Corporate Law News

Scandal-Wary Boards Seek Better Grasp of Corporate Culture

Dec. 6, 2018, 4:30 PM

Corporate boards wary of the #MeToo movement and other recent ethical scandals think they’re getting a better grasp of their company’s culture among rank-and-file employees, according to an annual poll released Dec. 6.

Nearly half of the board members surveyed, or 45 percent, said they understand the “mood in the middle” levels of their company, the poll from the National Association of Corporate Directors found. That’s up from 35 percent in 2017.

Directors’ understanding of the “buzz at the bottom” also improved, from 18 percent in 2017 to 27 percent in 2018. NACD polled more than 500 directors at publicly traded companies as part of its latest corporate governance survey.

Boards are paying more attention to culture in lower ranks because it could show warning signs for corporate scandals, NACD’s research director Friso van der Oord said.

“I think MeToo has played into that,” he told Bloomberg Law.

Revelations of sexual harassment in Hollywood, Silicon Valley, and elsewhere have led to a culture where employees are more willing to speak out about cultural failings, he said. Take, for example, the recent walkout by Google employees protesting how the tech giant handled sexual misconduct allegations against some of its top executives.

Google employees also recently protested against a project to develop a censored search engine for China.

Seeing Warning Signs

The vast majority of directors surveyed by NACD, at 88 percent, said they have a solid understanding of the “tone at the top” of their companies. That figure was relatively unchanged from last year.

“The tone at the top is important,” van der Oord said. “But if you look at some major failures like Volkswagen and other recent cases, those warning signs often come from fault lines in the middle of an organization.”

U.S. regulators found in 2015 that the carmaker rigged its vehicle software to cheat on emissions tests. Volkswagen dismissed both high-level executives and engineers in the wake of the scandal.

Boards told NACD they’re assessing corporate culture by reviewing employee engagement surveys and whistleblower reporting. They’re also looking at comments on social media or job review sites.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bloomberglaw.com

To contact the editor responsible for this story: Roger Yu at ryu@bloomberglaw.com

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