Auditors of UK companies have recently warned of an organisational culture crisis as businesses fully emerge from the pandemic. Over the years, we have spoken a lot about the importance of workplace culture – often seeing the consequences of poor workplace cultures manifest themselves in legal and business risks that us employment lawyers advise on. What has changed as we emerge from the pandemic to make the present a time for an organisational culture crisis?
- No one can ignore the shift in the balance of power that the circumstances of the pandemic have brought to the workplace. In Larry King’s words, the pandemic has “already had profound effects on political, economic, and social trends” 1. As employers look to incorporate hybrid working models into their business to some degree (whether partially, fully, or not at all), employees are reconsidering their roles and prioritising factors beyond just pay and reward – impacting culture in a way employers might not have foreseen pre-pandemic. Further, employers are often not ready for these non-financial demands.
- With talk of the great resignation, attraction and retention of talent is more important than ever for many organisations. To win the war for talent, business leaders need to look at their culture and understand the changing societal priorities and expectations of their existing and future workforces. What might have worked two years ago may not be what today’s workforce is looking for and wanting from their employer.
- The benefits of diversity in business are well-versed and tone from the top is important. But a persistent lack of diversity at the top often leads to group think and optimism bias – both inhibitors of the ability to understand collective views of the workforce and respond well to activism and cultural change. Whilst this is not something new coming out of the pandemic, the focus on diversity and inclusion as part of a healthy culture feels more important now than ever given the evolving societal expectations of the workforce, consumers and investors.
- Workplace investigations resulting from poor cultures and workplace behaviours can hit the headlines, impact share price, trigger investor activism, and damage talent attraction and retention. And yet there have been many high-profile company failings and collapses in recent months and years which have been linked to poor culture, suggesting lessons have not yet been learnt, or the corporate culture landscape has evolved faster than the mindsets of our business leaders in recent times.
“A series of company collapses linked to unhealthy cultures…have demonstrated why cultivating a healthy culture, underpinned by the right tone from the top, is fundamental to business success”
– Sir John Thompson, Chief Executive of the Financial Reporting Council 2.
- Emerging from the pandemic, mental health and wellbeing is in sharp focus. The mental toll of isolation from remote working during lockdowns has impacted many workers and not all managers have responded appropriately with empathy, care and compassion. Whilst work-life balance and the right to disconnect were concepts existing before the pandemic, post-pandemic they have a different meaning to the workforce. More responsibility lies on the shoulders of managers and leaders to lead by example and manage employee wellbeing – a skillset not all leaders are equipped with, but one which is paramount to fostering a healthy workplace culture.
If now is the era of a potential organisational culture crisis, is reform needed to drive change? Will this encourage a review and reform of the UK Corporate Governance Code to refocus priorities on culture again? And should directors be made more responsible and have more control for the culture of their organisations? The Code already makes clear that it is the board’s responsibility to promote, monitor and assess culture, so perhaps the need is for better reporting and compliance?
The Financial Reporting Council (FRC) has acknowledged that all elements of the organisation must come together to achieve a positive working culture – “The board should set the tone, middle managers given clear objectives to prioritise and enact the change, and the workforce be empowered to engage and speak up” 3. If these are the hallmarks of fostering a healthy workplace culture, the FRC may be right in its view that many companies in the UK are still struggling to prioritise culture throughout the organisation.
The FRC has noted that “global shocks and societal changes can also work as a prompt to reviewing or reprioritising culture”. So, as we emerge from the pandemic and businesses focus on their futures of work, it is important for business leaders to remember and learn from the pandemic that culture is not static – it evolves and should be constantly reviewed. Leaders should not wait for the next crisis to hit before they focus again on their culture, purpose and values.
For further information, please contact:
Nicola Rabson, Partner, Linklaters
simon.treacy@linklaters.com
