Ethics: four questions to assess company culture

When stepping onto a board or taking up a leadership role, how do you assess the ethics of the organisation? Here are the key questions you need to ask.

When starting a new board role, the first thing that May Tan looks at is the corporate culture. Tan sits on a number of boards, including Manulife Financial Corporation, Hang Lung and CLP Holdings, where she serves as Chair of the Audit and Risk Committee. 

“It's funny; when I started joining boards after I retired from my banking job (Tan was CEO of Standard Chartered in Hong Kong), everyone said: ‘it’s so easy, you just meet four times a year and get paid a relatively high salary for it.’ But in reality, it takes me a lot of time and effort. If I want to do something, I do it well.”

Corporate culture is not something that can be changed easily; it often takes time to evolve. “When you're making choices about the boards you might sit on, it is purely by reputation. You don't know until you're inside the organisation how things really are, but you should always do your homework as much as you can.”

There are certain questions you should ask when you put yourself forward for a potential board role, says Tan. “People say: ‘we're so busy trying to get business, we haven't got time for all this’. But my point is, if you have the right foundation, business will come. Your customers will respect you. Your employees will respect you and you're not firefighting every day. 

“Trust me, I've been in the business world for 40 years. Trying to rush ahead without getting the basics right means that you may be getting good revenue and profit, but it's not sustainable in the long term. Along the way, you're either not looking after your customers or you're breaching some regulations, so one day there'll be a day of reckoning.”

With this in mind, Tan suggests that anyone considering a board position should ask a few key questions to understand the culture they may be stepping into. Here are the four she always keeps front of mind:

1. Is there a code of conduct?

A code of conduct is something that a lot of companies have, but speak to any employee and you’re likely to find that they’ve never read it. These codes tend to be voluminous, Tan says. “People skip to the end and say they agree with it, but if you ask them what’s in it, they haven’t got a clue.”

Tan advises her companies to run annual quizzes and scenarios to test how well staff understand what’s expected of them. This kind of exercise can be considered non-essential, but Tan stresses its importance. “This is what determines decision making and accountability.” 

As Chair of the Audit and Risk Committee, Tan gets internal auditors to do a quick check on the organisation’s code of conduct to find out how many cases have been escalated. “I think that gives you a good pulse on the level of understanding of the corporate culture.”

2. Are ethical values reflected in KPIs? 

If you want leadership – and all staff – to act according to the code of conduct, it should be part of their KPIs and performance appraisal, says Tan. “These kinds of KPIs, I find, can really focus the mind of individuals.”

Say a leader has exceeded commercial targets but went about it in a way that runs slightly counter to the code of conduct. Deducting 10% of their remuneration package as a result would prove that the organisation is very serious about adhering to ethical standards. 

“Around 5-10% of performance expectations should relate to adhering to the code of conduct: setting the tone, following procedures, and responding appropriately in the case of any incidents,” says Tan. “It's one of those KPIs where you get no additional money if you meet it, but if you don't, you get money subtracted. It is a deterrent that I find works very effectively over time. People do realise the company is serious, and it's enough to focus one's behaviour and change.”

3. What’s the health and safety regime like?

The staff have got to have good, strong KPIs to help the company achieve its strategy. But, at the same time, the company has to look after its employees. Tan makes a point of looking at an organisation’s health and safety policy, alongside HR policies such as medical policies, annual, parental and compassionate leave, and working hours. “They give you a pretty good indication of whether the company is a caring one.”

4. Do you speak to employees and customers? 

One way of gauging a company’s ethical standing is through net promoter scores and employee surveys. Understanding the organisation’s brand reputation is a particular indicator of how effective it is at implementing its ethical policies. 

“It's an early indicator of a looming problem,” says Tan. “When things start trending down and you ask yourself why has the brand suffered in the last six months even though profits have gone up? Or why have the shares traded down? There's usually a good reason for it.”

Getting internal and external feedback on the direction of travel is crucial, she says. You might seemingly have a strong corporate culture, but changes in leadership, or even the economic environment, might suddenly necessitate some change. The first to notice this are often the employees and customers. 

“A business culture is not static; it should constantly evolve. As a board member, we are custodians of corporate culture. We need to be open and transparent, and we need to listen to the people working and interacting with that culture.”