Governance of Culture

The AICD consultation paper on their Review of the ‘Good governance principles and guidance for not-for-profit organisations’ was released this week with an invitation to comment by 18 June.  This paper offers a helpful summary of contextual changes since 2013, when the original principles were released, which justify revision at this time.

It then outlines a number of changes to the 10 current principles, and also proposes the welcome inclusion of ‘supporting practices’. One set of changes which provoked me to look for more details relates to the reworking of the current principles 7 (Integrity and accountability) and 9 (Culture and Ethics) to create three new principles: Accountability, Culture, and Integrity and Ethics.

I confess that I am not sure about the proposed separation of ethics and culture, as I have always thought that culture was defined and judged by demonstrated behaviour. This quote (variously attributed to Lao Tzu, Mohandas Gandhi, the Dalai Lama, Mother Teresa, and others) sums up the underlying view about ethics being demonstrated through behaviour.

“Be careful of your thoughts, for your thoughts become your words
Be careful of your words, for your words become your actions
Be careful of your actions, for your actions become your habits
Be careful of your habits, for your habits become your character
Be careful of your character, for your character becomes your destiny”

It seems generally true that an organisation’s culture is assessed by both insiders and external stakeholders through judgments about the extent to which leaders (and other representatives) “walk the talk” of the organisation’s stated values. ‘Values’ often appear in governance documents in the form of aspirational statements, but few entities ask their directors to ‘define and model’ the desired culture. This is one of the new supporting practices for proposed Principle 10: Culture, in which the three supporting practices are as follows:

10.1 The board defines and models a desired culture which is aligned to the organisation’s strategy
10.2 The board oversees a strategy to achieve the desired culture
10.3 The desired culture is disclosed to stakeholders

Under proposed Principle 9: Integrity and Ethics, supporting practices make explicit the need for a code of conduct and a process for investigation of wrongdoing, and these are welcome inclusions (with some caveats – see below). The relevant clauses read:

9.1 There is a code of conduct that applies to the people involved in the organisation, including the board.
9.4 There is a process for investigating disclosures of wrongdoing and relevant instances are brought to the attention of the board

Guidance on the shape and operation of codes of conduct is readily available, and resources on the investigation of wrongdoing can be found if you look in the right places. Guidance on defining and modelling a desired culture seems scarce though, especially as this applies to not-for-profit organisations.

The most relevant advice I found after a search on the AICD website was a 2015 article called Corporate Culture: The Questions, by organisational psychologist Yvonne Willich from Korda Mentha.  She argued that if internally administered surveys are to be seen as informative and valid, there should be a mandatory set of core questions which reflect the most important factors associated with cultural health.  Consequently, she proposed that (for larger organisations at least) there are five questions a board should be asking:
• Have we conducted a confidential organisational culture survey recently?
• Who checked that we asked all the right questions?
• What did responses show were our main risk areas?
• What have we done to get an independent, deeper look at these risks?
• How might our process be compromised by conflicting interests?

Ms Willich also suggested that confidential internal surveys should include a set of core questions that help to determine whether:
• The leaders are role models of the organisation’s values.
• The HR function is seen to be independent and trustworthy in dealing with complaints of inappropriate behaviour regardless of who is involved.
• Challenges, honesty and professional debate are invited and well received at all levels.
• Poor performance is managed constructively in all instances.
• There are robust, confidential 360-degree feedback processes in place which are incorporated into performance assessment.
• Performance incentives reflect stated values.
• Excellent performance in all the areas which the organisation says it values is recognised.

My initial response to all of this is to predict that many not-for-profit organisations will experience confusion, and possibly conflict when setting conduct standards and managing the behaviours of directors compared with staff, contractors and volunteers. The proposed principles and supporting practices may need to be refined to avoid this problem.

I also suspect that asking boards to create a separate strategy to achieve the desired culture (even where this is aligned with the organisation’s strategy), will be asking too much of smaller entities given their limited resources. It may be sensible to more clearly define the roles and responsibilities of board Chairs (and in the event of the Chair being the focus of concern, an acting or Deputy Chair) for director behaviour, and of the CEO for everyone else.

What do you think? If you believe the proposed AICD ‘Good governance principles and guidance for not-for-profit organisations’ could be further improved, send your thoughts to nfp@aicd.com.au by 5.00pm on 18 June.

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