Organisational culture: Three ways to really set the tone from the top

Having spent the best part of the last year peering from behind the sofa at the outpouring of cultural and customer ugliness revealed by the Hayne Royal Commission, the past week has seen some cause for optimism for those that care about organisational culture and customer outcomes.

For years many directors and executives have spoken about “setting the tone from the top” and most have failed to deliver meaningful outcomes to substantiate their rhetoric. But in the last week the royal commission has heard three shining examples that could make real change not just for the financial services sector, but for all Australian businesses (and maybe even organisations outside of Australia).

Incentivise the long, not the short term
Macquarie chief executive, Nicholas Moore’s submission to the committee started to turn the tide. Macquarie Bank has largely been noticeable by its absence from the sensational stories and headlines that have followed the other banks since the royal commission began. Mr Moore shed light on the reason for this absence and the root cause appears to be startlingly simple.

Whereas other banks have had hundreds or thousands of incidents of customer miss-selling, Macquarie’s last internal audit apparently revealed just two infringements, both of which were immediately dealt with. Mr Moore believes the key factor behind this is that 80% of his profit share is deferred for seven years.

So he is personally incentivised to create a culture that delivers value that is judged in the longer-term. The trickle down impact of simply focussing the CEO on longer-term targets appears massive on the entire organisation’s decision-making, incentive models and culture.

The message is simple – incentivise CEOs to focus on the longer-term and this can impact everyone in the organisation.

Deliver value to all stakeholders, not just shareholders

Ken Henry, the chairman of National Australia Bank, provided an even higher order suggestion to address the root cause of the myopic focus on shareholder returns that blights most organisations. He suggests a rewrite of the Corporations Act to change the legal duties of directors from the delivery of ‘shareholder value’ to the delivery of ‘stakeholder value’, as is the case in many other countries around the world.

This change may appear entirely semantic to the uninitiated but those in the know believe the impact could be dramatic.

Since studying with the Australian Institute of Company Directors and taking time to understand the legal responsibilities of directors in Australia, I have come to the conclusion that the legislated emphasis on shareholder primacy is the root cause behind the low ceiling many organisations have around customer-centricity. It is hard/impossible for an organisation to follow through on customer-centred ambitions if they are constantly trying to squeeze value for shareholders. Not that the two are mutually exclusive, but the mindset of thinking of shareholder value makes it difficult (sometimes impossible) for an organisation to countenance that creating happier customers is a pathway to greater shareholder returns.

We all know the impact of incentives on behaviour (if you need reminding rewatch the first 6 months of submissions to the HRC), so if we incentivise the top people to deliver shareholder value, by golly they are going to put priority on it and implicitly (and explicitly) drive the organisation in this direction.

If a legislative reform is considered, it is essential that we get a really clear definition of stakeholder. The “Firms of Endearment” Spice Model is worthy of serious consideration. They define stakeholders as:

  • Society
  • Partners
  • Investors
  • Customers
  • Employees

By placing equal emphasis on each of these stakeholder groups organisations make better decisions that deliver long term value to all stakeholders.

My assumption is that legislative change of the type Mr Henry suggests could take significant time, but I wonder if there is anything to stop Boards starting to redefine this proactively. After all the case made by “Firms of Endearment” is that it not only moral and cultural sense, but that it also delivers greater value to all stakeholders (including shareholders).

Build empathy as a strategic tool

Finally, Ken Henry also spoke of the importance of building empathy as a strategic tool. This devilishly simply concept has massive repercussions, but can be hard for an organisation to maintain if it isn’t supported by an overarching empathy program.

Typically decision-makers are too distanced from customers to ever be able to have any real empathy and understanding for them and their needs. Organisations have tried to solve this with blunt tools, such as personas that can reduce customers and their needs to little more than stereotypes that can quickly become forgotten or dismissed by senior stakeholders.

Closing the gap between customers and decision-makers helps build empathy. But the challenge can often be time. Our most senior decision-makers aren’t exactly time rich, so making time to read customer insights reports, spend time at customer touchpoints or any other of the countless ways in which true lasting empathy can be built is somewhat stymied. The typical reaction to this is that customer insight gets reduced to numbers, such as “NPS 6.2 up 0.1”. Although these metrics may be useful, they build zero empathy for customers. We have ended up with a better understanding of what is happening, but limited insight into why.

In much the same way as customer advocacy and satisfaction metrics have swept through businesses over the last 10 years and become part of the norm in most organisations, organisations need to consider empathy programs for their most senior staff. An empathy program is a series of regular, planned interactions between senior staff and customers. This can take many forms, for example at Meld Studios we have facilitated ‘speed-dating’ type meetings between executives and customers, created documentary films to enable executive to understand their customers, and planned, facilitated and managed ongoing interactions between decision-makers and customers in ways that make sense for the specific constraints of an organisation.

Please leave a comment, or come visit our website to find out more about the work we are doing around organisation design and empathy programs.