21 September 2016
The on-going farrago at Wells Fargo is the latest in a long line of grizzly scandals to emerge since the Big One – the mis-selling of mortgage-backed securities that sent the world into a financial tailspin in 2008. The unifying factor in all of these cases is toxic corporate culture and permissive leadership. This has had a profound effect on the perception of business across society and destroyed billions of dollars of shareholder value.
There is clearly much that needs to be done to persuade a rightly sceptical society that big business acknowledges past faults and is taking steps to address them in future. However, given the importance of the subject, there has been surprisingly little discussion on how this can be achieved.
All that appears to be changing. Theresa May has made corporate behaviour a central theme of her initial leadership and it has also been the core focus of recent work by the FRC, which fronted a consortium to produce guidance, and followed this up with a sell-out event on the subject.
In his opening remarks at the conference, Sir Win Bischoff, Chair of the FRC, summed up the magnitude of the challenge quite nicely: “We need a concerted effort to improve the integrity of business and its connectivity with society.”
The main take-away for us from an interesting and lively morning’s debate was the extent of the breakdown in trust between business and society at large. This has been amplified and distorted by millions of increasingly angry social media users in every corner of the world.
In order to close the gap and get back on the front foot, businesses will have to clearly define and communicate their wider social purpose and the culture and values that underpin it. There is a powerful commercial incentive. In the conference’s key session on ‘Delivering long-term value for all stakeholders’, panelist Amanda Mellor, Group Secretary and Head of Corporate Governance at M&S, commented: “Values and trust have been part of the DNA of the M&S brand since the start. We see our culture as a strong competitive advantage.”
For some, getting to this level will be a long slog, involving real leadership and genuine change in the way they behave and assess, measure and communicate their culture. It will be done pro-actively, consistently and believably, or it will be done reactively in response to another grizzly exposé or imposed by the heavy hand of government legislation.
Either way, we will be hearing a lot more about corporate culture and how it interacts with an organisation’s business model, strategy, sustainability, risk and governance in Annual Reports and other corporate communications.