The type of culture that will drive its specific strategy .

The current culture and how it supports or hinders strategy execution .

The differences between the two .

The levers that will have a powerful impact on culture transformation (potential accelerators) .

Foreseeable challenges that could derail efforts .

Source: The power of cultural transformation – Korn Ferry, 2015 .

Aligning culture, strategy, and talent.


Conversation with... Greg Medcraft

“Sometimes it’s not a bunch of bad apples; it may, in fact, be a problem with the tree.”

KF: Culture is a key focus of the Australian Securities and Investments

Commission (ASIC) . Do you think it is increasing in prominence at the

board level?

GM: Culture is a key driver of the behavior of gatekeepers in the financial

system . It is the global topic of the moment .

KF: Can you regulate for culture?

GM: My view is that you can’t regulate culture . Firms must be responsible

for their own culture . ASIC cares about culture, because it is often

a red flag that there may be conduct issues resulting from a poor

culture .

KF: How do you define culture?

GM: Culture is the mindset of a firm . Interestingly, it is defined in the

Australian Crimes Act as an attitude, policy, rule, course of conduct,

or practice . Much of that is embodied in the internal controls of the

firm . But whether documented or not, it is the mindset of the firm .

KF: Where does responsibility for culture lie?

GM: It starts at the top, with the board . That is how the law recognizes

it, because the board is responsible for the internal controls of the

company . Start at the top and constantly challenge whether the

culture at the top is cascading through the company . Leaders must

ensure the culture in the middle and the bottom layers match what

they expect it to be .

KF: How can boards know what is happening several layers down?

GM: There are quite a few ways to check this . Most businesses are subject

to the power of the crowd, which, due to the reach of social media,

is extraordinary . If a customer gets a poor deal, the firm won’t be the

only one to know about it, everyone will . That is the power of social

media to shape perceptions and influence views . I think you have got

to be aware of the opinion of the crowd even at a board level . This

may involve monitoring social media because it can shape how you

are viewed .

Then you have vehicles, like 360-degree surveys, which tell you what

your customers think of you . We participate in those to the shock of

some banks that have learned that we view them very differently to

how they view themselves .

Greg Medcraft is Chairman of ASIC and Chairman of the International Organization of Securities Commissions Board.

32

It is also important to reward people who demonstrate good aspects

of your culture and to make an example of those who don’t .

KF: I think that is a really strong point; the reward system has to reflect

the values . It is one of the levers that companies use to encourage the

right behavior from their people .

GM: People who do the right thing should be rewarded, and firms should

be willing to make an example those who do the wrong thing .

It is really important to have an arrangement internally where

people are valued for being whistleblowers . People also need to be

encouraged to speak up if they know a breach is occurring, even if

they are not involved . Organizations are now saying: “We will punish

the person who knew about it and sat there and did nothing just as

much as the person who was breaching our culture and values . By

remaining silent, they allowed it to happen .” That is an interesting

cultural change . We are all in this together, and if you are doing the

wrong thing and destroying the brand, then you are affecting all of

us .

At ASIC we’ve been saying: Look at remuneration structures, look

at the way whistleblowers have been treated, look at the message

from the top, make sure you are constantly challenging what you are

doing, and never be complacent because bad culture can set in very

quickly .

KF: Do you think those messages are getting through to boards?

GM: We meet with the boards of the major banks once a year . We tell

them what we are seeing on the front line . They find it helpful

because sometimes their management doesn’t tell them everything .

I think ASIC can provide a positive contribution in this way . From

my perspective, I don’t want there to be anywhere to hide or a

situation where board members can say they had no idea about

a breach . Banks often don’t know how to connect through all the

layers of the organization because they are just so large . There are

leaders who want to do the right thing, but they are managing a large

organization and it can be difficult to change the culture .

KF: It can be difficult for the board to get down and dirty to the front line

in large organizations, plus management might not want that .

GM: I think the one way you can deal with it is for the board to say we

want to do a 360-survey of our culture . Or use the audit committee .

The focus of audit committees these days should be on sustainability,

not just the numbers, which requires a broader skill set on the audit

Key factors that strengthen culture chosen by Greg Medcraft:






committee . The numbers don’t mean much if the business isn’t

sustainable .

KF: When do you call something out as cultural?

