Tone from the top

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“At Peakstone Global we have seen significant shifts in the expectations of board conduct and values over time, especially in recent years. Examples range from the outcry over Rio Tinto’s destruction of the Juukan Gorge caves ancient artworks, to fossil fuel companies’ environmental responses and the ethical responses of certain financial services companies. It is clear, more is expected from boards than ever before.”

Co-authored by Peter Kronborg, Executive Chair and Dr Melinda Muth, Practice Director, Peakstone Global – as part of Board Benchmarking’s latest report ‘Benchmarking board performance: 500 board reviews later‘.

Directors are now expected to exhibit heightened professionalism and possess a diverse set of soft skills beyond their traditional responsibilities. Technical skills and legal compliance are necessary but not sufficient. Fair, ethical, and responsive behaviour from organisations is expected, starting with boards at the top.

This growing emphasis on boards’ behaviour, the tone at the top, can be attributed to several factors:

Stakeholder expectations

Stakeholders, including shareholders, customers, employees, suppliers, and community members are increasingly demanding transparency, social responsibility, and ethical behaviour from corporations. Directors are expected to lead the way by behaving with integrity and interpersonal sensitivity.

For example, Australia’s Banking Royal Commission placed a spotlight on the way customers were treated in the banking sector resulting in intense scrutiny of both executives and board members.

Reputation and brand value

In today’s hyperconnected world, brand damage can occur rapidly and have far-reaching consequences. Australia’s unfolding PwC story dramatically highlights this point. The brand damage to PwC and the Big 4 has been immense and the fallout is likely to continue for years. PwC has even been forced to cut ties with its substantial government consulting business and to sell it for only A$1!

Employee engagement and retention

Employees today seek more than just a pay-check, they want to work for organisations that align with their values.

A company with a strong ethical culture is more likely to attract and retain top talent. Directors who prioritise strong standards for behaviour and positive relationships create an environment where employees can feel valued, respected and motivated.

Pleasingly, 85% agree or strongly agree ‘the board sets a high tone from the top in relation to organisation’s culture, ethics and integrity’.

Long term sustainability and investor confidence

Investors are increasingly considering environmental, social and governance factors (ESG) when making investment decisions. They look for companies that demonstrate ethical practices and manage risks effectively.

BlackRock, one of the world’s largest asset management firms, as well as other leading pension/superannuation funds have explicitly stated that they expect directors to understand and address these issues. They clearly expect positive and ethical engagement with society, people and their concerns.

Transparency and reporting

Boards are accountable for ensuring transparency and accurate reporting. This includes providing regular honest updates on performance, disclosing relevant information to stakeholders, and addressing any breaches or concerns promptly.

Directors need empathy and strong communication skills to handle issues properly. The complaints about Optus and their communication with customers after a huge data breach illustrates this point.

In summary, Boards are increasingly seen as the custodians of organisation culture and ethics. They are expected to create a positive tone from the top that permeates the entire organisation. As companies face heightened scrutiny from consumers, investors, and regulators, we believe fostering clear, honest communication and cultivating a positive work environment is not only an effective but a crucial governance practice.

At Peakstone Global, we believe today’s directors and boards must possess a range of soft skills to effectively navigate the complex business challenges they face. Emotional intelligence, plus quality, open, probing constructive conversations, empathy and authentic stakeholder engagement are all important parts of the director toolkit.

To that end, our Practice Director, Dr Melinda Muth, has written a book, ‘Setting the Tone from the Top: how leaders’ conversations shape a positive culture’, full of practical actions that directors can take to develop these skills.

We recommend that all directors and boards deeply consider the need for greater focus on culture, ethics, values, communications and behaviours when setting the tone from the top.

Today’s directors and boards must possess a range of soft skills to effectively navigate the complex business challenges they face.

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