One of the lessons companies need to learn from the pandemic is that a bad culture will come back to bite you. The experience of COVID-19 has shown that news of irresponsible business management gets around quickly – to the detriment of the company’s reputation.
“Some of the decisions that boards and executive leadership have taken during this crisis period will still be assessed in hindsight, and there will be some accountability coming through for decisions that clearly weren’t aligned with stakeholder interests or the long-term interests of investors,” warns Michelle Edkins, Managing Director of Investment Stewardship at Blackrock (USA).
So the clear focus of boards and management that have got it right during this year’s crisis has been on the people that the company impacts, explains Edkins, in a panel discussion on the ‘Pillars of Modern Governance’ at the Governance Institute’s recent virtual conference.
The purpose, she explains, has been to “understand the changing needs of those constituents and ensure the company is adapting and innovating relatively swiftly to meet those needs and to emphasise the social contract they have, that enables them to maintain their reputation in business”.
Those companies who have failed in this regard, have found that the options are slim: they either have to change or they lose customers, in the near term or longer term.
A strong culture is the answer
The COVID-19 experience has highlighted the divergence between companies that had a clear sense of purpose and a strong culture, and those that don’t. “Companies that have a clearly articulated purpose really stepped up and they had the backing of the stakeholders that they depend on,” affirms Edkins. Not only have they won the prize of the holy grail of maintaining or enhancing their reputation, but in navigating and surviving the crisis.
In demonstrating those core values in focusing on their people, the board worked closely with management at Aurecon during the pandemic to focus on the health and safety not only of their own workforce, but of their clients and their stakeholders, according to Chief Executive Officer, Bill Cox.
Jillian Broadbent AC, in citing her former experience as Non-executive Director of Woolworths, reflected on the impact of the company’s core values in their response to the crisis. “When you came to the response, you came back to your core values and reinforced them,” she explained. “You realise that’s the strength of the organisation, that’s what bonded people.
“The bottom line was never mentioned it was all about social responsibility as a critical provider of services in the community.”
In her current role of Non-executive Director of Macquarie Group, Broadbent also remarked on the impressive efficiency that has emerged from an empowered workforce, in response to the supportive and cooperative approach taken by both Woolworths and the Macquarie Group.
The challenge for the future will be all about how you take that new efficiency going forward. Her advice? You have to keep encouraging people to contribute, to keep the avenues of communication open.
Boards have nowhere to hide
Central to a strong culture is to demonstrate diversity in your board and management. And woe betide those who don’t, as Cox explains.
The ongoing challenge and opportunity to diversify boards with the fundamental drive to get diversity of thought and experience right, will only improve the decision-making of boards and avoid some of the challenging situations experienced by boards this year, he said.
“With the 24-hour media cycle, boards have nowhere to hide. We’ve seen where boards have tried to tough out a situation but, in the end, they just couldn’t do it, because the media cycle and social media just kept on agitating until the pressure from major investors and shareholders became too intense.
“Far better to get to a point where you don’t get into those situations in the first place!”
Resilient decisions from diverse boards
Edkins sees the value of a diverse board in the quality of the decision-making it brings.
“There’s a lot of evidence that shows that diverse groups make more resilient decisions. Therefore the more diverse the group of people in the room, the more diversity of thought, “ explains Edkins. Although it may take longer to get to the decision, it’s more likely it will be more lasting.
Also as neither the workforce nor the client of today is homogenous it’s important to demonstrate to every person entering the company as an employee that people of diverse characteristics can succeed, explained Edkins.
“Most companies will say people are their greatest asset – so you want to attract talented people and retain them, so the expertise that they build within the company benefits the company over time.”
And the final challenge? To ensure that boards are as effective as possible, says Edkins.