GM: When we do our surveillance, we look for a pattern of behavior . This

includes: companies that are slow in breach reporting, and companies

that are not reporting things they should be reporting . We look at

remuneration structures that don’t encourage good culture . We also

look at the way they treat whistle-blowers and their whistle-blower

policy .

When we undertake surveillance, we may see breaches on the front

line that are clearly a cultural problem related to remuneration .

Sometimes it’s not just a bunch of bad apples; it may in fact be a

problem with the tree .

KF: How closely do you look at remuneration structures?

GM: Remuneration structures are important, and commission-based

structures often don’t encourage the right behavior because they

only measure one thing . A balanced scorecard that includes

cooperating with people, or working as a team is a better way of

assessing someone . That’s because it is not just about how much

money someone brings in, it also recognizes qualitative factors .

Poor culture can have very real consequences, for business, for

investors and consumers, and ultimately, for trust and confidence in

the entire system .

34

Conversation with... John O’Neill

“Culture should not be viewed as the latest fad—it needs permanency, consistency, and endurance.”

KF: What do you see as the most important factors that can strengthen

an organization’s culture?

JO: Cultural leadership from the CEO and cultural engagement from the

board are of equal importance—they go hand in glove . And culture

should be included in strategy discussions .

KF: How important is culture to strategy?

JO: Very important, and it is really important that culture is not seen to be

a fad . Often in business practice, best practice, and governance, you

get the latest and greatest fad . But there has got to be a permanency,

consistency, and endurance around corporate culture, and it’s the

board and CEO’s responsibility for it .

KF: How can organizations best be accountable for their culture?

JO: We need transparency around culture and we need to elevate its

importance . Often, if a company has a financial stumble, it is pretty

visible to the market . But a company might have a cultural stumble

that isn’t immediately obvious, and the instinct of management might

be to cover it up, to keep it hidden .

Culture is being elevated to the boardroom . It needs to be a normal

part of the narrative of good corporate governance .

KF: Why is culture being elevated?

JO: There have been quite a few significant instances of malpractice, poor

behavior, neglect, and serious offenses that were undetected for long

periods of time . When a crisis occurs, it is often the shareholders,

customers, and other stakeholders who suffer the consequences, and

they are inclined to ask, quite rightly: What was the board doing?

Was the board engaged on this or did it just delegate it?

There are some delicate issues here around the level of delegation .

But if you are going to have a genuine zero-tolerance culture, then

the board has got to be comfortable that the systems, procedures,

and practices have been road tested . You can’t always avoid corrupt

conduct or just dumb conduct . But when the checks and the

balances are in place, the alarm bell rings such that you can correct

the problem more quickly .

KF: What are the red flags for a board? What’s the smell test on a cultural

problem?

John O’Neill is the Chairman of The Star Entertainment Group.


JO: It starts with the board’s single most important job: selection of the

CEO . The board needs to be satisfied that the successful candidate,

having met all the skill requirements, academic background, and

specific industry experience, has the right personality and the right

cultural fit for the challenge ahead . The culture of the new CEO either

fits with the company or, he or she has a personality and set of values

that will take the company down the right cultural path .

KF: Sometimes a new CEO is not appointed for the current culture . They

may be a change agent, a “sand in the oyster type” who is going to

shake things up a bit . It’s important to know what you’re buying with

culture, isn’t it?

JO: Yes . I have seen this approach where a board has handpicked a CEO

to shake up the company and to create in a short period of time,

scale and critical mass . And, it didn’t matter if there were body bags

along the way . The person might be gone in three or four years and

those left behind think, “What was that?”

If I can use a sporting example, you can see the impact that a good

coach will have . You can have a team of great players, but if the

coach is not respected, doesn’t have credibility, or wants to be one of

the boys and doesn’t understand the necessity of a gap between the

team and the hierarchy, then the team doesn’t perform . However,

when you get the right coach, who has the discipline to demonstrate

that, “This is the way we do things around here,” you can see the

transformation in teams because they’ve got the right leader . It is the

same in business . CEOs are the chief strategists and the glue that

holds companies together . But equally, if they don’t have the right

DNA and cultural fit, companies become divisive and dysfunctional .

The great coaches, captains, and CEOs are absolutely self-disciplined .

KF: Do you think it is a joint responsibility of the board and the CEO to

manage the culture?

JO: Yes . The board has to work on it with the CEO, hand in glove .

