The plain text version of Sir Win Bischoff's speech can be found below.
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Sir Win Bischoff
Chairman, Financial Reporting Council
Chairmen’s Forum Dinner on ‘Culture and Values’
Tuesday 4 October
Good evening and thank you for allowing me to speak before dinner is served. I will keep my introductory remarks brief so that you do not stay hungry too long!
At the outset I want to thank Richard Sermon and the Chairman’s Forum and CIMA not only for hosting this dinner, but for being such important factors in the establishment of our Culture Coalition which I will refer to in these remarks. Moreover, the City Values Forum which Richard chairs has made its own highly valuable contribution through its report on culture.
Last week the Financial Reporting Council held its annual conference at Mansion House. The theme was ‘Culture to Capital: Aligning Corporate Behaviour with Long-Term Performance’. The conference followed publication of our report in the summer on observations on corporate culture and the role of boards.
We decided to look into this issue because there has been growing public concern and distrust in the behaviours of some companies and some very public incidents of poor conduct. Rebuilding genuine confidence in business and creating long-term prosperity for all demands business to have a culture that lowers the risk of failure and achieves a wide range of positive outcomes including, importantly, serving the needs of wider society.
Looking into this issue is timely. It coincides with the new Government under Prime Minister Theresa May committing to plans for business reform. In the light of Brexit, restoring trust and building confidence in business and the corporate sector, is vital for our prosperity and wellbeing. The UK needs to remain a key centre for global investors, a place for companies to list and a leader in economic development.
For that we require a concerted effort to improve the integrity of business and its connectivity with society. Codes, including the UK’s Corporate Governance Code, put forward principles for best practice that make bad behaviour less likely to occur. However it is public reporting that makes it harder to conceal. By itself, a code does not prevent inappropriate behaviour, strategies or decisions. Only the people, specifically the leaders within a business, can do that. The Prime Minister may well give an outline of her thoughts at the Conservative Party Conference tomorrow.
One of the conclusions of our report is the important role of the Board in establishing and delivering the right behaviours and importantly the right incentives. In doing so, the Board must be credible in the eyes of employees and stakeholders more generally. Employees are expected to display the right behaviour, and the Board should set the standards and observe that behaviour and critique it if necessary. Consequently the Board needs to take decisions that are consistent with the values and strategy it promotes. That means careful thought has to be given to how culture is measured and reported.
Of course it is true that corporate culture is intangible. But culture can be measured and much information is already available to do so. Health and safety reports, environmental assessments, customer satisfaction data, employee turnover, exit interviews, whistleblower incidents, conduct self-assessments and engagement surveys are all good examples. It is what you choose to measure and how you analyse and interpret it that is important. At the same time culture is company specific and there is no one–size–fits-all. The indicators selected for assessment should be tailored to each company’s circumstances.
Just one example from personal experience. I know Wells Fargo in the US well. It has long had a much admired customer-orientated culture, greatly respected by competitors, with spectacularly good results reflected in a strong share price, and the imprimatur of Warren Buffet, at one stage, owning close to 10 percent of its stock. It has been held up as a paragon of virtue amongst poorly behaving banks and financial institutions. But, as has been graphically shown in the last month a culture of looking after customers’ needs morphed, over time, into a culture of aggressive sales and pressurised demands on employees.
The result is a financially modest fine of US$185 million, but a huge loss in reputation, a loss in market value of over US$35 billion, (parenthetically almost the same as that of Barclays Plc), and the threat of a welter of lawsuits, in no way compensated by the substantial claw-back in compensation of John Stumpf, its chairman, and Carrie Tolstedt, its head of retail business. Like Volkswagen before it, an almost vertiginous fall from grace.
Our report was the result of working collaboratively in a Culture Coalition with CIMA (Chartered Institute of Management Accountants), City Values Forum, IIA (Chartered Institute of Internal Auditors), CIPD (Chartered Institute of Personnel and Development), and IBE (Institute of Business Ethics). Together we gathered insights from some of the UK’s foremost industry leaders and experts, some of them here at this dinner, to highlight observations designed to help boards and companies establish and embed their desired culture. The report has been strongly and broadly welcomed, interestingly not least by both executives and NEDs who are, so to say, at the coalface, confirming just how topical the subject has become.
I said earlier, there is no ‘one size fits all’ solution how to improve corporate culture. Every organisation and company is different, and people’s behaviours vary. So we need to promote a culture in our organisations that resonates with employees and other stakeholders important to us, as much as with the top management.
As custodian of the UK Corporate Governance Code, which will be 25 years old in 2017, we at the FRC are anxious to help.
The Code has been a force for good over the last quarter of a century and has been widely admired and copied internationally. Its ‘comply or explain’ approach enables companies to have flexibility how they govern their business. In this way it has been effective in promoting the better behaviours which the government and society, including ourselves, want to see.
So as I close, I simply want to stress that corporate culture and behaviour need to be acted upon and improved. The demand to do so will not go away. I, like most of you, am fortunate to be part of an organisation where staff are encouraged to have their say without concerns about repercussions, where the purpose of the company is well understood, and where values are well-established. But there have been cases, highlighted in the media and pressed upon by politicians, where this has not been so and where a “blame culture” prevails and where passing the buck instead of being accountable and responsible is the norm. When poor corporate culture and behaviour spreads, the morale of talented staff begins to wither until eventually they leave. This is more prevalent, and therefore concerning, today amongst what we call “millennials” who have different expectations of their employer organisations than perhaps my generation did.
Listening, and being thoughtful, at the very least, about employees’ and customers’ views is the first step to creating a good corporate culture. This does not imply acceding to every request or complaint, but the very point of providing an outlet gives staff and customers confidence.
A good corporate culture which, by its own narrative is long-term, is a truly distinguishing driver and feature of long-term business success.
Thank you for listening and enjoy the rest of the evening.