Pre-pandemic, there was increasing understanding by boards and leadership that culture correlates with performance. Based on research of over 1,000 organizations encompassing more than three million individuals, those with top quartile cultures (as measured by McKinsey’s Organizational Health Index) post a return to shareholders 60% higher than median companies and 200% higher than those in the bottom quartile. This pandemic has accelerated the growing acceptance that culture has real business implications and is being less and less viewed as “soft” topic.
Given this significance, it is clear that culture is a boardroom issue. There is a significant role for boards to play given the impact this crisis will have on business operations, and potentially strategic direction.
Egon Zehnder's Greig Schneider and Lisa Blais spoke with Patricia Connolly, the Executive Director of the Raj and Kamla Gupta Governance Institute at Drexel University’s Lebow College of Business, to share their unique perspective on culture and talent and how they are impacting the boardroom.
Watch Part One of Accelerating Focus on Talent and Culture in the Boardroom, which focuses on cuture:
Patricia Connolly: Hello, my name is Patti Connolly, and I am the Executive Director of the Raj and Kamla Gupta Governance Institute at Drexel University’s Lebow College of Business. Welcome back to BoardSpeak, our webinar series that brings you the latest governance insights. A recent McKinsey study of over 1,000 organizations and 30 million individuals found that those with top quartile culture posted a 200% higher return to shareholders than those in the bottom quartile. With this aw the backdrop, it is important to realize that this pandemic has accelerated the growing acceptance that culture has a business implication.I am pleased to be joined today by Lisa Blais and Greig Schneider of Egon Zehnder. Lisa Blais is Head of Egon Zehnder’s US Board Practice, and Greig Schneider is the Global Head of Egon Zehnder’s Leadership Advisory Practice. Together, both Greig and Lisa can provide us with a unique perspective on culture and talent and how they are impacting the boardroom. Given the significance of this topic, we decided that both talent and culture deserved a in depth discussion. Therefore, this is part one of a two-part webinar series.
Lisa and Greig, prior to the pandemic, many boards felt that they were top notch, and that their cultures were high performing. What we have seen is that COVID-19 has really put that to the test. Given your experience and what you are hearing, what are some of the conversations that boards should be having today, and what should they be asking of management?
Greig Schneider: Well, I think it is important to take a half step back and think about what conversations the board should have been having prior to the pandemic. Given how important it is, and research backs this up strongly, you would think that culture would be a major piece of what is on their agenda, but that hasn’t been our experience generally in the past. I think you’d have a hard time finding a board member who didn’t agree that culture is important, but when you ask them if they can describe in detail what culture is, and what their culture target is, they’re hard pressed to do that. Further, ask how do you know that culture is aligned with your strategy, can you explain that linkage, and how do you track it? If it starts to drift off target, how do you know that? For the most part, there’s not very good answers to that. I think a lot of boards may have gone into this pandemic with a good feeling about culture, but not a lot of data or confidence behind that, and that is something that probably needs to be thought about. Now you go into a pandemic and you have unprecedented pressure on culture and on organizations. Everyone who is watching this knows what those pressures look like. With people working in very different situations from home, primarily not with their supervisors, not with their colleagues, not with all of the touch points that connected them to the culture, it’s bound to cause some different dynamics.
We found in some cases, there have been positive outputs and also some negative ones. The dynamics are changing. The pressures on people obviously are much greater with both personal and business uncertainty abounding. Of course there’s going to be some different situations, but the challenges we’re seeing for leadership teams is they don’t know what’s going on because their go-to sources of information, which for many is the data that comes back from the shop floor or the office itself, it’s just not there right now. What we are hearing from clients is they just don’t know what’s going on, we don’t know how they feel, we don’t know if our messages are getting through. That means that they don’t know how their cultures are doing.
If I’m a board member, that is question number one for me: is leadership developing a plan to get their arms around what’s actually happening so they’re making the right decisions about how to communicate and how they plan to bring people back? Some of these things are logistical, but some of them have to do with how people feel. Point two, which is emerging now, is it’s pretty clear that culture needs to change for many companies because their strategies have needed to change. If you think about the new normal or the adjusted normal, that will emerge at some point, it’s forcing a lot of big changes in strategy. There should be some changes in culture that go along with that. The worry is that, because it’s a lot easier to focus on the numbers and the people from a measurement perspective, that people are mostly focused on the numbers.
