In business, growth rarely trends up in a neat straight line.
Like everything in life, be that relationships, health or career, there are purple patches and downturns; periods of strength, stagnation and decline.
To stay on track or get back on track, businesses may need to hit the reset button from time-to-time and invest in capability and capacity.
Often it takes time for the impact of that investment to be seen and move the bottom line.
Other times, the benefits are never realised.
This is usually due to cultural problems.
A good corporate culture has the ability to boost productivity, innovation and performance but a bad culture can derail even the most sound, well thought-out plans.
Hence the popular management slogan, culture eats strategy for breakfast.
Identifying and addressing deficiencies in a business’ capability and capacity are relatively easy.
Cultural issues are much harder to pinpoint, although the symptoms are usually obvious including poor office discipline, disengaged employees and prolonged underperformance.
For CEOs and Boards, addressing poor cultural health is difficult for opposing reasons.
CEOs and senior leaders are too close to the problems and largely responsible for setting corporate culture, therefore, often complicit or blind to issues.
On the other hand, Boards are not intimately involved in day-to-day operations.
They are responsible for a company’s strategic direction and governance, and oversee financial performance, but they rely heavily on CEOs for information. A Board’s ability to hire and fire CEOs almost guarantees they don’t get the full picture, if there are internal issues.
When it comes to business health, CEOs and Boards are generally versed on the four components of the balanced scorecard system: financial performance, customer value proposition, internal processes and organisational capacity.
However, they’re not in a strong position to accurately gauge cultural health; arguably the fifth element of any truly balanced assessment.
Outsiders and insiders
For companies that consistently record lacklustre financial performance, despite all the ingredients for success including a clear vision and strategy, compelling value proposition, capable people and favourable tailwinds, there may be cultural issues in play.
To orchestrate a cultural revolution, there are a couple of things companies can do, starting with bringing in an outsider.
Hiring experienced external senior people helps to keep an organisation’s culture honest.
It opens the door to objective observations, fresh ideas and diversity of thought.
The presence of a new leader can also give others the courage to speak up.
There is plenty of research that shows diversity increases the bottom line but while organisations are generally pretty good at achieving diversity in the back and middle office, progress has been slower at the C-suite level, which is where it arguably can have the biggest impact given leadership determines culture.
For example, in 2020, a financial planning business inside AZ NGA recruited a new general manager to support the CEO in managing the business. As a result, that business has undertaken a review of its strategy, its remuneration model and client pricing with these and a suite of other initiatives resulting in a V-shaped recovery to business performance, more engaged employees and satisfied clients.
Some reasons why many companies prefer to promote internally is to reward staff, demonstrate a clear path for career progression, and preserve culture.
That’s admirable, yet if culture is poor there’s the risk of perpetuating the same ineffective methods and ideas.
Another thing CEOs and senior leaders can do to improve culture is be completely honest and transparent with each other and Boards.
CEOs should actively seek feedback from staff and encourage directors to do the same to create a no surprises, no excuses environment.
Staff, particularly those that work closely with the leadership team, will definitely have an opinion on corporate culture and leadership.
Their opinions and suggestions should be taken seriously.
While this exercise is likely to deliver some uncomfortable truths, CEOs and directors can learn a lot if they lower their defences and invite feedback. They should be most concerned when people stop communicating and challenging the status quo.
For CEOs that learn they’re part of the problem, the solution isn’t necessarily to step back. It may mean listening to staff more, leaning on the Board for guidance and hiring an experienced external leader.
A smart, engaged business leader that is backed by a CEO and Board to make positive changes is often enough to influence culture and build momentum.
Read more of Paul Barrett’s articles in Professional Planner.