In the second of three op-eds, Chow explains why investors should push for better company-employee engagement

In terms of a truly open corporate culture being an integral aspect of sound corporate governance, institutional investors and employees share common ground.

Most if not all employees come with certain values. In her book Giving Voice to Values, Mary Gentile posits that there are certain widely shared values, even across cultures, which she refers to as “hypernorms”. These values include honesty, respect, responsibility, fairness and compassion.

If circumstances allow, most employees would rather adhere to and express such values than suppress or act in a contrary fashion to such values.

As exemplified by their efforts at separating the CEO and chairman roles, or installing more independent directors on the board, institutional investors are quite interested in devising effective checks and balances on the decision-making of senior management.

Honest feedback

Activating employees’ values through an open culture so that they become motivated to provide honest feedback on material ethics issues to senior management would provide another effective source of such checks and balances.

Roger Ferguson, president and CEO of TIAA-CREF, a leading institutional investor, argues that it is “better to engage management on governance and strategy issues before problems arise and shareholder value plummets”.

Employees in a truly open culture can help advance that goal. After all, who are closer to a budding problem than employees at the front lines of engaging in the product(s), service(s) or other function(s) that underlie such problem?

Corporate experts have long argued that employees being meaningfully engaged in their work – or not – can affect the bottom line (see, for example, How leaders kill meaning at work in McKinsey Quarterly). Employees would find that they can be more meaningfully engaged in their work if they are permitted to voice ethics-related concerns or issues, free from the fear of reprisals. Therefore, a genuinely open corporate culture could also improve employee engagement and productivity, which ultimately is to the benefit of shareholders.

Intrusion into management?

Institutional investors have generally tried to strike a balance between goading investee companies toward improving governance and becoming involved in the minutiae of managing the company.

One way to maintain this balance is to focus on improvements in the governance process or structure, as opposed to frequently engaging in the substance of management decisions. Advancing the cause of a truly open culture would fall within the former category, comparable to pushing for the separation of the CEO and board chairman roles, or more director independence – familiar items on the agenda of leading institutional investors.

In addition, an open culture is not a radical departure from diversity/inclusivity initiatives that leading institutional investors have championed. For example, TIAA-CREF states the following in its policy statement on corporate governance (applicable to investee companies): “Promoting diversity and maintaining inclusive workplace standards can help companies improve decision making, attract and retain a talented and diverse workforce and compete more effectively. Boards and management should strive to create a culture of inclusiveness and acceptance of differences at all levels of the corporation.”

Institutional Shareholder Services, a leading advisory service for institutional investors, also states in its 2012 SRI US proxy voting guidelines that a “commitment to diversity in the workforce can lead to superior financial returns”.

Wide range of talents

The purpose of diversity/inclusiveness as described above is evolving to encompass more than the traditional notion of doing right by minorities or women – it is also to help decision-making and competitiveness by bringing in a wider range of talents and perspectives.

As such, diversity/inclusiveness should also bring a wider range of views to bear on any issue of risk – as a matter of improving decision-making. Therefore diversity/inclusiveness really occupies the same spectrum as a truly open corporate culture.

What the discussion on open cultures adds is mainly a matter of emphasis – on creating conditions that allow freer expression of values-driven concerns, which may diverge from a prevailing or proposed business practice.

After all, what good is having a diverse group of employees if they are discouraged from expressing their views or concerns? In this sense, diversity/inclusiveness and open culture are mutually complementary.

Wilfred Chow is a US-based lawyer and corporate governance researcher and writer. He previously served as a managing director and associate general counsel at a leading financial services firm in the US.

This is the second in a series of three op-eds from Chow examining the benefits of open corporate cultures. 

culture  investors  transparency