Culture, Conduct and Value(s)

Prior to reading Mark Carney’s new book Value(s), Building a Better World for All I was involved in researching a response to the crisis of corporate culture and failures in ethical conduct in financial services.  Solely focusing on assigning more direct accountability and punishing more senior individuals did not seem fit for effectiveness, in that it did not seem to truly address the root cause.  Also, from within

large organisations I saw that the response to mandated accountability regimes was the same as it was for any other external emerging challenge; convene a working group, cascade objectives to actions to populate a plan, and create Board reporting to prove to external stakeholders that some action was being taken.  None of the organisations I worked with considered that the solution should be focused within and should begin with changing the ‘why’.  Still, I couldn’t quite put my finger on how to articulate what I saw as the true problem.

Mark Carney hit the nail on the head with his new book.  He paints the picture of a market-based ecosystem that relies on certain universally understood and agreed upon tenets for its efficient functioning.  He shows that markets cannot function without being truly trusted, that currencies only have value because they are backed by the full ‘faith’ of a central bank and that risks that drive development can only be undertaken because they are underwritten by insurers who are fully expected to make good on their promises.  He points out that critical crises of the values that support these tenets then degrade the ecosystem, and in a vicious cycle markets become increasingly unfair, risk transfer more costly and the asymmetry between the price of something and its true value becomes more apparent.  The value of the front-line worker during a pandemic is not reflected in her wages, the value of a livable planet to future generations is not reflected in the price of pollution and the values of pension investors are not reflected in the holdings in their portfolios.

Carney reminds us that prior to the genesis of the corporate person, companies were granted authority to operate by royal fiat through a corporate charter.  The charter was required to explicitly state what the company’s purpose was and it was clear to all stakeholders.  With the advent of the corporate person and with shareholding being equated with ownership, societal purpose was replaced with maximisation of earnings for distribution.  But, as Carney writes, “The economy does not comprise simple islands of profit-maximising individuals who come together temporarily through a web of contracts.”

Carney sees purpose as indispensable to a culture of integrity.  Corporate purpose becomes a social narrative, conscripting consumers as stakeholders and energising participants across the value chain to be more engaged and more effective.  As Carney states, “At the highest level, purpose captures the moral contribution of companies to the betterment of the world now and in the future.”  Mark Carney prescribes a method for companies to embed culture change in a lasting, more pervasive way, and as a risk and governance practitioner I agree with him. Companies should:

  • Create a strategy that aligns shareholder and stakeholder value,
  • Align Board and management values to deliver on the purpose,
  • Reformulate measures of success to achievement of the purpose as well as meeting financial targets, and
  • Monitor and support achievement of the purpose and attainment of value through Board supervision and properly aligned capital allocation.

Additionally, inclusion of Environmental, Social and Governance objectives should provide social capital, social license and public trust for stakeholders to support the organisation through its transition.

If you’re supervising a company that has rolled out a SIMR / SMCR ‘project’, ask yourself if the project has resulted in a more transparent, more purpose-driven culture.  Increased scrutiny and heightened accountability may focus the senior manager’s mind in the near term, but why should we expect that to result in a more evolved corporate culture? If you’re truly interested in examining your corporate culture and embedding purpose to drive enterprise value then you should speak with an experienced consultant who can help provide a bespoke roadmap that is right for your organisation.