If my second question as a board member is; as you’re making decisions now, how are you layering in the cultural impact of those so that you’re not making short term decisions with long term side effects that you haven’t anticipated? I think those would probably be the two biggest ones, but Lisa, let me toss it over to you. You have been on some big calls with board leaders. What are you hearing from them right now?
Lisa Blais: Thanks, Greig. Interestingly, the conversation around culture, when we ask about it, many boards are not really focused on it right now. It depends on what sector they’re in, and if the companies are worried about liquidity, it’s all about the financial performance ensuring the liquidity of the company. The way boards are responding when we ask about culture is really around communications. They’re focused on lots of communications between the board and the C-suite, and then obviously between the C-suite and the employee base. I think oftentimes the boards in these times are focused on communications as opposed to culture. As we know, culture is a lot broader than that. The other aspect that’s being discussed right now relating to culture is that boards are trying to ensure that their CEO and his C-suite are striking the right balance between the human health risks that exists in businesses today, as well as the financial risks, and making sure that the communications and everything that comes from the C-suite or the board strikes that right balance, otherwise it’s going to erode the company culture.
The other comment around culture that I hear in talking to chairs and board members is; getting that feedback is tough right now among board members. Board meetings now are being done virtually, there’s no hallway chat among board members and C-suite executives, even if some of them are in the office, they’re not benefiting from that feedback as much as they were when everybody was working in the offices. I think when we talk about culture, they are worried about communication, they are worried about messaging and the tone from the top, but I think there does lack this feedback loop. When we asked the question “are you protecting the culture sufficiently?”, most often the answer is yes, they think so, but, when we say “how do you know that?”, that’s the mystery that they don’t really know, they’re just getting anecdotal stories, which of course is better than nothing. However, in this time of remote work, that feedback loop is becoming more important. I think that is probably what they’re not getting. Boards would benefit from probing in that area and thinking about culture more broadly than just messaging and communication at this point.
Connolly: Lisa, you bring up a good point, and that is what that I hear a lot. You always hear culture as being referred to that soft topic, and how there is no dashboard for culture. As a board member, is there a tool I can use to help me take the temperature of what my culture is now, and then mapping it through the crisis?
Schneider: The answer is as emphatically yes. There have always been ways to measure culture. We worked with Charles O’Reilly at Stanford and the OCP has been out there for many, many years, which can give you a read on culture. It’s a survey that you can track over time and there’s lots of tools that can help you. They operate in different ways that can measure various elements of culture. One of the things that we are seeing now, which is exciting, is the linkage of people science to data science. You can begin to gather some grainy data and analyze it using the cloud and all the power that is out there now to get some much faster and deeper insights about how cultures are operating.
Connolly: Lisa, do you have any insights on this? I know that sometimes board members will say to me, well, give me a specific example of what is it that you measure.
Blais: In the process that Greg just outlined, it’s really all about leadership behaviors. It’s all based on what your target culture is, and every company is going to have a different target culture. We think about what leadership behaviors are going to drive or create that culture and we have a target, and then we do surveys to determine where you are at the beginning. Then, we see how different changes in behavior actually change the data on culture in terms of progressing towards that target culture. My only other comment is, a lot of the boards have employee engagement surveys, but if you would compare an employee engagement survey to some of the AI based tools that Greig was just referring to, it’s like night and day in terms of science. It’s a much more scientific, and AI based way to measure. Having this specific target and then being able to measure by every different cut of the data how you’re progressing towards that target is where employee engagement surveys stop short.
Schneider: One of the things you can get from this specific tool is “change readiness”. We have a client who created an entire strategy just over two years ago and launched and communicated very specifically over six months, and has to completely change because of what’s going on in the market and what they know is going to happen as a result of the virus. In order to pivot the whole company, who just pivoted not long ago, you need to know how ready people are, how well you have laid the groundwork, and how well they’ve heard the messaging. This helps you as a leader figure out how fast you can move.
