Strategies and reporting insights of embedding corporate culture: UK Corporate Governance Code 2024

Published: 26 November 2024

7 minute read

In this In Conversation podcast episode, Adam Mohamed, Head of Communications, explores corporate culture with Rafal Budzinski, Senior Policy Associate, discussing how organisations can effectively embed and report on their cultural principles with the UK Corporate Governance Code 2024.

You can also listen on Apple podcasts or Spotify.

Transcript

0:12
Hello, and welcome to this FRC in Conversation podcast.

0:17
Today we're talking about the Corporate Governance Code as this is a new series ahead of the revised corporate Governance code taking effect in the new year, looking at the different aspects within the code.

0:28
And today, we're lucky enough to be talking about embedding culture with the FRC's resident culture expert, our Senior policy Associate, Rafal Budzinski.

0:36
So welcome, Rafal.

0:37
Thank you, Adam.

0:38
So like I said, culture, big topic

0:41
Before we get into all of the questions, Rafal, would you be able to give us a little bit of background or insight as to how culture and the corporate governance code fit together at the FRC?

0:50
Sure.

0:50
When talking about Fr CS approach to culture, we should look at our 2016 report on corporate culture and role of boards.

0:58
It was our signature report on culture where we've engaged multiple CEOs and chairs and industry experts and the report was very well received and really set our thinking in this area and also informed our thinking for 2018 code.

1:16
As a result, we principles and provisions that are linked to culture and look at things such as conduct, alignment of purpose, values, culture and strategy and assessment and monitoring promotions that culture within boardroom and across the organisation and alignment with incentives and rewards.

1:35
So since then we've been monitoring culture reporting and including our findings in our annual report on copper guns reporting.

1:44
And what we'll be noticing is that progress on culture reporting has not been as quick as perhaps in other areas.

1:50
Therefore in 2021, we did a follow up report to the 2016 report, again engaging industry experts, chairs and CEO's and produced creating positive culture opportunities and challenges report as well as the number of podcasts and we have a page on our website we called Culture Hub.

2:08
And then with all this information, all these findings, we decided to include in the consultation paper in 2023 an addition to provision 2.

2:17
And this has been very well received with minor, minor tweaks.

2:22
With now provision 2 to ask boards to also assess and monitor how to decide culture has been embedded.

2:28
So a lot, there's a lot that goes into actually our relationship with corporate culture at the FRC.

2:34
I guess take it a little step back then.

2:36
Why is it that the FRC is so focused on corporate culture? As a regulator,

2:40
We see the culture driving transparency and trust and therefore better reporting, which then improves access to capital and talent for companies and within the competitiveness and essentially helping to run business more sustainably.

2:57
And as we know, sustainable businesses underpin our economy and society and also believe that, as Peter Drucker says, culture, eats strategy for breakfast, which we agree with.

3:07
However, culture without the strategy will bare no fruits, which is why in in principle B, we talk about the alignment of this culture, values and strategy.

3:17
I think it's worth also adding that culture and governance embedded in the FRC core values.

3:23
And lastly, in 2016, we've made a commitment to keep the dialogue on culture, working with other organisations, keeping the debate and keep praising the standards on culture essentially. Brilliant.

3:35
I love that phrase culture eats strategy for breakfast.

3:38
And I think I'm going to be embedding it in my team and on the work that we do.

3:41
But really good to hear.

3:42
And so I guess moving back to reporting, and this is, like you say, been a theme since 2016.

3:49
I imagine the reporting has evolved over time as well.

3:52
So maybe could you talk a little bit to that. Sure evolution as you say is there, but to demonstrate how it actually developed.

4:01
I would take you back a little bit to 2015 when we made first announcement about doing this report.

4:07
That year, 48% of companies were disclosing values, 35% were this one the purpose and 14% were talking about rural boards in overseeing culture.

4:18
Now when you look at the data from year after we've published our landmark culture report in 2017, already 74% companies were disclosing values, 66%, disclosing purpose and 71% talking about oversight of culture.

4:34
So you can see a really big increase only with that first step they've taken.

4:39
Now our latest report on corporate governance reporting, which is coming out just now, as you will see, it's put in culture keeps improving.

4:47
However, we're still seeing quite a few companies is referring to box ticking statements, disclosure of policies over actions and outcomes and joint reporting unfortunately still often dominates.

4:59
On a more positive note, companies increasingly reporting on positive value that culture brings to the business.

5:06
And I have a couple of quotes I really like that I spotted in this year’s reports that culture lies in the heart of robust and effective governance.

5:15
And another report said that culture drives organisational success and impact.

5:19
Anyway, just words, but behind this is the reporting.

5:23
Interestingly, some companies if they start to quantify to what extent culture qualified to the business, though it's, it's in very early stages and I'll be careful of this.

5:31
I imagine that's a very hard thing to quantify exactly, exactly.

5:35
Just to narrow it down to one factor.

5:37
We've noticed companies extending their culture reporting to talk about impacting clients and suppliers, which is great.

5:44
And there's a role for investors in here.

5:47
We've seen companies referring to the increased interest, which in turn pushed them to align the culture reporting, the company's business model, strategy and leadership behaviour.

5:58
I mean it really sounds like it's all going in the right direction.

