HRD explores how HR can bridge the gaps on culture governance
After a string of scandals at some of Australia’s biggest companies, the country is in the grip of a corporate culture crisis.
In the last two years, five of the top 12 ASX companies have had CEOs or directors resign because of culture failings.
From sexual harassment to financial misconduct, bad behaviour is rife but now, it’s starting to hit businesses where it hurts.
Share prices have plummeted as a consequence of recent scandals and Australians are thinking more and more about the ethics behind their investments.
HRD spoke to Sunil Vohra, co-founder & CEO of culture tech analytics and advisory company The Workability Index (TWI), about why Australia is at a crossroads.
“Culture is not an issue that lends itself to a traditional governance approach,” he told HRD.
“Loose definitions of culture as some sort of unquantifiable concept, combined with low culture competency around the board table have collided with a marked increase in data and metrics HR directors have at their disposal.
“And yet the HR director is often constrained in interactions with the board – seen as beholden to the CEO, asked for metrics that are not fit for purpose and seen as responsible for ‘fixing’ culture problems that are actually owned by the leadership, not just the HR function.”
Read more: La Trobe's culture director reveals transformed HR strategy
According to a report by law firm Allens, Australia’s corporate watchdog ASIC and other financial regulators are zeroing in on the supervision and assessment of workplace culture.
ASIC said culture indicators such as renumeration structures, handling of complaints and the treatment of whistle-blowers act as an early warning sign of deeper misconduct within a company.
While culture is ultimately owned by the board, HR directors have a key opportunity to bridge the gaps on culture governance and position themselves at the heart of the conversation.
Vohra outlined four key areas for HR directors wanting to drive a culture change from within.
Address conflicts of interest from the start
When it comes to reporting culture performance to the board, HR leader can find themselves constrained because of their line management to the CEO.
Vohra said this conflict of interest can make it almost impossible for HR directors to be report systematic culture failings.
“We need to break the dynamic where HR directors may feel obliged to cheerlead for the CEO when reporting to the board,” he said.
He highlighted three mechanisms directors should be supporting to enable HR
- HR director briefings to the board without the CEO present
- HR directors with KPIs for culture governance that are appraised by the board at year end performance review time
- A nominated director tasked with liaising directly with the HR directors for board reporting is best practice
Create distinct channels for culture management and culture governance
Vohra encourages HRDs to wear two hats, keeping board reporting and operational HR management separate.
He said often poor culture issues are reported to the board as the actions of one bad apple, but the Royal Commission proved that often, the bad behaviour is a structural problem that goes far beyond a single rogue operator.
“Elevate culture reporting to an organisational level and look for significant trends over time,” he said. “Leave high frequency pulse checks to operational HR.”
Read more: Youi powers through pandemic with babies, Zumba and Pilates
Become the CFO of Culture
Just as a CFO reports financial results to accounting standards, Vohra said HR leaders should be reporting culture metrics, both good and bad.
“We need to break the dynamic where HR feels they solely own culture outcomes. HR is the enablement function for culture performance, not the owner,” he said.
“The more culture reporting is formalised, the more CFO-like the HR director role becomes.”
Develop defined non-financial metrics
Vohra warned against changing survey methodologies and questions across reporting periods, instead, following the lead of financial results and Same Time Last Year model.
“HR directors should differentiate between operational metrics and board metrics,” he said.
“Move past non-standardised engagement surveys and pulse checks to a more formalised and in-depth metrics suite for culture.”
Proxy metrics like staff turnover and customer complaints are frequently used to determine culture.
But Vohra said culture assessments provide a fact-based model, whereas proxy metrics lead to assumptions being made as to the root cause of the specific culture issue.
Externally report culture performance annually
“For those organisations that publicly report, HR directors should champion the external reporting of valid culture metrics,” Vohra said.
“The knowledge of transparency is a powerful force in shaping behaviours.”
While redefining the dynamic between HR directors, CEOs and board members isn’t an easy task, the pandemic has given many businesses the opportunity to truly innovate.
Culture has the power to define a company’s reputation and success, so getting it right has never been more important.
