Not Measuring Your Culture Yet? Your Board of Directors May Wonder Why
Every year, i4cp surveys its community of senior HR executives to identify what they believe leaders should be prepared for in the coming year. For 2024, the four most important topics on the minds of these leaders were:
- High-performance organizations stepping up HR’s involvement in AI strategy;
- Forward-looking organizations creating future-of-work leadership roles;
- Culture measures—both quantitative and qualitative—which are now expected; and
- Macro pressures continuing to drive workforce divisiveness and challenge HR.
As part of a new series on corporate culture, we are digging into the third priority topic: Culture measures—both quantitative and qualitative—which are now expected.
Any leader who regularly interacts with their board of directors has noticed the transformation in corporate board rooms over the last five years. Boards are setting higher expectations for themselves, their members, and are expanding the scope of their responsibility to provide better governance, reduce risk, and increase shareholder returns.
One area that has come into increasing focus for boards is corporate culture. Culture has long been viewed as a soft, intangible asset that could not be measured and had little impact on shareholder returns. This is no longer the case. Boards and organizations that provide guidance for board governance have made a significant shift in their position on culture.
In its report Culture as a Corporate Asset, The National Association of Corporate Directors (NACD) stated: “While it [culture] is often perceived as a soft issue, it is actually a hard issue—both in the sense of having concrete impact, and in the sense of being difficult to assess.”
They then guide boards to “… set the expectation with management that regular assessments of culture will include qualitative and quantitative information and incorporate data from sources outside the organization.”
In i4cp’s report, Measuring and Managing The New Corporate Currency: Purpose, Culture, and Brand, Bob Herz, board member at Morgan Stanley and Fannie Mae, provides a board member’s perspective on the importance of measuring culture:
“The way I think about it—is our culture providing a competitive advantage? Is it enabling execution of our strategy? The flip side is risk, particularly risk related to conduct and risk in executing the business strategy. I think risk and strategy are the two sides of the coin—you must make sure the culture is both driving a can-do attitude of innovation and speed to market, while also providing guardrails to protect against potential downsides.”
The NACD is not alone in its recommendations about the importance of culture. The Chartered Institute of Internal Auditors report, Cultivating a healthy culture: Why internal audit and boards must take corporate culture more seriously in a post-Covid world asks the question that should be on every board member and executive’s mind.
“Are boards and internal audits focusing enough on corporate culture and are they taking it as seriously as they should? For many there has been strong progress, but for some the answer is no. It is clear from our research that not enough boards and internal audit functions are taking culture seriously, and now is the time for the profession to step up and do more. Urgent action is required to cultivate a healthy corporate culture to protect value, reputation, and long-term sustainability.”
If your board has not yet started asking the executive team about the state of the culture, they certainly will. Here are three steps you should take now to prepare to provide your board with the information they need to assess the health of the organization’s culture.
Step 1: Decide what and how to measure
Most companies’ leaders struggle with defining the metrics to measure and the method of measurement. A culture scorecard map is a perfect tool to help define what will be measured and how.
A culture scorecard map below allows organizations to do the following:
- Choose KPIs, measures, and metrics that align with business and HR needs;
- Identify data sources and reporting cadence;
- Display the culture measurement framework in an easy-to-use format so that all leaders understand what outcome each metric tracks, where the data comes from, and how well you are performing against internal targets and external benchmarks.
Step 2: Set targets and benchmarks
Think back to your last leadership team meeting—what did you spend the most time discussing? It’s likely the agenda covered financial and operational metrics, performance against quarterly and yearly targets, and strategies to address shortfalls or to capitalize on positive results.
In addition to increased board demand for culture data, requests for deeper human capital measures are rising. The Securities and Exchange Commission in the U.S. and other governing bodies around the world are seeking more people-related data from publicly traded organizations, and organizations need to be prepared to provide workforce analytics and demographics in the future.
Our research shows that in the not-too-distant future, a good portion of management time will focus on culture targets and benchmarks as well.
When setting benchmarks, we recommend a three-pronged approach:
- External benchmarks from research organizations like i4cp that allow you to compare your performance against similar organizations and those that are best in class;
- Legacy culture data to provide a baseline of how your culture performance is changing over time;
- Internal targets that are set at the start of the culture measurement journey and are based on legacy culture data and external benchmarks. Remember the old adage–what gets measured gets done.
Step 3: Share data and insights broadly and consistently
Think back to that aforementioned leadership team meeting. One of the reasons leadership teams have such efficient discussions about business performance is because they use shared financial terms everyone understands. In most organizations there is no equivalent shared language for culture. Without a shared language, data can be misunderstood, ignored, or interpreted incorrectly leading to confusion and poor decision making.
The culture scorecard as defined through the first two steps serves as the foundation for building that shared language around culture–but without a commitment to sharing data and insights from the scorecard broadly and consistently your scorecard will have little impact on the decisions that are made.
The key steps to effective culture scorecard distribution to influence decision making are:
- Include historical and benchmark data for all KPIs to provide internal and external comparisons;
- Highlight insights and implications from the data;
- Distribute scorecards on a consistent basis to all stakeholders to review. Quarterly distribution is most common;
- Communicate recommended actions to stakeholders.
i4cp’s report, 2024 Priorities & Predictions: C-Suite Perspectives From i4cp's Boards, which is based on an annual survey of nearly 200 members of i4cp’s executive boards, notes that culture measures–both quantitative and qualitative–will soon be routinely expected. The report concludes, “…boards and senior leadership teams…expect (and often require) hard measures of organizational culture. It is HR’s onus to define and produce measures that make tangible this powerful intangible asset.”
If culture measurement is not on your organization’s agenda for 2024, it should be. Whether your organization is beginning its culture measurement journey, or just needs to tighten up its existing measurement infrastructure, remember these three steps. Decide what and how you will measure, set targets and benchmarks, and share data and insights broadly and consistently.
Learn more about i4cp’s research-based approach to culture measurement used by MasterCard, Pax8, Healthpoint, and others in a virtual webinar for your leadership team.