Pacesetter Research: Senior Leaders and Managers Now Accountable for Corporate Culture Management?
Responsibility for corporate culture now extends beyond the CEO; senior leaders are finding themselves having to manage culture, leaving some baffled
November 14, 2023 at 02:40 PM
6 minute read
For centuries, going back to Richard Arkwright's first factory in 1760s England, most employees worked in company offices, and corporate culture developed organically, defined only by momentary fiat or need. Much of corporate culture stemmed from impromptu brainstorming sessions, coffee breaks, lunchroom lunches, happy hour, etc. Of course, there were other business leaders who better understood the impact culture has on employees and overall business and were intentional and strategic in the corporate culture that was created. Investopedia defines company culture or corporate culture as the beliefs and behaviors that determine how a company's employees and management should interact and perform. Regardless of the approach, corporate culture is largely recognized as a business element that business leaders, often the CEO, are responsible for implementing, diffusing, and managing throughout the organization.
However, over time, accountability for managing corporate culture began to creep into senior leaders' and managers' lists of roles and responsibilities. Arguably, after the 1990s recession and after a series of corporate financial scandals that ruined businesses such as WorldCom and Enron, and the millions of people who had invested in them, the implementation of the Sarbanes-Oxley Act (SOX) was a critical and necessary response to protect investors, customers, employees, and overall business livelihood. SOX imposed demands on public companies for effective internal controls over financial reporting and established penalties for corporate executives and boards that are found to mismanage or tamper with a corporation's financial reports to mislead investors. This regulatory change aimed to enhance transparency, accountability, and ethical behavior, which in turn had a fundamental impact on corporate culture. Private companies have also adopted this growing professionalization of governance and reporting standards in the corporate world for enhanced performance management.
Then, the 2008 financial crisis prompted a series of regulatory changes that aimed to address the weaknesses and failures in the financial system. The Dodd-Frank Wall Street Reform and Consumer Protection Act contains various regulations in response to financial industry behavior that led to the financial crisis of 2007–2008. While the regulatory changes imposed by the Dodd-Frank and Consumer Protection Act are primarily aimed at the financial industry, the reform has broader implications for other sectors as well. For example, it introduced regulations for over-the-counter derivatives market, which impacted all organizations using derivatives. The Act also established the SEC Office of Credit Ratings to ensure that credit rating agencies provide meaningful and reliable credit ratings of the businesses, municipalities, and other entities they evaluate, impacting many companies across all industries. An increased regulatory environment, again, placed a greater emphasis on risk management, governance, transparency, and ethical behavior, which indirectly impacted corporate culture. Some organizations had to look deeply at their corporate culture and determine if their behaviors aligned with the new regulations. And if not, some organizations had to develop a new culture that did. Developing a new culture is often complex, given culture is impacted by several elements such as company mission and values, organizational structure, compensation structure, workplace strategy, and recruiting and retention policies, to name a few. Organizations are also increasingly facing social pressure from stakeholders about ESG initiatives that impact culture – - all these complexities leaving senior leadership in disarray.
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