Today’s CEOs are tracking a broader array of assets than ever before to determine the value of their companies. It used to be that leaders typically looked at their buildings, land, inventory, and cash to estimate the worth of their organizations, but many C-suite execs are seeing the positive bottom-line effects of assets, such as brand value, customer data, and the almighty company culture.
In fact, the market value of intangibles in the S&P 500 currently accounted for 90 percent of the index’s total assets as of 2020. In light of how the intangibles have earned greater status within the bottom line, what does this mean for the company’s leadership? Should culture be a growing boardroom concern?
Having spent my fair share of time in boardrooms—both as an executive and as an independent board member—it’s been interesting to observe how the conversations have evolved over the years. During my time as CEO of Prologis, our organization’s culture was very important to me, and I think we had a stable culture despite the dire financial position we were in when I took the job. I knew that culture started from the top and that it was important for me to model the values we asked of our employees. So I put a lot of pressure on myself to live it and encourage others to do so.
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But frankly, we weren’t as intentional about it as we could have been. Don’t get me wrong. We implemented internal programs to foster a healthy culture, we constantly encouraged our employees to speak up, we created purposeful activities for our employees to rally around, and we surveyed our people annually, which told us we were doing the right things. But we were in a financial crisis and spent much of our time working on a way out of it. So we didn’t spend a lot of time thinking about how we could take our culture to the next level or, for that matter, how to measure it more accurately or comprehensively.
And we rarely talked to our board about it. So was it a priority? Yes. Could we have spent more time trying to do it better? Absolutely.
I once was asked, “Now that you are on the other side of the board table as a director and audit chair, how do you view corporate culture now and what is your take on the board’s role in helping companies establish and maintain winning, ethical cultures?” Here were a few of my thoughts:
Boards can play an important role in helping their companies build strong cultures, mainly because management teams respond to accountability. So what gets talked about and observed gets addressed. Because it’s an intangible, it’s not as easy as looking at earnings or EBITDA growth, but boards can assess culture three ways: through questions, observations, and interactions.
Board members can ask questions, such as:
- Are we being intentional about culture, and if so, how?
- How does management recommend we get a better feel for it?
- How do cultural priorities and messaging get driven throughout the organization?
- What is culturally important to us, and how do we make sure people in the company are recognizing it?
- What are our core values and how do we reinforce them?
Board members can continue this line of questions with their observations:
- Does the CEO and the rest of their team “walk the walk” and “talk the talk?”
- Does someone conduct 360-degree evaluations of the management team, and does the compensation committee review those evaluations?
- What are subordinates and peers saying about senior management and how they’re facilitating a healthy culture?
And finally, board members can interact with employees in an unfiltered way and listen to what they hear:
- Are board members encouraged to conduct independent “field trips” to interact with frontline employees at work?
- Is the C-suite organizing ways for board members to engage with employees so the board understands the company culture better? For example, with one board I serve on, the company has arranged for us to meet with employees who work in key positions. Thanks to Zoom, we can interact with employees throughout the world from our homes in between regularly scheduled board meetings. This interaction allows us to deepen our understanding of how the company works and how employees feel about the pulse of the company.
Intangible company assets, like culture and brand value, have become an essential mix to measure the leadership’s performance. As board members, we cannot directly drive culture per se, but we sure can create an environment of accountability that, by its nature, becomes a priority for management. Asking questions, making observations, and having interactions can be valuable exercises for board members as they seek to maximize their ability to serve their companies in the best way possible.
