Report of the NACD Blue Ribbon Commission on Culture as a Corporate Asset

In the corporate context, culture has been described as “the sum of the shared assumptions, values, and beliefs that create the unique character of an organization.” While it is ofen perceived as a “sof issue,” it is actually a hard issue—both in the sense of having concrete impact, and in the sense of being difcult to assess. As directors, we have a responsibility to bring more rigor to the discussion about organizational culture. We are well-positioned to play this role: directors’ independence is an advantage, not a hindrance, in culture-oversight activities.

As one of our fellow Commissioners remarked, “By defnition, members of management are immersed in the company on a daily basis, so it’s difcult to avoid breathing their own exhaust.” Directors bring a unique perspective to the table—ofen informed by years of executive and board experience with a range of companies and industries—and may be better able to pick up on early warning signs than those with solely an insider’s point of view. How much of the organization’s culture is a myth that doesn’t extend beyond the plaque in the elevator? How does this company compare to others, not just in terms of results, but also as to its conduct and “rules of the road”?

Organizational culture has been studied by business and academic writers for decades, but it tends to attract public attention mainly in the wake of negative events, such as the accounting scandals of 2001 and 2002, the 2008 banking and fnancial crash, and the series of corporate crises that unfolded in 2016 and 2017. But a company’s culture has the potential to enable positive results as well. As one group of analysts observed: “If culture is lef to chance, it can absorb precious energy and put the handbrake on the organization achieving its purpose and strategic goals. But if led and managed well, culture is the rocket fuel for delivering value to stakeholders.”

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.