Australian boards broaden focus to embrace people & culture

A note from the series editor Didier Elzinga, Founder & CEO, Culture Amp.

In recent years, we’ve seen corporate boards evolve to reflect a growing understanding of the influence of company culture on business performance.

Nina Hendy explores the collective shift towards more People and Culture Board Committees in Australia’s top listed companies, and what is on the agenda at these forward thinking organizations.

Australia’s biggest public companies are putting a renewed focus on company culture, collectively broadening the remit of board committees tasked with the job of overseeing company culture.

Culture Amp’s latest research reveals that the large majority of Australian boards have shifted their thinking in favor of the importance of company culture.

The rise of People and Culture Committees

Remuneration and Nominations Committees have been around since the 1980s, when the impacts of economic climate on remuneration committee decisions and executive reward packages were more closely considered, according to Australia’s Productivity Commission.

Looking back, the 1980s was a period of time in corporate Australia when the complexities of remuneration packages demanded a degree of expert knowledge and specialised information. It was a period of time when companies agreed that if pay was to be linked to performance, it would be wise to establish a specific board committee, research from the Productivity Commission points out.

But the scope of these board committees has evolved over time, as companies realise and accept that company culture is what actually plays an increasingly important part in building successful organisations. The shift also signals an increasing acceptance that better cultural outcomes in the workplace deliver better financial results on the Australian Stock Exchange (ASX).

So a new name for these board committees was needed, with People and Culture an increasingly popular choice. Of the top 50 ASX companies in Australia, 70% have established a separate board committee tasked with the job of growing and guiding better people and culture practices.

In fact, Culture Amp found that 26% of companies have board committees that have been broadened to become “People and Culture Committees.” Half (54%) operate some variance of a “People and Remuneration Committee,” which oversees company culture. It’s a sign of the times, as the transition to improving corporate culture signals to potential talent that they’re a cut above the rest.

In general, these People and Culture Committees are most commonly focused on finding and securing the best talent that they can, making sure that their people are challenged and supported in their roles, and that remuneration matches market expectations.

But not all companies have made the switch just yet. Culture Amp’s research found that nine of the top 50 ASX companies still operate a more narrow “Nominations Committee” and are yet to visibly demonstrate their broader focus on and commitment to people and culture. The concern here, of course, is that they may be left behind when it comes to ASX results.

Our research is the clearest sign yet that Peter Drucker’s famous quote “Culture eats strategy for breakfast” – first coined way back in 2006 – is clearly understood today in Australia.

Drucker, the legendary management consultant and writer, coined the phrase to explain to companies that strategy is great, but plans will ultimately fail without a strong company culture that encourages people to work hard and to bring that strategy to life.

The growing cultural shift

Culture is appearing as a recurring board agenda item, according to the Australian Institute of Company Directors (AICD).

Boards have a role in overseeing and influencing organisational and workplace culture, and many have elevated the importance of culture, AICD managing director and CEO Mark Rigotti says.

A defined People and Culture Committee can be a useful way to monitor culture, particularly because sub-committees often hear from people in the organisation a few levels down from the executive on specific issues – for example, measuring culture metrics via engagement and pulse surveys, or complaints data and commentary from exit interviews.

“People and Culture Committees can also have a role in overseeing the linkage of executive pay incentives and company culture – for example, embedding culture-related metrics into short-term incentive and long-term incentive plans.”

The AICD renamed its Human Resources and Remuneration Committee to the People and Culture Committee in 2021.

The change aligns with current business practices and leadership approaches, Mr Rigotti remarks, adding that the internal department title was also changed from Human Resources to People & Culture at the same time.

He explains that the shift accentuates culture’s strategic influence on performance, indicating that AICD’s organisational culture is an active determinant of performance, not merely a background factor.

“It underscores the weight we place on fostering a positive organisational culture, understanding its pivotal role in influencing performance, engagement, and retention,” Rigotti says. “Internally and externally, this change illustrates our commitment to upholding contemporary best practices in governance and people management.

“This serves as an important oversight mechanism for accountability of company culture and may, from time to time, require People and Culture Committees to modify remuneration outcomes based on whether the desired behaviours are being observed within the organisation,” Rigotti concludes.

The People and Culture Committee Agenda

As the shift to broadening the board committee remit has taken off, the next question is: what is on the agenda of the most forward-thinking People and Culture Committees?

As companies work to build a category-defining culture amid the new focus on culture, Culture Amp’s Chief People Officer Justin Angsuwat reveals that leading companies from almost every industry – from IT to financial services, retail, health, government, construction, and more are focusing on three main items: attrition, performance, and engagement.

Angsuwat says that “boards, CEOs, and executives have always cared about things like attrition, performance, and engagement. But because the data has often been lagging indicators, it wasn’t impactful in the board deck, and the conversations weren’t as powerful as they could have been.”

Now that it is possible to create predictive and leading indicators, with precise, personalised, and actionable intelligence, these topics are able to get the air time they’ve always deserved.

For example: Talking about last quarter’s attrition number is good. What’s much more powerful is talking about actionable intelligence that tells you that of your employees, top-performing women in engineering working in the UK are the most likely to leave in the next 12 months because they’re feeling excluded from decision-making.

Justin concludes, “Being armed with this type of intelligence elevates the people and culture conversation at the board level, which is an exciting development as the entire HR function continues to drive value at the most senior level.”

The people and culture topics that should be on the agenda at your next board meeting:

1. Productivity. As headcount increases or decreases, is the performance of the team continuing to improve, whether measured by revenue per employee or another metric?
2. Forecasted attrition. Based on predictive indicators, for example, from an engagement survey, what is your forecasted attrition for the next 12 months?
3. Workforce motivation. Motivation of a team is highly correlated with performance, and so is often a leading indicator of performance fluctuations.
4. The cohort of high performers is at a disproportionate risk of attrition. Identifying high-performer cohort trends helps to maintain organisational performance and avoid negative attrition flywheels, e.g., top-performing women in engineering working in the UK are the most likely to leave in the next 12 months because they’re feeling excluded from decision-making.