Culture impacts strategy and corporate governance

24 August 2015

Board members remain a key source of cultural influence within corporate entities, a recent Grant Thornton report highlights. Issues remain however, with most countries still having boardrooms dominated by semi-identical types, with a drive toward diversity at board level still to bear fruit in many regions. Short term planning also remains an issue, particularly in North America, where 87% of boards formulate plans for less than three years.

In a recently released report from accounting and consulting firm Grant Thornton, the advisory looks into corporate governance across three major themes: the role of culture, board composition and strategic planning. In their research paper, titled ‘Corporate governance: the tone from the top’, Grant Thornton surveyed 1,825 business leaders from 36 countries about their corporate governance, as well as entering into in-depth interviews with 86 board directors.

Cultural importance
The research finds that culture within business varies across regions. Across all countries however, nine out of ten stated that strong culture is critical to a governance framework that is robust, with general agreement among board members that it is the board that is responsible for building and supporting such a culture. The region assigning the most importance to boards on governance frameworks is Latin America, followed by North America and the EU.

Culture as important to governance


Cultural influence
While the importance of the board on culture remains strong, different regions have different levels of success influencing culture throughout their companies. Getting grasp of a ‘good governance culture’ – the kind of behaviour, exemplified company wide, that brings corporate codes of conduct to life – is however, notoriously difficult to quantify. In terms of self-reporting, boards in Africa say that their boards have least influence on culture within their organisations, compared to North America where they are the most influential. In Eastern Europe, board members are the most “about right”, while in Latin America they are the most overbearing.

Board cultural focus


Board diversity
One key aspect of creating a conducive culture within an organisation is to be overseen by a board of directors that come from a diverse background. By introducing multiple perspectives in the mix dangers like ‘group think’, where one kinds of personality or way of looking at the world comes to rule the corporate culture, can be avoided. As a result, bringing in diversity, for instance wider female participation (with two thirds of companies actively seeking to introduce more women to the board), cultural diversity and other forms of diversity like social background, are growing in importance in boardrooms. In terms of female diversity, Eastern Europe comes out on top with nearly a quarter of executives being women, followed by Latin America. North America has one of the lowest levels of such engagement at 16%, while senior manager interestingly are the most active (80%) in seeking more female participation. Europe too manages no more than 18%, while developed APAC countries are at 9%.

Gender diversity at board level

Desirable skills
To improve board performance, and to better prepare for the future needs, Directors and CxO’s are sometimes well apart from each other in opinion. One factor cited as important by many boards is an understanding of digital technology. In terms of other skills, both directors and CxO’s believe new board members should have relevant business experience – board members are considerably keener on new members bringing in new ideas at 86% compared to CXOs at 47%. Board members however, do not find currently employed as a senior executive in the industry as the most desirable (with 7% finding it most desirable), compared to 30% of CXOs that do prefer this. Directors are keen on the board member having time to meet at 47%, compared to 23% of CXOs.

Desirable board member attributes

Strategic planning
One interesting result of the survey is the level of strategy setting and planning that different regions invest in around the globe. North America for instance has the least level of long term planning, with 87% not planning longer than three years, and 35% not more than a year. Latin America is a bit more forward thinking, with 27% planning for more than four years. The EU has by far the longest outlook at the company level, with 36% of businesses looking for the four plus year term in terms of business planning.

Strategic planning