6:01
You mentioned the box ticking statements and kind of I guess you could potentially see boilerplate reporting as you do with other areas of the code start to come through.

6:10
But this is something that we're kind of seeing improvements with more generally, I guess as time goes on.

6:15
I think let's talk about this second kind of culture related addition to the code and which is embedding and why this is coming through now, because as you say, I mean this isn't new.

6:26
So why is embedding coming through now?

6:27
100% it is not new.

6:30
In fact, the 2016 report makes it clear that what boards are not responsible for culture, there's a role for them in supporting the efforts of the chief executive by the values and reinforced design behaviours and culture.

6:43
And there's also interestingly, at the time it was already noted that some companies have been feeling frustrated with shareholders who are willing to spend time discussing how embedding a strong culture contributes to the long term success.

6:56
So I'm not saying that this is the main factor, but it could have contributed why you've been seeing generally poor reporting on bedding throughout those years and which is one of the reasons we picked it up in the 2021 report.

7:08
So on culture since then we've been noticing steady increase in reporting, just positive.

7:15
And yes, so when we got to the reviewing of the code, we thought was let's keep the momentum.

7:20
And this is where we introduced those relatively small edit to provision 2.

7:24
But it's closing the loop when you look at culture review process.

7:28
Yeah.

7:29
And you've already mentioned some quotes from previous reporting which were really nice.

7:33
And I guess you'd be the best person then to ask what have been some of the better examples of reporting you've seen?

7:39
And do you have any the insights on, on how boards can report on corporate culture meaningfully When it comes to embedding culture, there's two elements here.

7:49
One is company reporting.

7:50
And as I said, we've seen increase in companies talking about embedding of culture, though inside we haven't really observed in much depth 2023 of review of corporate governance reporting.

8:03
So the last year's one, we've included some examples how companies reporting on embedding.

8:07
So if someone would like to have a look how this can be done, I refer to that document companies going to go out communication, performance frameworks, resources, timelines.

8:16
So, some good stuff there.

8:17
But the second element is board reporting on embedding and this is rare, perhaps because big chunk of it's already reported in the strategic report.

8:29
Though to avoid repetitions we don't really observe it so much.

8:32
But already this year we've seen some companies talking about the new reporting requirement after under provision 2 and even saying that or even declaring support for their boards.

8:44
So then they are ready to report on this when the time comes.

8:47
So this is very positive, positive development.

8:51
And just to say we're not expecting gold standard reporting straight away.

8:55
It is about evolution, not revolution.

8:58
And what may help is the new principle C, which is focused on outcome based reporting.

9:03
Therefore, we should be seeing less boilerplate statements and disclosure policies and more balanced assessment of the journey company in the boards embark on.

9:13
Brilliant.

9:13
And like you say that there are reasons we might not be seeing it so much board reporting, but that doesn't mean the boards aren't thinking about this.

9:19
And what questions do you think the boards are asking themselves or maybe should be or could be asking themselves when thinking about embedding culture?

9:27
Just to be super clear,

9:29
We're not mandating a single approach to either embedding or reporting culture.

9:34
Culture is unique and therefore requires unique perspectives and unique approaches.

9:39
However, there are certain principles of good governance we would draw attention to and those are transparency, trust, integrity and engagement.

9:49
And therefore both should take time to they need to think about the new requirement on the provision to and just to think about it, what's appropriate as this may differ between different businesses, industries, business models.

10:04
But the things they may wish to ask themselves is what support internally and externally they have, and they need what information gaps there are, perhaps what information will be useful for stakeholders and essentially what story they're trying to tell.

10:18
And this is not an exhaustive list just, but it's a good starting point, I would say.

10:22
Yeah, I think it's really important.

10:23
The point you make about it not being a single approach to culture is really important.

10:27
And something that Richard Moriarty, our CEO, has said as we've been talking about the corporate governance code to the consultation and the launch earlier on this year, is he wants to see boards being brave to talk about, you know, principles and provisions, what they mean to them.

10:43
I suppose to that point, getting away from the boilerplate reporting, you know, what is material to you?

10:48
What, what does this mean for your organisation?

10:51
Because that's the to use a phrase that's used too often, and I think decision useful information for best or the information that the recipients of this reporting.

11:00
Yes, 100%.

11:02
And as I said already, this is a comply or explain approach as it is to all provisions.

11:09
So we want boards to really think about it carefully rather than jumping and just providing any information just to take the box.

11:19
Fantastic.

11:19
I mean, this has been really interesting, and a bit of a whistle stop tour through culture and how it fits into the corporate governance code.

11:26
Is there anything or anywhere you would point people to refer if they wanted to dive a little bit more into culture within the corporate governance code?

11:34
Well, there's quite a lot that said on our website, so culture hub on, on the FRC page there we've included all our reports, podcasts, other case studies we've produced over the past years.

11:49
Of course, our corporate governance guidance came out last year, but it's in support of the 2024 code with quite a bit of information there.

11:56
Fantastic.

11:57
Well, all this has to say is thank you very much for joining us.

12:00
For those listening, stay tuned.

12:02
As I said, this is a series looking into all of the aspects of the corporate governance code.

12:06
So there's much more to come, but thank you, Rafal, and I'll speak to you very soon.

12:10
Thank you.