KF: How does a board decide to whether accept what the management

team says about an issue not being cultural? When should the board

treat a seemingly one-off issue as a red flag that needs to be delved

into deeper?

JO: I am a great believer in intuition . I have worked with executives who

have been quick and slick and it was difficult to get a direct answer

from them, and my intuition has proved to be right . I have learned

that when you have to clean up a mess, you only get one shot at

it . And replacements have to be wholesale . I don’t believe in giving

Key factors that strengthen culture chosen by John O'Neill:



• Culture is included in strategy discussions


36

people a second chance; that’s where zero-tolerance philosophy

comes in . This is a lesson for every company director .

The board should be exposed as a collective to the top management

team, to reinforce the cultural message . Plus, it is important for a

chairman to get the dialogue right with the CEO and work together

on a cultural narrative that is seamless, understandable, and

impactful . There is a saying—it is lonely at the top . It is, and the

chairman has to ensure the CEO doesn’t get too lonely .


Conversation with... Andrew Pridham

“If you are running the organization—unless you are asleep—you know what is happening. The issue becomes your willingness to address it.”

KF: How do you define culture in a business and at a football club?

AP: It is starker in football than business . They are very different

environments to create, maintain, and build a culture .

Culture is very hard to define . It needs to be driven from both ends; it

can’t just come from the top . Everyone has to believe in it and live it .

It’s really the vibe of the people .

KF: How would you describe the culture at Moelis?

AP: At Moelis, we try to have a culture that is consistent with the type of

organization that we are; it needs to fit the scale and scope of the

business . Our culture is non-bureaucratic . We just get on with it, the

clients come first, and we try to do the right thing . Put pretty simply,

that is the culture—and if you talk to people at Moelis, I am pretty

confident they would say that . We operate in a team environment,

respect each other, and if someone is consistently out of line, it is

dealt with quickly .

One difference between a football club and a business is that the

turnover of people is much more intense at the football club . New

people are coming in all the time, which does change the culture

faster . Another difference is the speed in which you can deal with

someone who breaches culture . You can pull someone aside and say,

“If you do that again, you are out .”

KF: What about a superstar who acts against the culture—in sport and

business?

AP: At the Swans, we try to treat all the players the same . It is easier

said than done, but that is the goal . Running a football club is vastly

different to running a business . One of the obvious differences is the

legal environment . Businesses are subject to strict workplace laws .

But in sport, the players work within a totally separate set of rules—all

the players are on a contract, and if they do the wrong thing they can

be disciplined or dismissed . The process for managing someone in

business who acts inappropriately is far more protracted .

KF: At Moelis do you talk about culture? Do you have a discrete,

deliberate strategy?

AP: Largely it just happens . The time we most talk about it is when we

Andrew Pridham is the CEO at Moelis & Company and Chairman of the Sydney Swans.

38

are hiring people, or looking to buy a business . When hiring, it will

be the number one thing we consider . Will they fit in? Will they be

culturally aligned with what we do? What will be the social impacts of

bringing that person into the business? We talk about that a lot . We

frequently decide not to hire people for cultural reasons . In a small

team environment, one bad egg can affect the whole culture .

KF: There have been many recent corporate crises that have been first

presented as single events, but later acknowledged as cultural . When

do you, as a leader, know that a damaging action or behavior is

cultural?

AP: If you are running the organization—unless you are asleep—you know

what is happening . The issue becomes your willingness to address

it . It is often hard [to do so], because the problems could be in your

most profitable businesses with your highest-performing people .

You need to know when to draw a line and deal with it . The earlier

you address breaches of culture, normal interpersonal decency or

compliance, the less chance there is of the issue becoming endemic .

If you let it fester, people think it is OK to behave that way .

KF: In the aftermath of many of the recent corporate crises, the media

has criticized boards for not knowing what was going on or failing to

act quickly enough . How much responsibility do boards have for the

culture of the organization they are overseeing?

AP: I think boards get a very bad rap in the media . Boards are there for

governance, not to run a business . I don’t think the board’s role is to

deal with the culture . The chairman has more responsibility than the

NEDs and is more in touch with what is going on in the company .

As chairman of the Swans, my role is to hire and fire CEOs and to

make sure they are the right person . If they are the right person, I

don’t need to do much . It might sound overly simplistic, but that is

the way I look at it . When you have the right CEO, the right culture

should flow . When you see issues in listed companies, there is often

a disconnect between the chairman and the CEO, or the CEO is not

good with people and doesn’t understand culture . A good NED has to

look carefully at who the chairman is, who the CEO is, and what the

business is, but you’re there for governance .

