Corporate Governance Is Forgetting About Company Culture

Published: 19 Jun 2020

Most firms don’t adequately incorporate culture into corporate governance, according to new research from Rotterdam School of Management, Erasmus University (RSM).

Corporate codes of conduct are a practical corporate social responsibility (CSR) instrument commonly used to govern employee behavior and establish a socially responsible organizational culture, however according to the study many firms are not incorporating corporate culture into corporate governance efficiently.

The study on incorporation of corporate culture looked at 88 national codes. Five national codes (Brazil, Jordan, The Netherlands, New Zealand and the UK) were assessed as ‘best practice codes’, meaning these codes have the highest level of incorporation.

The results of this study indicated three remarkable findings. First, only advanced codes (highest level of incorporation) add employees as the third layer in the alignment of corporate culture in the organization.

Second, these codes describe norms as a layer of corporate culture. And, finally, only the five ‘best practice’ codes describe the boards’ involvement in defining, implementing and monitoring corporate culture. This latter one is significant because boards are expected to play an important role in defining, implementing and monitoring the culture of their organization.

According to Professor Muel Kaptein “We found it surprising that most studies on the content of codes still focus on its non-cultural elements. We wondered whether national codes worldwide incorporate corporate culture.

“Despite the fact that corporate culture is an important factor for corporate governance, the incorporation of corporate culture in codes of conduct is not very common.”

The overall level of codes show that only a small percentage of the sample has an advanced score (5%). The majority of codes have no incorporation of alignment of corporate culture or board’s roles regarding corporate culture. Examples of the latter cluster are the national codes of the USA (2013), India (2009) and China (2001).

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