The Governance of a Quality Oriented Culture – in Search of Congruence
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CORPORATE GOVERNANCE The governance of a quality oriented culture – In search of congruence Olof Bik counterbalance to the increased levels of regulatory pressure and “control-obesity” (Bik, 2010) runs the risk of relegating it to nothing more than a checklist of in- SUMMARY This article sets out to demystify the three most important myths of be- strumentally applied culture controls. Not surprisin- havioral and cultural governance by asking the (sometimes obvious) questions that gly, this would not solve the problem. While ignoring you might expect a well-informed executive to readily be able to answer: What is or dismissing culture’s capacity as an intangible ano- maly is one extreme, the pendulum has swung too far culture – and what is it not? What does it do – and not do – and why? Can it be ma- these days. Recent efforts to use organizational cultu- naged at all? Rather than blindly following the obviously well intended, but fairly in- re as an instrument of corporate governance, risk ma- effective, instrumental approach of contemporary governance frameworks in mana- nagement, internal control, and compliance, such as ging a “quality oriented culture”, this article calls for and provides concrete the proposed changes to the Dutch corporate gover- nance code (2016), and earlier the recommendation of recommendations for a more realistic and sustainable organization ecological ap- the Dutch Future Accountancy Profession Working proach to governance of culture and behavior. Group (2014), generally seem to assume a linear rela- tionship and an instrumental approach to managing PRACTICAL RELEVANCE While applauding executives and others to embrace the culture to drive and control behavior in organizations. increased focus on culture and behavior in managing a quality oriented culture for We risk instrumentalizing organizational culture and firm performance, this article puts forward three perspectives executives and others ignoring the propensity of a culture’s natural capaci- ty for organization ecology, resilience, and deficiencies may wish to reflect upon in striving for a more realistic and organization ecological to drive its organizational governance, performance, approach to the governance of culture and behavior. and health - which means that it loses both its appeal and its invigorating capacity. Preceded by the question of whether culture can be 1 Introduction used as performance control in section 2, in section 3 For long, culture was seen as the innate but intangible I set out to demystify the three most important myths hallmark of successful companies. Since then, classi- of behavioral and cultural governance by asking the cal works, like those of Deal and Kennedy’s Corporate (sometimes obvious) questions that you might expect Cultures (1982) and Morgan’s Images of Organization a well-informed executive to readily be able to answer: (1986), analyzed culture as a novel phenomenon as if What is culture – and what is it not? What does it do it were the anthropological study of a tribe of mon- – and not do – and why? Can it be managed at all? keys. More recently, we seem to have adopted the view While I applaud executives and others for embracing that organizational culture is malleable. Something the increased focus on culture and behavior in corpo- that can be managed as an instrument to drive and rate governance, the article concludes in section 4 with control the behavior of employees and boards without three perspectives that executives and others may wish having to introduce the more negative consequences to reflect upon as they strive for a more realistic and that typically accompany a plethora of formal rules, organization ecological approach to the governance of red tape, and bureaucracies. In the auditing industry, culture and behavior. like in many other industries, firm leaders, standard setters, and oversight bodies point to a “quality orien- 2 Culture as performance control? ted culture” as the catch-all, fundamental resolve to Of course, all successful organizations, ancient and restore public trust in the profession. However, positi- present-day, are characterized by some type of strong oning the governance of culture and behavior as a and distinguishing culture. That’s nothing new. Cul- MAB 90 (10) OKTOBER 2016 431 CORPORATE GOVERNANCE ture was seen as the innate hallmark of tacit leadership build on the concept of alignment and consistency skills and organization ecology, rather than something between walk and talk (e.g., Bik, 2013) also have their to be engineered in one way or another. Firms with limitations. For example, Sorensen (2002) showed that strong cultures are usually seen as having a certain firms with strong cultures demonstrate reliable perfor- “style” and “way of doing things” (e.g., Kotter & Kes- mance in stable environments, but not in volatile en- kett, 1992, p. 15). However, since the 1970’s, there have vironments. Hence, in this day and age of accelerated been structural attempts, in the management sciences and disruptive change, these notions are of limited use. and corporate governance fields, to use culture as a Furthermore, culture is increasingly seen as an instru- means and management tool to drive and control or- ment of corporate governance and internal control. ganizational citizenship behavior. And this does make For example, since what in the Netherlands was called sense, because sustainable organizational performance the notorious “Freaky Thursday” with the publication is, by and large, defined by how congruent the actual on September 25, 2014 of three important reports on culture on the ground is with the (well calibrated) cul- the status and plans for improvement of the auditing ture being espoused. As Sonja Sackmann (2011, p. 188) profession, culture and behavior is put forward as a notes: catch-all antidote to quality issues. The profession has “The introduction of an anthropological concept [as orga- embraced the 53 measures proposed by the Working nizational culture] into the domain of management was Group on the Future of the Profession (2014). All of fostered by the notion that it may have an influence on or- these are measures that emphasize the professional ganizational performance. Subsequently, methods were and social responsibility of the individual auditor and developed to understand, assess, and change corporate cul- audit firm, with culture and conduct as the red thread. ture in the hope for better performance and, ultimately, As another illustration, the changes being proposed to for gaining competitive advantage”. the current Dutch corporate governance code (Moni- Ever since then, many books and papers have been pu- toring Commissie Corporate Governance, 2016, Sec- blished on organizational culture, such as In Search tion 2.5) focus on culture and behavior, but this too for Excellence (Peters & Waterman, 1982), Hidden Va- relegates behavioral and cultural governance to simply lue (O’Reilly & Pfeffer, 2000), Firms of Endearment being an instrumental tool for managing culture. That (Seth et al., 2003), Built to Last (Collins & Porras, is, not only does it impose a normative view on the de- 2005), and Beyond Performance (Keller & Price, 2011). sired and “base-line” cultural values irrespective of an Kaplan and Norton (2004) position culture, leader- organization’s own identity, it also more or less posi- ship, alignment, and team work as fundamental orga- tions measures such as a values statement, code of con- nizational capital in their strategy map of how an or- duct, and whistle blower policy as simple “solutions” ganization creates value. Although there is indeed to the problem - woefully underestimating the true in- merit in getting to know this stream of management ner workings of culture as a function of behavior. Ad- literature, it should not necessarily be taken at face va- mittedly, this is indeed just following an international lue. Despite numerous scientific studies indicating trend of well (and lesser) known frameworks that point support for a culture-performance relationship, Wil- to culture and behavior as a catch-all antidote, e.g., derom et al. (2000) conclude that such a link is yet to from the 1999 Turnbull Report (ICAEW, 1999) to the be substantiated. Although other scholars are more G30’s 2016 Banking Conduct and Culture report (Group optimistic about scientific support for the concept of of 30, 2016). In this respect, the Dutch proposal is a culture driving performance through organizational good start and makes it one of the first corporate go- behavior (e.g., Barney, 1986; Ehrhart et al., 2014), re- vernance codes internationally to explicitly address cul- search suggests that there is at best only “a contingen- ture and behavior. This attention to culture and beha- cy-type relationship between culture, performance, and vior should be welcomed and applauded, even if only internal and external firm context” (Sackmann, 2011, for the fact that so many corporate failures can be lin- p. 216). For example, Ernst (2003) found a nonlinear ked to deficiencies in internal control, values, norms, relationship between an adhocracy-entrepreneurial and organizational culture. Publications on this sub- culture and innovative performance that eventually be- ject can be found in abundance. For example, despite came a negative. Needless to say, such “culture-type” its established code of conduct and its clear rejection approaches are problematic. Comparable to a “seven of bribery as a business practice, several hundred of success recipes for a so and so culture” approach (e.g. Siemens’ senior-level staff engaged in bribery, mostly a customer oriented culture, a safety culture, an inno- between 1998 and 2006. Peter Löscher, the then new vative culture), such approaches unduly assume some CEO, officially described the failures as culture and kind of general validity. As if it were applicable regar- leadership responsibility issues. However, existing the- dless of industry, an organization’s state of develop- ories and frameworks do not seem to be able to captu- ment, its in-firm sub-cultures, and many other contex- re the concept of “culture as a function of control”.