Tone at the top
What Non-Executive
Directors Need to Know
November 2015
Tone at the top:
What Non-Executive Directors Need to Know
CONTENTS
The Basics .................................................................................... 2
Why is Tone at the Top important?................................................ 2
How does Tone happen? .............................................................. 3
How do non-executives connect with Tone at the Top?................. 4
Importance of the Board ................................................................ 4
Mastering the culture ..................................................................... 5
10 important signs of the right culture............................................ 6
© Andrew Leigh 2015
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W
hat is tone at the top and what does it mean for the role of non-executive directors?
A survey by one leading consultancy has shown:
“A resounding agreement from our respondents that Tone at the Top is vital
in developing and maintaining the ethical integrity of the business. Without it
the ability to mitigate the risk of something going wrong is significantly
impaired.” [1]
While non-executive directors are not usually responsible for setting a company tone, they will
normally be expected to both understand its relevance and be able to promote it through their
actions and communications.
Here therefore are guidelines for supporting this critical aspect of a company’s leadership and
culture.
The Basics
A
s part of the formal leadership of an organisation senior management needs to
regularly provide guidance on tone.
It’s a way of talking about important aspects of running the company, namely its
Values; Mission; Aspirations; Ethics; and Intentions
Together, these clarify how the company does things—its corporate culture. Rather than
being a precise description of present arrangements it is more about how leaders want things
to be.
Tone is about creating a culture where everyone has ownership and responsibility for doing
the right thing, because it’s the right thing to do.
Why is Tone so important?
V
arious forces drive the need for the right tone. It’s useful if non-executive directors are
aware of these when considering how they might contribute to this leadership effort.
First, there’s the formal, regulatory climate facing so many companies these days.
Almost every company must navigate this territory—particularly in financial services. In the
US for example, the need for an appropriate tone from the top is mentioned in the Sentencing
Guidelines for organisations accused of violating regulations.
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In the UK there is the Bribery Act’s Six Principles of Adequate Procedures which similarly
expects to see appropriate tone set by leaders. Specifically this act suggests:
“Internal communications should convey the ‘tone from the top’ but are also
likely to focus on the implementation of the organisation’s policies and
procedures and the implications for employees.”
Likewise, the OECD Good Practice Guide on Internal controls specifies “strong, explicit and
visible support and commitment from senior management to the company's internal
controls, ethics and compliance programmes…”
Regulators expect to find evidence of an appropriate tone from leaders. They seek it in
reviewing how a company is performing under the regulations.
They may regard its absence or inappropriateness as a serious failing—a sign something
more substantial may be going wrong.
This may lead to further investigations and in extreme cases, to fines for failing to give
sufficiently clear and robust direction regarding ethics and compliance.
Secondly, regardless of regulations, tone is one way senior leaders explain to employees how
they want the company to operate. Using tone they are saying
“Here’s what really matter to us.”
Thirdly, tone shows all stakeholders, beyond employees, where the leadership wants to take
the company, and how. Thus it can affect the responses of investment analysts, suppliers,
unions and others who view the company and its approach to doing business.
For the non-executive director, awareness of these forces at work provide a sound basis for
asking questions and for embarking on discovery of just how far tone is working in the
company.
How does Tone happen?
T
here are both formal and informal ways senior management in a company conveys tone.
Formal ways include public pronouncements, newsletters, town hall type meetings,
videos, and actual visits to teams, departments, branches, factories, projects and so on.
Such visits are often deliberately designed to convey a clear message that provides the
required tone.
Informal ways include how leaders actually behave in their interactions with other people,
both inside and outside the organisation.
Leaders’ behaviour and the signals they send are more important than strategy or
pronouncements. For example the earlier mentioned PWC survey found
“40% of respondents said leadership did not always act as role models in
setting the right tone from the top.”
In an increasingly transparent world, employee engagement is based on trust - of their boss,
their department, of their whole enterprise. The right sort of tone helps develop that trust.
There are many areas in which non executives can make a contribution to their companies.
One is to assess the extent to which the leadership is generating trust amongst its
stakeholders.
For example, being able to give coherent and informed feedback on the current trust situation
will be extremely valuable.
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How non-executives connect with Tone
I
n making a connection with tone, non-executive directors must first understand the nature
of the present one they are giving out.
For example, do you actually know the values, mission, aspirations, ethics and intentions of
the CEO and his or her team?
