In a speech to the Institute of British Ethics, Tracy Vegro, FRC executive director, strategy and resources division, said that codes put forward principles for best practice that make bad behaviour less likely to occur, and public reporting can make it harder to conceal such behaviour.

‘But, by itself, a code does not prevent inappropriate behaviour, strategies or decisions. Only people, particularly the leaders within a business, can do that.

‘In order to establish an appropriate governance structure, a board must define the purpose of the company and what type of behaviours it wishes to promote in order to deliver its business strategy.’

Vegro said this involves establishing a company-specific corporate culture, asking questions and making choices: how to align values and purpose to the company’s strategy; how to integrate new leaders into that culture, particularly at times of a merger or acquisition; how to maintain a healthy governance under pressure; how to decide whether different parts of the business should operate different cultures, and how actively to communicate values, purpose and behaviours in order for shareholders to engage in constructive discussion.

She went on to make the point that: ‘Once good culture is in place, however, the ongoing success of the company and its culture are rooted in diversity and succession planning. A board must determine the balance of skills, background and experience required by the senior executives and non-executive directors.’

The board should champion the benefits of a diverse workforce including senior management, and succession plans should recognise the value of recruiting talent from a wide pool. ‘A diverse board avoids the dangers of group think and encourages wide ranging ideas and views,’ she said.

The board also has a key role in establishing, not only the right behaviours but also the right incentives and disincentives, and in doing so must be seen as be credible in the eyes of employees and stakeholders.

‘Employees are expected to display the right behaviour, and the board should set the standards, observe that behaviour and critique it if necessary,’ Vegro said.

Vegro agreed that ‘corporate culture is intangible’, but argued that it can be measured, citing information available to do this, such as health and safety reports, environmental assessments, customer satisfaction data, employee turnover, exit interviews, whistleblower incidents, conduct self-assessments and engagement surveys.

‘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.

Tracy Vegro speech - Cultural Indicators and the Role of the Board – is here.

Report by Pat Sweet