Is Your Board Accountable?
Harvard Law School Forum on Corporate Governance and Financial Regulation published the article, "Is Your Board Accountable?" written by Russell Reynolds Associates Consultants Jack (Rusty) O'Kelley III and Anthony Goodman, based on our paper, "Corporate Culture: Is Your Board Accountable?" The article is excerpted below.
Shareholders and regulators across the globe are demanding improvements in board oversight of corporate culture. Institutional investors seek to better understand companies’ approaches to human capital management (“HCM”), tone at the top, and the attendant reputational risks.
Corporate culture is a business issue for companies and their boards. The new generation of workers weighs workplace culture when choosing their jobs, and the protracted low rates of unemployment have added fuel to the talent war. Best-in-class companies are therefore seeking to distinguish their corporate cultures from those of their peers in ways that will attract and retain today’s top talent. Carefully focused, boards could play a significant role in this effort, even if they remain unmoved by the demands of their other stakeholders.
In June 2019, Russell Reynolds’ Board and CEO Advisory Partners hosted a panel as part of New York Governance Week on the evolving practice of board-level oversight of corporate culture. The panel included two distinguished board directors: Gabrielle Sulzberger1 and Rajiv L. Gupta.2 The discussion provided nuanced perspectives on engagement with corporate culture from experienced directors sitting on our panel and in the room, as well as investors and other corporate governance professionals in the audience. This paper summarizes the discussion at this event and proposes some approaches for boards to consider as they seek to improve their own oversight of corporate culture.
Identifying and Defining Corporate Culture at Board Level
The largest institutional investors—BlackRock, Vanguard, and State Street Global Advisors (the “Big Three”)—are asking for board oversight of both culture and HCM. The Big Three believe culture and HCM both pose financial risk to investors and drive long-term value: they therefore expect directors to be prepared to communicate their oversight practices and processes to investors, whether indirectly through securities disclosures or directly during engagements. In parallel, there is growing awareness among board directors that corporate culture directly impacts operations, the potential success of transformation programs and the integration of acquired companies and thus financial performance.
To read the full article, click here.