4 | ‘Corporate Values’: everyone has them, but what do we do with them?
Companies are struggling to convert Corporate Values into desired behavior
Although a vast majority of listed companies include their ‘corporate values’ in the annual report, an explanation of how these corporate values are embedded in the organization is fairly limited in most cases.
Written by Michel du Bois, Manager Regulatory Compliance and Denise Valkering, Senior Consultant Governance & Strategic Risk
The revised Corporate Governance Code, one year later
This blog is part of Deloitte’s ‘revised Corporate Governance Code, one year later’ series. The blogs address how Dutch listed companies account for their application of the 2016 Corporate Governance Code in their annual report. Culture and corporate values are newly introduced topics in the 2016 Code and while many companies claim that they integrate their corporate values into the organization, they do not disclose on how the underlying norms, values and ambitions are really embedded into daily practice.
How to account for culture?
In its latest revision the Dutch Corporate Governance Code introduced culture, measured through corporate value as an explicit responsibility of the management board. Annual reporting over 2017 activities should now include accountability on your corporate values and how these are embedded in your organization1. Deloitte’s benchmark study showed that as much as 88% of Dutch listed companies mentions corporate values in the annual report, but only a small group (32%) links these values to the long term strategy of the organization. Looking at what these companies report as their corporate values there is a certain level of overlap: the top 3 corporate values include integrity, collaboration and customers. All being mentioned by more than 20% of companies.
Corporate values, and corporate culture, are aimed at stimulating the right behavior within the organization. Such behavior needs more than just defining corporate values and reporting them in your annual report. They should be embedded in the day-to-day practices, but how can you really inspire people to act in line with the values?
How are corporate values being embedded?
Embedding these values into the organization can be a challenge and is perhaps due to this challenge, also hardly accounted for in annual reports. Even though 78% of studied companies indicate that corporate values are embedded in the organization, they provide limited insights into how this is achieved. Methods to integrate corporate values vary a lot and their effectiveness is difficult to demonstrate. For instance, many only indicate that (someone) within the Management board or Supervisory board is responsible for the matter, but do not show how the values are actually brought to life within the organization. Companies that do describe their method most often use the right tone at the top, periodic training and communication on the values, or ensuring that corporate values are part of onboarding and assessment interviews.
In our experience communication and training, the right exemplary behavior and above all; the translation of values into specific, achievable desired behavior within all layers and functions of the organization is crucial. This ensures customers, suppliers and other stakeholders are able to trust that all employees will act in the spirit of those values. Below are some practical tips to embed your corporate values and stimulate the desired behavior:
- Clearly defining corporate values – Whether the corporate values are set in a few keywords, or in more concrete statements is irrelevant. What matters is that they are are recognizable for all employees, regardless of position, role or seniority. Language and scope should be clear, but also the reason why these (and not other) norms, values and ambitions should be pursued.
- Communication and training – Thorough communication and (awareness) training can ensure that desired behavior is no longer seen as an obligation imposed by the management. It becomes something that you wish to preserve and carry out, every day. Behavior that makes you a proud employee. Key in communication is repetition: pass on corporate values to employees right from the beginning and to bring to attention again in due course.
- Exemplary behavior - By showing the right tone at the top, the management can clearly show what the corporate values entail and how they are linked to the overall strategy and long term vision of the company. This has a positive effect on the entire organizational culture. For larger organizations, with multiple management layers, establishing the right tone at the middle is at least as important. The middle management is closer to employees in the workplace and is therefore more visible to them. It is therefore essential that they demonstrate to be familiar with the corporate values as well, actively promoting the values and encourage their direct employees to pursue the same.
1 Principe 2.5.4 Verantwoording over cultuur. I) de waarden en de wijze waarop deze worden ingebed in de vennootschap en de met haar verbonden onderneming; en ii) de werking en naleving van de gedragscode.
‘The revised Corporate Governance Code, one year later’ series
This blog is part of a weekly series of blogs on the results of Deloitte’s benchmark study, examining annual reports of Dutch listed companies to assess how implementation of the 2016 Dutch Corporate Governance is accounted for in its first year. This benchmark study included the annual reports of 68 Dutch listed entities.
As the Code is principle based, we know from our own experience and those of our clients that applying it to your organization can be challenge. Through this benchmark and this series of blogs we provide insights into implementation of some of the key elements in the Code. Interested to see how Dutch listed companies deal with Long term value creation?
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Would you like to know more about how Deloitte can help your organization in setting up your corporate values? Please don’t hesitate to contact Tjeerd Wassenaar, Partner at Deloitte Risk Advisory. Tjeerd specializes in Corporate Values and Business Ethics and leads a team of experts in this field including the author of this blog.