KF: How difficult is it for some of the global investment banks to align

their culture in various divisions and jurisdictions?

AP: It is difficult because of the matrix structure . A country CEO may

have surprising little influence over the heads of division because they

Key factors that strengthen culture chosen by Andrew Pridham:

• Cultural behavior from the CEO

• It is clearly defined internally and externally




report to someone else in the matrix . As a CEO, you need to have the

ability to coach, reward and/or discipline someone . If you operate in a

matrix environment, where is your authority to do that?

KF: Does a matrix structure make it difficult to have one consistent

culture throughout an organization?

AP: I think it is the antithesis of having one culture and I don’t think you

can . I understand why corporations have matrixes, but they can

destroy cultural alignment . There are, of course, exceptions . But I

dislike matrixes . I dislike joint-heads . I strongly try to avoid either .

KF: What role does HR have in culture?

AP: There is a clearly a role for HR, but it is an administration or

facilitation role . God help you if you are trying to have the HR

department define and drive your culture . HR can set parameters, but

it is the business that has to do the work .

KF: Let’s talk more about the Sydney Swans, a very successful club, with a

strong culture . Do you recruit for culture in a footy club?

AP: Yes, constantly . There are times when players and coaches may want

to come to the Swans for cultural reasons but we won’t take them .

You can see the clubs that put a higher value on culture than some

other clubs, it is very obvious . At the Swans, we put a huge emphasis

on understanding the club’s history . That doesn’t happen enough in

business .

KF: An AFL club in Australia has a spotlight glaring on the management

and the players . Does that bring a certain transparency to the culture?

AP: There are more sports journalists than there are players . The analysis

of players, coaches, CEOs, chairman in the AFL far outstrips what

happens in the business world . It is not in the same stratosphere . It is

very hard to hide things in a football club .

40

10 red flagsHow NEDs can identify culture derailersPeople often say after a crisis that they could see the warning signs . The

red flags were there, hiding in plain sight, accessible to those closest to

them if they had known what to look for . It can be challenging for non-

executive directors to identify a potential breach of culture because their

touch points with the organization tend to be structured and contained to

their colleagues on the board, the CEO, and the executive team . However,

NEDs share responsibility and accountability for their organization’s

culture, and, therefore, must be in tune to potential cultural breaches .

It may be intuitive and nuanced work, but it requires an unequivocal

exploration—by the time the “smoke comes under the door,” the damage

has been done . Korn Ferry suggests NEDs explore a combination of these

10 markers to get closer to the organization’s culture and avert harm .

1.The CEO

6.Toxic subcultures

2. The strategy

7.Media noise

3. The executive team

8.Be a customer

4.Talking culture

9.Engagement surveys

5.Whistle-blowers

10.Recognition and rewards


1.The CEO

The appointment of the CEO will determine the culture of the organization, and the candidate assessment should explore character along with previous experience and reputation . A “god-like” CEO should set off warning bells . Command and control is out, bringing people on the journey is in . How the CEO values and demonstrates culture should be a Key Performance Indicator .

2.The strategy

Do you know the kind of culture required to drive the strategy, and was the strategy created in the context of culture? Is culture enmeshed in how the organization goes about achieving its performance targets? Is it measured? The answer to all these questions should be yes .

3.The executive team

Is the executive team accessible to people at lower levels? Look for hierarchical clues that point to a closed door at executive level . Does the organization have a diverse executive team? When an executive team looks the same, chances are they will think the same . Diversity of gender, ethnicity, experience, education, and ideas is good for culture, performance, and governance .

4. Talking culture

Start talking about culture to fellow NEDs, the CEO, the executive team, and employees . Can they articulate it? Is everyone on the same cultural page? This is not about reciting values, it is about knowing the hard-wiring of the organization . Try to meet employees in diverse roles and ask them what they think works well and what doesn’t . If your intuition tells you something isn’t quite right, explore it and see where it takes you . It may be nothing, or it may be your years of experience telling you there is a problem .

5.Whistle-blowers

Is there a formal whistle-blower program? What is the process when an employee needs to speak up? And most important, how are whistle-blowers treated? Ensure you have access to whistle-blower reports and that you are aware of the process .

