The way companies create and sustain value is directly linked to the debate about the role of business in society. There needs to be a concerted effort to improve trust in the motivations and integrity of business. Rules and sanctions clearly have their place, but will not on their own deliver productive behaviours over the long-term.
"A healthy culture both protects and generates value. It is therefore important to have a continuous focus on culture, rather than wait for a crisis."
Sir Winfried Bischoff, FRC former Chair
As a regulator, we believe that emphasising the importance of culture will lead to more open and insightful reporting, and improved access to capital and talent, boosting competitiveness and improving companies’ ability to achieve sustainable success.
To send a clear message that good governance is linked to a positive corporate culture we have issued a number publications (please see below). As a result, we have seen much more constructive engagement in the culture discussion. The FRC will continue to promote positive working culture in companies and monitor corporate disclosure in this area. Based on this, we consider what further action to take.
This brief brings into focus Corporate Purpose and ESG, the two remaining and inherently interlinked themes that repeatedly came up during the interviews and roundtables conducted for the Culture Report published in December 2021. The Purpose Brief and Culture Report should therefore be read together.
Findings in this brief draws attention to some of the key observations, best practice and examples of application identified in our research.
This follow-up research was conducted in line with our commitment to continue to work with our partners to encourage debate on culture, and to identify and share good practice. In doing so it draws on the experiences and views of leading companies - from board directors, leaders, senior individuals from across different functions and workforce representatives, and showcases some of the actions they are taking to better communicate their culture as well as link it to their strategic objectives.
The report covers how companies frame their culture, how they assess, monitor, embed and assure it, and what enablers and barriers they encounter. The findings demonstrate that by recognising the relationship between culture, purpose, values and strategy companies can strengthen their business models, better manage resources and be more equipped to face future challenges.
The 2018 Guidance on Board Effectiveness addresses culture more comprehensively, in line with the 2018 Code. From stakeholder relations, through remuneration to compliance, culture has been placed in a central stage.
The Guidance urges boards to regularly consider culture by monitoring it. It gives example of how companies could approach it, what are the elements of positive culture and what questions bords should be asking, among other useful guidance.
Several finding from the 2016 research were incorporate into the 2018 Code. Greater emphasis is placed on relationships between companies, shareholders and stakeholders. It also promotes the importance of establishing a corporate culture that is aligned with the company purpose, values and business strategy.
In addition, culture, integrity and diversity are central to the revised Code, with boards urged to regularly assess and monitor culture and ensure greater alignment of executive incentives and rewards with culture.
The FRC embarked on the culture coalition project to gain a better understanding of how boards are currently addressing culture, to encourage discussion and debate, and to identify and share good practice to help companies. We published a report on our findings in July 2016 which sought to address how boards and executive management could steer corporate behaviour to create a culture that will deliver sustainable performance.
The report covers the increasing importance which corporate culture plays in delivering long-term business and economic success and on the role of the board in shaping, monitoring and overseeing culture.
A number of organisations have supported the FRC’s culture work throughout the years by providing expert subject knowledge, facilitating roundtables, conducing related research and issuing supportive publications: