Company culture

What is a desired corporate culture

An issuer’s corporate culture needs to be aligned with its purpose, values and strategy. As these aspects are different for each issuer, there is no “one size fits all” approach in developing a desired culture. A good starting point is for an issuer to consider what its purpose is and to define that purpose clearly. A clear purpose will assist the issuer’s formulation of its objectives and goals. It will also facilitate the identification of important values that shape how the issuer will go about achieving its objectives. The issuer’s values, attitudes and behaviours, as demonstrated in its operations and relationships with stakeholders, define its “corporate culture”.
Formulation of clear operational, reporting and compliance objectives that facilitate a viable and sustainable operation in compliance with applicable laws and regulations lays the foundation for a healthy corporate culture. Objectives that go beyond profitability and take into account the interests of stakeholders (including employees, customers and the wider society) help build trusted relationships with stakeholders. A strong commitment to integrity and ethics will also drive appropriate risk management and internal controls systems.

The board’s role

The board is responsible for setting the right "tone from the top" to shape a desired corporate culture. The board’s role includes:

Defining a purpose supported by culture: An effective board sets and defines its purpose, values and objectives, and ensures that these and its culture are aligned.
Promoting a business model that reflects the desired culture: Ensuring that the desired corporate culture is manifested in the issuer’s business model, operations and practices.
Communicating the desired culture: The board is responsible for shaping the desired culture and ensuring that it is communicated appropriately to all levels of staff. For effective communication, the board should work with management to, for example, implement a code of conduct and conduct regular training and townhalls.
Incentivising compliance and accountability: The board must embed a robust culture of compliance and should, itself, demonstrate a high degree of accountability and integrity, with senior personnel being held accountable for their actions. An effective remuneration and performance management mechanism can support and drive desired behaviours and motivate employees to act in accordance with the desired culture. Remuneration and rewards (both long- and short-term) should be assessed with reference to the desired culture.
Talent management and development: Talent management (including hiring decisions, rewards / remuneration and succession planning) and talent development should be aligned with the issuer’s desired culture. Understanding the issuer’s culture is critical for employees and should be reflected in their development plans. The board should work with management and internal departments, such as human resources, to adopt an appropriate policy / code of conduct to guide the desired behaviour of employees.
Regular evaluation of culture: The board should ensure that new directors understand the issuer’s culture and its alignment with the issuer’s purpose, values and strategy. The board should continuously monitor and evaluate the implementation of the desired culture, and whether it is reflected throughout the issuer’s operations. Continuous evaluation (with adaptation where necessary) ensures that the issuer’s culture remains appropriate to its circumstances in the midst of a changing business environment. The evaluation process should be transparent to enhance accountability.
The board should be ready to challenge and address any identified misalignment with the desired culture during its implementation. As part of its evaluation, the board may:
- Review the company’s decisions and actions to assess whether they are consistent with the desired culture and the issuer’s objectives.
- Undertake staff and stakeholder engagements to understand their perception of the issuer’s culture.
- Assess complaints received, whistleblowers’ disclosures, staff turnover rate and code of conduct / regulatory breaches helps identify potential areas of concern.

Role of senior and middle management

Disclosure requirements

When evaluating a company, stakeholders take into account its corporate culture. To enhance transparency and increase stakeholders’ trust, issuers should provide meaningful disclosure on culture and refrain from boilerplate language (e.g. a generic description of the overall corporate governance approach) that fails to properly connect corporate culture to their long-term goals.
In their disclosure on corporate culture, issuers should cover the following:
- Description of desired corporate culture, referencing and linking this to the issuer’s purpose, values and long-term operational, regulatory and reporting objectives.
- Communication of desired corporate culture: the measures in place to ensure that the desired culture is understood within the company (e.g. through regular training, code of conduct etc.) and communicated to stakeholders via effective channels.
- Implementation of desired corporate culture: the commitment of suitable and sufficient resources to support successful implementation (e.g. trained human resources, effective financial (e.g. remuneration) and non-financial incentives).
- Evaluation of implementation of desired corporate culture: the measures used to assess and monitor the adoption of culture and its impact on the company’s performance (e.g. by reference to key performance indicators (e.g. revenue growth, profit margins, return on equity, market share) and non-financial indicators (e.g. staff turnover rate, complaints, employee survey results, code of conduct and regulatory breaches). The disclosure should cover how misalignment or deviations (e.g. staff misconduct) are identified and dealt with.
- Accountability: how the board and management are held accountable for their actions.