6.Toxic subcultures

Subcultures can be difficult to identify and challenging to change, particularly if toxic subcultures are thriving in high-performing parts of the business . They can derail your entire strategy and must be disrupted, even when it results in financial loss . Commitment to culture is also measured by what you say no to .

7. Media noise

Look for inconsistencies in media reporting between what you read and what you know . Social media sites such as Facebook and Twitter reveal much about the supply chain, customer service, and brand awareness . Follow the company on your social media platforms and closely review social-media monitoring reports .

8.Be a customer

Phone the call center, make an inquiry, or visit a shop . Experiencing the organization as a customer will reveal things about the culture that you may not learn in your NED role .

9. Engagement surveys

Be forensic in your review of employee engagement surveys and HR data . Red flags will show where there are consistent issues every year, where there is low morale, high turnover, or pockets in the organization where results are at odds with the overall picture .

10.Recognition and rewards

Are the reward systems financially driven, behavior-driven or both? Who is valued more—the sales executive who exceeded targets during a recession, or the employee who revealed there was a breach of culture that could have hurt the brand? People’s behavior will directly correlate to what is most valued and rewarded .

42

Conversation with... Simon Rothery

“The leader's legacy is the culture they leave behind in an organization.”

KF: How do you view culture in the context of your workplace?

SR: I think culture is the single most important thing that drives success of an organization and that culture defines everything that I do as a leader . That’s my No . 1 role . I believe the leader’s legacy is the culture they leave behind in an organization .

KF: How do you build the culture you want?

SR: I refer to culture as being either inclusive or exclusive . I aim to set an inclusive culture because what we need is diversity of thoughts and views . I think exclusive cultures drive bad behavior . When I took this job, I had 10 men on my executive committee who were likely to think the same way . We had done the same job for 20 years, we went to the same schools, and have the same interests . That exclusive culture was sending a terrible message to the rest of the firm and to the market . We want to be an employer of choice and we want the best ideas . That comes from diversity of thought, which you don’t get unless you have an inclusive culture .

The change in our culture over the past six years is reflected in our results . We’ve seen it in league tables: There are now four women on the executive committee, and we’ve created a diversity leadership group comprised of 25 of the most senior leaders in the firm . They are tasked with creating an inclusive culture that encourages equal input from everyone .

KF: Some organizations, following a public and embarrassing breach, take a long time to admit that certain problems are cultural . Why does culture seem the hardest thing to talk about when there is a crisis? Is it because it is difficult and expensive to fix?

SR: I think cultural change is one of the most difficult jobs there is . It has to start from the top, so you must have a CEO or a leader who absolutely believes in setting the right tone and the right culture . Cultural change also has to survive a change in leadership . You probably don’t know if you’ve achieved the right culture until you leave and it survives a change in leadership .

KF: Is there a link between “god-like” leadership and cultural risk?

SR: Absolutely . Success is about bringing people with you . My job as a leader is to elicit as many ideas as possible and then determine the right one . In a group, I think that’s what people are looking for now in leadership of an organization .

Simon Rothery is CEO of Goldman Sachs in Australia and New Zealand and serves on the boards of European Australian Business Council, Australian Financial Markets Association, Great Barrier Reef Foundation Chairman’s Panel, Murdoch Children’s Research Institute, Swimming Australia, and the Knox Grammar School Council.


KF: You have asked 25 of your leaders to be responsible for culture . How do you test that? How do you measure it? Is it part of their key performance indicators?

SR: People who go through the managing director promotion cycle are evaluated on three criteria: commercial effectiveness, leadership, and cultural carrier . We specifically examine how someone is helping to build and maintain the culture and reputation of Goldman Sachs . A lot of people fail on that measure when they are not supporting the culture, even superstars . The interview process we go through could involve a candidate meeting 30 people until we are sure we think that person culturally is a good fit . Some superstars in the market we won’t go near because we don’t think they are the right person for us .

KF: How do you communicate your tone, the tone from the top, throughout the organization?

SR: I think it is really important to be visible . The most important thing a leader can do for the culture is to be visible and present . The employees have to see you and hear from you . We have quarterly town halls and I go through the business results for the quarter . I always talk about cultural issues and diversity . But typically, at the back end, after results; quite often now, I will talk about that first, before we get to results . Our people know it’s a business priority that sits in the strategic plan .

