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Corporate Culture: Impact on Corporate Governance & Long-Term Sustainability

Corporate Culture: Impact on Corporate Governance & Long-Term Sustainability

The mission to land the first man on the moon was launched when President JF Kennedy gave his visionary moon-shot speech in 1962 – “We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard”. Without a doubt, the challenge to land a man on the moon comes with extreme risks, as recognized by Gus Grissom, an astronaut on Apollo 1, the first of many Apollo space crafts used in the mission to reach the moon. “If we die, we want people to accept it. We are in a risky business, and we hope that if anything happens to us it will not delay the program. The conquest of space is worth the risk of life” said Gus Grissom, who later lost his life, together with 2 other astronauts, in a fire during a test launch of Apollo 1.

Investigations into the Apollo 1 fire determined that the cause was due to inadequate design. As a result of the investigations, more than 1,000 changes were made to the space craft design and NASA’s race to the moon was delayed by almost 2 years.

More importantly, the cause of the fire was attributed to “go fever” in NASA – the attitude of being in a rush to get a project completed and meeting deadlines while overlooking potential problems. Coined after the Apollo 1 fire, “go fever” describes a culture that develops when costs have mounted, and disagreement is suppressed or ignored because no one wants to be seen as working against progress.

“Go fever” was also the cause of the Challenger and Columbia space shuttle disasters. In 1986, the space shuttle Challenger exploded. Following the Challenger disaster, NASA took concrete steps to correct flawed organizational processes. For example, it increased both the number and status of safety personnel, and it strengthened safety operating procedures. But as avoiding launch delays became increasingly important, NASA let their guard down and forgot about safety. This gradual forgetting, which was described in the Harvard Business Review article “Why organizations forget what they learn from failures” was at the root of the Columbia space shuttle disintegration in 2003.

Organizations such as Wells Fargo, Toshiba, Volkswagen and FIFA have bold visions. Although their visions are not as dramatic as that of President JF Kennedy, the mission statements and strategic objectives of these organizations were aggressive in order to help them achieve their visions of being the number one, being the first and being the best in their respective markets. And just like Apollo 1, they succumbed to a culture of “go fever” and captivated the world with their spectacular scandals.

Wells Fargo was clearly gripped with “go fever” as the former CEO John G. Stumpf set aggressive sales target. In a Forbes article “Wells Fargo: What Drives Toxic Corporate Culture?” the creation of millions of fictitious bank accounts by thousands of Wells Fargo employees was because the “management at the bank failed to curb a culture of contempt: for customers, for the law and, ultimately, for shareholders.”

Wells Fargo’s report arising from an independent investigation into the fake account scandal “identified serious issues related to Wells Fargo’s decentralized structure and the sales culture of the Community Bank. Wells Fargo’s decentralized corporate structure, which gave too much authority and autonomy to the Community Bank’s senior leadership without the necessary oversight and encouraged deference to the business units”.

Corporate culture has a significant impact on corporate governance and the long-term sustainability of organizations. Corporate culture is the soft underbelly of organizations and should be reported as a material issue as part of sustainability reports.

About the Author: Uantchern Loh

Uantchern is currently the CEO, Asia Pacific for Black Sun Plc, a stakeholder communications company. A Chartered Accountant by profession, he started out as a volunteer at the Shared Services for Charities (SSC), since its inception, and was recently appointed to the SSC Board. An amateur adventurer, Uantchern has just completed his 7th summit climb of Mount Kinabalu and his favourite phrase is “It’s just 5 more minutes!”