I would say leaders always want to move fast. Many leaders have failed in a change effort because they pushed too hard and they broke the culture, or the organization couldn’t take the speed and things just blew up on them. Everything is so crazy right now. It is critical to have that information about readiness to change. When you think about readiness, you can be overstressed. You’re not ready because you just can’t take it, or you can be in too much of a comfort zone where you’re not ready because you just don’t think it’s needed. Then, there’s the learning zone right in the middle, which is where people are ready to start taking on these new changes. I know that is a lot of information, but I think that’s the point. If you can arm yourself with a lot of data, it can really inform how you come out of this thing. If I’m a board member I’m just questioning, “Are we accessing these tools? Are we thinking about what’s needed to do this well?”.
Connolly: Is the data you’re talking about in the form of employee surveys?
Schneider: Sticking with this specific example, they have a technology called “Twisit”, which stands for “the way I see it”. When you think of a survey, you think of something that asks the question A, B, C, D, E, or something like that. This is very different. Picture a grid that has two axes, and one is, “I hate the message, it is unclear or it’s clear”, and the other axis says “I don’t like this thing and I’m not going to follow it”, and the other end is “I love it I can’t wait to follow it”. Then you can plot yourself, your team, and your boss.
Now, if you’re dragging and dropping those individuals onto that grid, intuitively you can think there’s an infinite number of ways you could arrange them, right? There’s no set limit, and it is telling you a whole lot of information. For example, whether they liked the message and whether or not the message is clear. If you plotted senior leadership in the, “we love it” category and my team down in the, “we don’t get it and we don’t like it” category, now you have a trust issue that you’re getting data on. There’s some other kinds of exercises. There’s open text responses that the computer can analyze to understand at a much deeper level than you’d think when you type in an answer, and you multiply that by 500 inputs, you can get a lot of data. The point is, these are more gamified surveys that do not look or feel like your standard engagement survey, and the amount of data you can pull out of them is huge.
Connolly: Lisa, can you talk a little bit about board culture? What are there things that people are asking?
Blais: As you can imagine, when we do our board searches and consults, board culture is the most important aspect when we are determining fit. Oftentimes, when a board candidate isn’t the right fit, it’s usually a culture mismatch. I would say that every board has its own culture, but many describe cultures as collegial, collaborative, no “big egos”, no one “dominating the conversation”. Those are the kind of the descriptors that our clients use to describe culture. I would say there’s a social norm aspect of culture and then I would say there’s also an access around formality, it depends on the sector. It depends on the situation of the business, and certainly the need to be collaborative. What we are also seeing is that they’re looking for people to contribute on a variety of topics. I think the days are gone where the CFOs and audit committee chairs opined only on financial aspects.
We are seeing more and more boards looking for people that are broader and can contribute on a variety of topics, and what they would describe, from a culture perspective, is a more engaged and broad thinking board. The other thing I would say about board culture is that in the boardroom, there’s been a lot more focus on diversity and ESG. Those topics and those pressures have impacted board culture, our clients would tell you, in a positive way. With more diversity brings different perspectives of different ways of communicating different thought processes. That has enriched culture and boards. Then also this focus on ESG, whether it’s environmental or purpose or societal aspects, is also changing the culture.
Schneider: I’m on Egon Zehnder’s board, for example, we’ve now had two virtual board meetings. It’s interesting, they’ve worked pretty well, but it’s not the same. From a culture perspective, how a board gels, how they work together, how a board meeting plays out, the things that happen in the room and at the dinner and all of these little, subtle things that impact the effectiveness of them working as a team, it’s not the same. It can’t be the same when you’re doing it remotely. In our case, the challenge we also have is multiple time zones.
The time is more limited, you can only have a certain number of hours before it’s midnight in Europe, or starting at four in the morning in the US. As a result of having fewer hours, you’re more focused in on prioritization, which has some upsides, but it also means you have to be careful not to rush anything because you only have a little number of hours. The point would be, it’s an interesting time for boards to reflect on what they’re learning about how they operate as they try and do it remotely, or as some of these changes happen, take the time to step back and say, ”Are we being as effective as we used to be? What steps can we take as a board to maintain our own culture so that we can do our job and guide the leadership as needed?”.