KF: What comes first, culture or strategy? How do they meld together?

SR: I think the culture drives the strategy and therefore the success of the organization . I think culture, which I narrow down to diversity and inclusion, drives innovation, which drives success . I call it a virtuous circle . Without it, you don’t get innovation and therefore you don’t get success .

KF: What turned you onto culture as the core component of your strategy?

SR: When I came into my role, we were outside the top three in investment banking in Australia, a position we weren’t in globally . I had a pretty clear mandate to get us to top three . I saw a real problem with the make-up and the culture of a number of our business units, so we made changes and started to rebuild teams . I rebuilt my management team because we just weren’t getting the ideas that we needed to beat our competitors . It is really important for me to be able to credential my strategy by being able to say last year we were No . 1 . We call out the bad behaviors but we also call out the successes .

Key factors that strengthen culture chosen by Simon Rothery:


• Included in strategy discussion

• Frequent communication of cultural values

• Culture is measured

44

KF: What’s a red flag for you that there might be a cultural problem lurking? What doesn’t pass the sniff test for you?

SR: The type of behavior that is not inclusive and collaborative, which we can see very clearly . When somebody is not acting like a team member, who tries to own a client and not share it with somebody else, or make decisions on their own . That’s a red flag .

KF: Were you inspired by the work of anyone else? Was there a model elsewhere that shaped your thinking?

SR: I didn’t really look at one model; I observed different businesses . Apple is a clear standout because they have rebuilt that business and have been unbelievably successful . [Apple CEO] Tim Cook realized that to innovate you need the best ideas and the most diverse team that you can find . He was also the first Fortune 500 CEO to come out as a gay man . Apple possibly has the most inclusive, diverse culture of any corporation I have observed . You can see the momentum and the ideas the culture there generates .

KF: Do you measure culture?

SR: I think you have to measure it, no question, because I don’t think you can be serious about it if you aren’t . We measure in terms of promotion, process, compensation, and review scorecard . Culture is a very strong component of performance reviews .

KF: Is remuneration directly related to culture?

SR: Absolutely . We also conduct a people survey every year, and culture and firm reputation is a big part of that . Cultural change is hard at the beginning, but when you start doing things and momentum builds it really gathers pace .


ConclusionIt is challenging for a company to achieve cultural alignment because

the values that underpin culture have many interpretations . Culture—

defined by Marvin Bower, the late, former McKinsey managing director,

as “the way we do things around here” (Brower 1966)—may appear

nuanced because it refers to the “tone” that people operate within rather

than specific rules . However, when deep work is done to identify and

set a tone for an organization and the subcultures that influence the

behaviors of its leaders and employees, “the way we do things around

here” provides a powerful guiding principle for how people behave and

how organizations perform . Leaders should not wait for a public breach

of culture to identify and act on issues . Cultural work needs to be part

of the day-to-day way an organization and its people operate, because,

as Elizabeth Bryan says: “culture is how people behave when no one is

looking .”

The process of cultural transformation starts with recognizing the type

of culture needed to achieve the business strategy . This involves first

identifying the current and desired culture, followed by further work

to bridge the gap between the two . The process starts with three

deceptively simple questions (Eaton et al . 2015):

1 . What culture do we need to support our strategy?

2 . What culture do we have today?

3 . How do we move toward the desired culture?

The questions appear easy, but surprisingly the topic is not always

explored at any real depth and is often transplanted to conversations on

values . This cultural work is important, because if people don’t know “the

way things are done around here” or how things should be done, how can

they be expected to live the organization’s values?

If organizations accept, as many do, that the cultural leader is the CEO, it

is imperative to recognize that the CEO, after setting the tone, then lives

it . While culture has many advocates, as Paul Brasher points out: “The

minute the CEO does something that contradicts a cultural value, you are

set back years .” This is why CEO appointments truly are among the most

important decisions that boards make .

CEOs serve as organizations’ “chief cultural officer” and they hold this

role for their entire tenure at the top . But the role of the board is less

clear . The chairman clearly has accountability for how the CEO leads

culture, but how much responsibility do other board directors bear?

The Australian Institute of Company Directors extends responsibility for

46

culture to directors, stating (see Principle 9, Culture and Ethics) that a

board and its individual members have a leading role to play in promoting

a healthy culture for the organization they serve (Australian Institute of

Company Directors 2013) . There is, however, ambiguity as to directors’

responsibilities for culture within their purview of corporate risk oversight .

