Carmichael Corporate Services

Corporate culture’s role in solving business problems

Culture has been held up as both the reason for failures in corporate Australia and its possible saviour. In the following article our Principal Governance Consultant, David Mahon, discusses how organisations can address culturally rooted behaviours that may bring short term reward but impact on long term business sustainability.

Why we should stop focusing on “cultural change” to solve corporate failings and instead focus on fixing business problems

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Culture has been held up as both the reason for failures in corporate Australia and its possible saviour. Greg Metcalf, former head of ASIC, referred to it as an invisible guiding hand, steering people to conduct themselves properly even when there was no overt surveillance.

Corporate or organisational culture, however, is rarely well defined in the commentary in which it is discussed in terms of corporate failures. If culture is the key, it is worth looking at a framework that helps us understand both its positive and negative impact.

American academic Edgar Schein has been developing models to understand organisational culture and leadership since the 1960s and he provides a detailed and practical approach to understanding the phenomenon. Schein holds out the idea that culture is formed as a result of what an organisation has learned from dealing with problems and organising itself internally. It is more than “how we do things around here”, Schein uses the analogy of a lily pond.

“On the surface you’ve got leaves and flowers and things that are very visible; a visitor would see them. That’s the ‘how we do things around here;’ but the explanation of why we do things in that way forces you to look at the root system, what’s feeding it and the history of the pond, who planted what. If you don’t dig down into the reasons for why we do things this way you’ve only looked at the culture at a very superficial level and you haven’t really understood it.”

Schein views managing culture as one of the most important roles of an organisation’s leadership. However, leaders should focus on defining business problems that need to be addressed rather than trying to launch cultural change programs, because in most instances business leaders are good at solving problems, but culture is often a bottomless pit that they are not equipped to delve into and can result in a drain on time and energy.

Importantly, culture both helps and hinders problem solving. It is critical that leaders frame what isn’t working and why it needs to be fixed before examining how the organisation’s culture helps or hinders solving a particular problem. For Schein, the first question that needs to be asked and answered is “Why do we want to do this, what is our business problem that we need to resolve?”.

The next step is for the organisation’s leadership to be very specific about the behaviours that are impacting the problem and to clearly define what the behaviours will need to be in order to ensure that the problem is remedied. Often this exercise will reveal a discrepancy between the values expressed by the organisation’s culture and the observable behaviours of staff and leadership, and this will guide the type of cultural issues that a change management program can address, however now framed as a business improvement initiative and not just as a change in culture.

The logic for change becomes:

If we want solve business problem A, then our behaviours need to be B, not all of our current cultural values support behaviours B, therefore our future culture needs to be C. We are therefore making cultural changes D to resolve A.

Let’s take this model and apply it to the topical problem of rebuilding brand value by repairing stakeholder trust. Trust is an intangible commodity that many organisations require to function in their chosen environment. Trust is also at a premium in the current climate as a result of the recent Royal Commissions’ findings, so it should follow that increasing levels of trust should build value and competitive advantage.

To achieve the business outcome of rebuilding trust, an organisation will have to identify what behaviours are working to achieve values that are aligned with trust and what behaviours are hindering them.

The cultural values that create trustworthiness centre around ethics, transparency, accountability, compliance and the ability to ask the question “Is this right?” without fear or favour.

Much of the visible expression of these values (the leaves and flowers on the surface of Schein’s lily pond analogy) can be identified in policies, procedures and codes of conduct as well as mission statements and company branding. These create the framework to which director and employee behaviours are communicated and held accountable. Testing and strengthening the robustness of this framework is a necessary step that often becomes the main focus of cultural change programs. Policies and processes need to be clear and effective, they need to be readily accessible, regularly reviewed and updated, and promoted via contextualised training programs, so that the values they are designed to instil form part of the decision-making fabric of an organisation.

The roots of corporate behaviours are more complex. Often the behaviours that do not support trust – avarice, greed, self-interest, secrecy – are deep-rooted below the surface of what can be readily observed. Here lies the discrepancy between the values espoused by the policies framework and the actions of directors and employees. The problem that confronts many organisations, especially successful corporations, is that the same behaviours that hinder building trust often drive business success on other metrics – sales, security, competitiveness.

So, the business problem becomes:

How do we create value in our business by repairing stakeholder trust while retaining the behaviours that have brought success in other areas, even though they may adversely impact stakeholder trust?

The solution will entail balance and restraint and will come out of the organisation’s own efforts to recognise the issues and develop strategies to square the circle. Schein’s advice is to:

“….get your people involved in working on the solution to your business problem. If you don’t have time for that, you are in trouble. The way to work your business problem, again, is not necessarily to go to an outside expert but to develop an internal task force or problem-solving group that will help you tackle the problem. The solution is in internal involvement, maybe with an outsider helping that internal group be a better group, but the solution will come out of your internal efforts not from some outsider.”

Solutions need not be grand or complex, small changes sustained over long periods can have great impacts on organisational culture. The key is consistency of application and having a clear vision of what the outcomes will be over 3 months, a year, 3 years, whatever the timeframe needs to be. The aim is to change habits and as Martin Luther King Jr once observed:

“...when you change the habits of men, pretty soon the[ir] attitudes and the[ir] hearts will be changed”.

Carmichael Corporate Services Pty Limited (CCS), a division of DJ Carmichael Pty Limited, focuses on delivering expertise in corporate compliance, enterprise risk and effective governance to SMEs. CCS provides clients with these essential corporate skills in a bespoke fixed-price service package, “Board Room Solutions”, that can provide assurance and support for growing companies without the overheads of permanent staff.

David Mahon
Principal Consultant – Governance and Company Secretarial

T: +61 (0)8 9263 5232
M: +61 (0)431 399 230

David Mahon

Principal Consultant - Governance and Company Secretarial

David has over twenty years experience in governance, risk management and compliance, working for fund managers and corporate advisory firms in London, Perth and Sydney.

In 2010, he established Mahon Consulting which provided company secretarial and corporate compliance requirements to a number of companies across the spectrum, including mining and resources, healthcare, ICT, primary industries, real estate, financial services and infrastructure. In 2013, he co-created a joint venture to establish pooled investment vehicles (Australian and Overseas) targeting pre-IPO and high growth Australian companies.

Prior to joining DJ Carmichael, David was the WA State Manager and senior governance consultant for a national corporate services firm, focusing on delivering tailored governance and risk systems to commercial organisations, listed entities and fund managers.

David is a Chartered Company Secretary, a Fellow and graduate of the Governance Institute of Australia and a Fellow of the Institute of Chartered Secretaries and Administrators. He holds post graduate qualifications in risk and compliance from Charles Sturt University, NSW.