Annual Corporate Governance & Executive Compensation Survey

2018 Corporate Governance Survey

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THE IMPORTANCE OF ADDING CULTURE TO THE BOARD AGENDA Doreen E. Lilienfeld and Gillian Emmett Moldowan Shearman & Sterling LLP 4 | The Importance of Adding Culture to the Board Agenda THE IMPORTANCE OF ADDING CULTURE TO THE BOARD AGENDA Doreen E. Lilienfeld and Gillian Emmett Moldowan On October 3, 2017, the National Association of Corporate Directors (NACD) published the NACD Blue Ribbon Commission Report on Culture as a Corporate Asset, affirmatively advocating that corporate culture be a part of board room agendas and not just left to management as a soft human resource issue. A company's culture can have a direct influence on its reputation and, often, performance. In the wake of corporate scandals ranging from sexual misconduct by top executives to incentive plans that entice employees to behave in their own self-interest, leading to CEO shake-ups, government investigations, falling stock prices and consumer backlash, a board should consider culture as part of its company's risk profile as seriously as it considers its company's financial and competitive challenges. A COMPANY'S CULTURE CAN HAVE DIRECT INFLUENCE ON ITS REPUTATION AND, OFTEN, PERFORMANCE. The report by NACD, the world's largest association of corporate directors, brings to the forefront what many management leaders already know — corporate culture matters. The absence of a healthy corporate culture can be a significant liability. Culture is linked to business strategy, selection and turnover of management, reputation and employees and customer satisfaction. In 2015, researchers from Columbia Business School and the Duke Fuqua School of Business released a report after surveying more than 1,400 North American CEOs and CFOs about corporate culture. Overwhelmingly, the respondents agreed that "leadership needs to spend more time to develop the culture." But what are the actionable steps that leadership, both directors and executives, can take to tackle this key issue? High performers allowed to operate outside established policies and are rewarded for conduct inconsistent with stated values or code of conduct Exceptions to company policies are frequently granted in order to meet performance targets Excessive focus on consensus — "going along to get along" Promotions or recognition tied to relationships rather than skills and performance Criticism of or challenges to existing practices or strategies are discouraged Sharing of bad news is discouraged CULTURE RED FLAGS Focus on financial performance with little regard for how results are achieved INSIGHTS

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