A company’s ability to simply survive—let alone adapt and thrive—in the face of disruptive forces and competitive pressures will be determined in part by its culture.

These days, no strategy-offsite or leadership conference is complete without a session on megatrends. Geopolitical and economic uncertainty, the rise of new technologies, demographic shifts, and environmental change all have the potential to disrupt entire industries. They also can have significant impact on employees’ relationships with their employers and with each other.

Numerous research efforts have borne this out: Healthy cultures pay off.

Paying Attention to Culture

Various studies have shown that companies with high scores on culture-related criteria such as mission and employee involvement outperform peers on customer satisfaction, safety, quality, profitability, sales growth, productivity, and shareholder returns. So it’s no surprise that major investors are issuing statements emphasizing that “over the long term, how a company does business is as important as profit at any one point in time” (BlackRock) and highlighting that they “expect boards to … influence firm culture and set ethical standards” and “promote a culture of accountability on the board” (State Street).

But all too often, culture doesn’t get the level of boardroom attention it deserves until there’s a problem. In the National Association of Corporate Directors’ most recent public company governance survey, less than half of directors reported that their boards assessed the alignment between the company’s purpose, values and strategy in the last 12 months. Only 50 percent say the board understands the “buzz at the bottom”—the collective behaviors, norms and values at the frontlines and rank-and-file level of their organizations.

According to the NACD Blue Ribbon Commission on Culture as a Corporate Asset—a group of more than thirty experienced directors and business leaders—these statistics about board oversight of culture indicate a significant shortfall that’s in need of a turnaround. Indeed, the boardroom is a natural place for discussions about culture, because culture is so closely linked to company strategy, the selection and development of the CEO and senior leadership, executive compensation, and risk oversight—all of which sit squarely in the board’s domain.

World-class culture oversight requires a proactive approach by boards and company leaders.

The commission’s report issues a call to action for directors to elevate their culture-oversight practices, advocating for a transformation of board-management dialogue on company culture in a way that is similar to the fundamental change in the way boards approach risk oversight that has taken place in recent years. Like world-class risk oversight, world-class culture oversight requires:

• More rigor, clearer accountability, and better metrics.
• A proactive approach on the part of board members and company leaders. Directors need to establish an ongoing discussion about culture that is forward-leaning—encompassing where the company is going, not just where it’s been.
• Breaking out of a compliance mindset. Oversight of compliance and ethics has always been a core board responsibility. It’s a necessary part of culture oversight but is not sufficient.
• Discussions in good times as well as tough times: Even companies with healthy cultures can’t afford to rest on their laurels.

Directors should require that the CEO and senior management provide the board with a succinct description of the cultural attributes that energize and enable the organization’s strategy and operating model—not just what we do, but how we do business and why. The board and management can then work together to ensure that this desired culture is reinforced through messages, policies, processes, systems, and behaviors inside the boardroom and across the organization.

Weaving Culture In

But taking a proactive stance with respect to culture oversight does not mean directors will have to factor a new, additional set of responsibilities into their already-crowded agendas. Indeed, if a board considers culture oversight to be something that’s separate or distant from directors’ current responsibilities—or, worse, as “another box to check”—that would be a red flag in the view of the NACD Commission.

Instead, culture should be built into boardroom agendas and activities, including the board’s own governance and continuous-improvement practices, strategy and risk discussions, CEO selection and evaluation, decisions about rewards and recognition, and communication with shareholders and stakeholders. By doing so, directors will improve the quality of the board’s work and enhance its impact.

If companies want to be able to adapt to new business dynamics and competitive challenges, having a healthy, resilient culture is essential. “The ultimate aim,” as the report emphasizes, “is powerful, successful, durable companies that create lasting value.”