A survey conducted by the NYSE Services found directors were divided

on whether setting risk culture is a board (57%) or management (43%)

responsibility (New York Stock Exchange 2014) .

Cultural alignment is an aspect of board governance that is rarely

discussed, yet culture permeates every organization . Cultural alignment

among organizations, their boards, and their broader communities

strengthens performance and reduces risk . Perhaps the focus of the

business planning cycle needs to shift to seeking alignment on culture

and agreement on strategy concurrently . A model may be found, as

described in Korn Ferry’s interviews with business leaders, in the industrial

sector and its experiences in putting in place a safety culture in the wake

of the 1986 Chernobyl nuclear disaster, which elevated safety culture in

academic and organizational discourse and prompted swift, robust action .

Safety culture, and its aspect of “zero harm,” has required organizations

to adopt an absolute belief in and commitment to providing a safe work

environment; this has occurred against a burning platform of personal

injury—sometimes fatal . Organizational culture has a long way to go

before it reaches the same level of maturity as safety culture, for the

burning platform may not seem as palpable . The wisps of smoke seeping

under the boardroom door often get ignored until they flare out of control

into a full-blown crisis that affects performance, trust, and brand .

The mindset of business leaders needs to move from thinking about

organizations’ success solely in terms of their financial performance,

to thinking “culturally” about organizations and all the elements

that contribute to performance . Identifying systemic behavior and

transforming culture is deep work that is led by the CEO, strengthened by

the executive team, with oversight responsibility and accountability by the

board .

Culture must lose its “soft” status and be treated a “hard” issue because

its strength and sustainability is reflected in every performance measure .

The journey toward cultural transformation involves culture and strategy—

interdependent ways of working that are always stronger together .


Australian Institute of Company Directors . 2013 . "Good Governance Princi-

ples and Guidance for NFP Organizations ."

Bower, Marvin . 1966 . "The Will to Manage: Corporate Success Through

Programmed Management ." New York: McGraw-Hill .

Eaton, D ., Kai Hammerich, Gabriella Kilby, Joy Hazucha, and Jan Thibo-

deau . 2015 . "The Power of Culture Transformation ." Los Angeles: Korn

Ferry .

New York Stock Exchange . 2014 . "Embracing Risk Oversight—The Board’s

Role in Setting the Right Culture ." New York: Thomson Reuters .

References

To learn more about powerful

ways to alter corporate cultures,

please read The Power of Culture

Transformation:

http://www.kornferry.com/institute/

power-culture-transformation

48

Korn Ferry wishes to thank the 13 business leaders who met with Korn

Ferry partners to discuss their views on culture: Vivek Bhatia, Paul

Brasher, Elizabeth Bryan, Melinda Conrad, David Crawford, Tom Gorman,

Brian Hartzer, Christine Holgate, Jayne Hrdlicka, Greg Medcraft, John

O’Neill, Andrew Pridham, and Simon Rothery .

Acknowledgements


ContributorsInterviews were conducted by these Korn Ferry partners in Australia and

New Zealand:

Katie Lahey, Executive Chairman

Graeme Bricknell, Senior Client Partner

Therese Doupe, Client Partner

Alexandra Goodfellow, Senior Client Partner

Michael Keevy, Client Partner

Lynne Nixon, Senior Client Partner

Robert Webster, Senior Client Partner

Kate Wright, Senior Client Partner

Research and writing: Dr . Kerry Little

50

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About Korn FerryKorn Ferry is the preeminent global people and organizational advisory firm . We help leaders, organizations and societies succeed by releasing the full power and potential of people . Our nearly 7,000 colleagues deliver services through Korn Ferry and our Hay Group and Futurestep divisions . Visit kornferry.com for more information

About The Korn Ferry InstituteThe Korn Ferry Institute, our research and analytics arm, was established to share intelligence and expert points of view on talent and leadership . Through studies, books, and a quarterly magazine, Briefings, we aim to increase understanding of how strategic talent decisions contribute to competitive advantage, growth, and success .

Visit www.kornferry.com for more information on Korn Ferry, and www.kornferryinstitute.com for articles, research, and insights .

© The Korn Ferry Institute 2016

The tone from the top - Organizational Consulting...can quote Peter Drucker, culture eats strategy...

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