Executive termination, remuneration, codes of conduct and risk – a checklist
11/07/2022
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We last focused on corporate culture and behaviours in 2019 when the financial services sector was responding to various external reviews and governance lapses.

Over the past 12 months there have been examples where CEO behaviour has become a lightning rod for boards and is no longer excused when balanced against corporate performance.

Each separation illustrates the challenges faced by boards and the different actions taken in response to behavioural issues.

A checklist follows building on our earlier observations around how to reflect on culture and behaviours:

  1. Replace the word “culture” with “behaviour”. Behaviours are observable, measurable, useful for identifying what is required, desirable versus what is unacceptable and undesirable.
  2. Broaden application from risk management to organisation purpose and strategy. Risky behaviours can then be managed within this more useful context for organisational performance and sustainability.
  3. Define organisation-wide behaviours necessary to underpin the purpose and strategy, including those associated with risk.
  4. Measure the frequency, direction and strength of these behaviours. Forget doing this with site visits (sampling error), employee engagement surveys (inaccurate given a significant proportion of employees do not trust the confidentiality of the process). Instead, utilise the existing huge data pools from emails, employee collaboration platforms, call centre transcripts, phone records, social media platforms etc. Behavioural scientists using sophisticated content analysis tools can comb through terabytes of data to provide most organisations nuanced and valid pictures of employee behaviour (aka “culture”), and map changes over time. Boards may need to turn up the heat on management that have not yet grasped the power of data and behavioural science technologies to master these issues.
  5. Ensure that whistle-blower reports are provided to the board and that the information is not filtered or sanitised. Complaints relating to the CEO or Exco should be provided to the Chairman immediately. It is the law to maintain whistleblower confidentiality.
  6. Do not delay taking action where issues emerge around the CEO or member of the Exco. The information may leak to the market and further erode the company culture and values.  Remember ‘the standard you walk past is the standard you condone’ (see Lieutenant-General David Morrison’s speech HERE).
  7. Not delaying action does not mean not undertaking due process. But ensure it is expedited.
  8. The action may include coaching or support to assist behaviour change. But always make sure of adequate support for employees who’s health is it at risk (those feeling bullied, harassed or accused).
  9. Document evidence and actions. Protect potential victims, the company and the board.
  10. Refer to precedents. Do not have dual standards that vary with employee power or performance.
  11. Take care when setting a precedent; does it support purpose, values and codes of conduct? Remuneration should reflect the extent that an individual has met behavioural expectations. Otherwise the dissonance between pay outcomes and known behaviours results in a reset of stakeholder expectations. Beware of executives terminating under questionable circumstances and receiving significant termination payments. It is important that extent and rationale of termination payments are consistent with the company’s code of conduct, and that this is understood by stakeholders.
  12. Communicate. A change of CEO for any reason is unsettling both externally and internally and will most certainly impact the share price.  Carefully consider how the circumstances will be communicated and whether major shareholders should be directly engaged.

Our 2019 newsletter regarding corporate risk culture can be found HERE.

© Guerdon Associates 2022
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