Blais: I would say some of the challenges around the culture and the boardroom is the tendency of the board members to want a lot of more information. There are a lot more board calls, so they have a lot of questions for the management team around a variety of topics related to the virus. The role of the chair of the board, while always critical, is even more critical now.At the beginning of the pandemic, there was a frenzy, so the chair had to step in and take more of a leadership role to be the focal point of all these requests, making sure that the management team isn’t buried with requests for data, and plans, and so forth. The chair, in this pandemic, is critical to preserve the culture of the board, but to not also interfere in what the management team has to do during this extremely challenging time.
Connolly: What advice could you give on some permanent changes to the culture of the board that, as a board member, I should be prepared for?
Schneider: Another person in our ecosystem is Jennifer Garvey Berger, who’s an expert in leading in complexity, this is her moment, right? There’s never been a more complex time than right now, and she’s run some webinars and training with us. The answer to your question is nobody knows, and I think she would remind us that.
I’ll give you some hypotheses, but I think that the human brain is wired to want an answer, and to want a path and a plan and certainty. Nobody knows exactly what’s going to happen here, there’s too many moving pieces. One piece of advice to boards would be that agility, above all, is important. Agility is important for both for the leadership teams and for the boards to not get locked in on something you think is going to happen because quickly it could be not what you thought.
However, there’s going to be some long-term impacts on culture. One of which is the importance of culture is going to be even bigger than it was before because we are going to learn that there’s some organizations whose cultures were one of the main reasons they got through this better than others. Then, there’s going to be some cultures that break down, and with them, the companies behind them because they weren’t built to stand up to these kinds of pressures and they didn’t have the agility that was needed. Those are going to be takeaways.
Some of the more interesting questions are around things like “what is the role of the office?”. You could logically assume that with people learning that they can work from home pretty well, that there will be less need for office space. In some cases, you’re seeing people saying, “people don’t even need to come back in, we’re working just fine”. I think that that may be true, but it ignores what some of the cultural value of having an office and a gathering place is to begin with. I don’t know the answer to this, but I expect that some of these companies that have said “keep working from home, it’s just fine”, are going to find there are some side effects that they hadn’t anticipated, they didn’t think it all the way through. That’s a dialogue that many companies may want to want to engage in and think about “What’s the importance of convening in person? How does it relate to culture?. If we’re going to do less of the former, what do we build in, in order to maintain the culture we want?”. It’s less of an answer and more of a dialogue around some of these things.
Blais: I think certainly for many businesses that were already on a digital transformation journey, that journey will accelerate, whether that’s working remotely, whether it’s e-commerce, etc. However, I think this has just increased the pace and urgency around companies becoming more digital. The other thing I would say, would be the focus on the health and wellbeing of the employee base and all the stakeholders of a business. Related to that, is ESG, the social community aspect of a company’s purpose, and how they behaved and acted and the decisions they made during this pandemic, how they prioritize society and their employees, is an accelerated trend that’s going to be with us for good.
I also think boards should be asking themselves “What can we let go of? What should we be doing now? What should we be doing differently, given all of this? What could we learn about our board composition, our board culture, the board behaviors?”. To me, there’s going to be some implications and it will vary board by board around composition. Overboarding is going to become a bigger topic. There will be some more conversation around board composition and just the way boards work.
Connolly: As a board member, what do you think my next question should be? For example, at my next board meeting, what should I raise questions about?
Schneider: As a board member, I would encourage you to ask, “Are we spending enough time on this? When we look at where we’re going, are we looking at a bunch of reports about production or cash levels?”. All of those things have to happen too, but are we engaging on this topic enough and really thinking through the implications of it and the opportunities? If not, what is the board going to agree to do to change our schedules or agendas or our focus, so that we do not leave out this important piece?
Blais: I would recommend to board members that anytime they talk about culture, always follow it with “How do you know?”, because I think a lot of boards and C-suites talk about culture, but they don’t know that there are great tools out there that can actually measure it in a very interesting data-driven way that is quite valuable. So, just keep asking that question; “How do you know?” and don’t rely on anecdotes.
Connolly: It seems like a simple question, but it’s so important. I want to thank you both for sharing your insights with our stakeholders at the Gupta Governance Institute. We would also like to thank our audience for investing your time today. Part 2 of this webinar will be released soon, so keep an eye out for that, and please take a moment to fill out our survey embedded in the email you received. We are looking for your feedback and we want to know what other thought leaders, like Greig and Lisa, that you would like to hear from. Thank you and take care!