If these are not entirely clear to you, they certainly won’t be any clearer to other stakeholders,
especially employees.
One of the first actions you can therefore pursue as a non-executive director is ask about
these in a genuine spirit of enquiry.
In doing so, you’ll be contributing both to promoting better communications, and supporting
the senior management team to be become clear themselves about these aspects of the
corporate culture for which they are responsible.
Another practical action is to discuss with your senior management the present form their
leadership tone takes—the content of communications, pronouncements, meetings, and
others actions they set in motion.
For example, while a leader may stress the importance of the company being ethical, or
avoiding bribery, what matters more is what that leader or his top team initiate to ensure there
is sustained action on the ground.
So as a non-exec, a third action you can take is to check:
“How does this Tone you’re setting turn into action throughout the
organisation?”
Another way of connecting with the tone is to discuss with senior colleagues how you
personally might support the desired tone. For example, what message should you be giving
when interacting with others in the company or elsewhere?
If you meet employees for instance, does your particular communication align with the one
being promoted by the leadership?
When people encounter a non-executive talking about the same issues as the full time
leadership it provides an important re-enforcement in the minds of those on the receiving end.
Importance of the Board
F
or the right tone it’s essential to have a strong board giving guidance, not just leaving it
to the CEO. There is growing awareness of the implications of signalling. Also different
approaches may be relevant, according to a company’s stage of development.
As a non-operational member of the board, you have a special role in influencing the nature
of the signalling stemming from the top.
For example, pressing for clarity on issues such as values, ethics and compliance, and
seeking evidence of follow through—of the leadership “walking the talk. “
Similarly, you can play a role in making sure signalling about important issues such as ethics
occurs regularly and not just on special occasions.
Employees and other stakeholders quickly spot whether or not the purpose of the enterprise,
its values and standards are regularly, or only sporadically discussed at board level or in
the senior team.
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For example one CEO was famous for referring to the business ethics code only once a year.
It escaped the notice of few employees that while he lauded the program on the day set aside
to honour it, he never referred to or inquired after it any other time.
Mastering the culture
F
or any outsider such as a non-executive director, it can be a real challenge to get to
grips with the culture of a company—to understand how things happen in the
organisation. Even those who think they know the culture may find, once they become
an insider it’s less obvious than previously thought.
This justifies a special effort to master the culture, so suggestions and proposals for change,
or reactions to what leaders say are firmly grounded in the reality of how things are.
Most non-executives are recruited for their experience and special ability to contribute in
some specific way—business experience, knowledge of finance, technical knowledge,
awareness of the market, valuable contacts, and so on.
Increasingly, one of the most vital contributions such non-executives play is helping the
company act in an ethical, or responsible manner. That is to ensure integrity pervades the
ethos of the organisation, starting with the right tone from leaders.
At least five factors are critical to an effective integrity program:
1) Guidance on company values must make sense and be clearly communicated—in
your view is that happening?
2) The company’s leader must be personally committed and willing to take action on the
values—do you feel the leader reflects this through what he or she says and
does?
3) The company’s values must be integrated into the normal channels of management
decision making and reflected in the company’s critical decisions—how far does this
actually happen—what evidence can you obtain that it does?
4) Managers must be empowered to make ethically sound decisions on a day-to-day
basis.—is that actually happening in your view—check it out through your talks
with managers
5) In your view is the CEO an ambassador for compliance?—what evidence is there to
support this and how easy is it to obtain?
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10 important signs of the right culture
 Does the CEO and the team not just talk about compliance and ethics, but
actively promote it amongst employee?
 Is here a written statement of a zero tolerance towards bribery and
corruption?
 Is there a Chief Compliance office with adequate resources and ready
access to Directors and the Board?
 Is there a simple code of conduct and written compliance program
implementing it?
 Are there compliance metrics on all business reports?
 Is there serious support for middle managers to promote the zero tolerance
message throughout the organisation?
 How effective is the whistleblowing reporting system or speak up channel
and is it celebrated?
 Do leaders keep talking openly about “doing the right thing”
 Is there clear rejection of a “do as I say” mentality, rather than “do as I do.”
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Sources:
1.Tone from the Top: Transforming Words into Action, PWC, 2012
2.The All-Star Game and Tone at the Top, LexisNexis® Legal Newsroom
Corporate, 7th June 2015
3. Business Ethics Communications and Feedback
Andrew Leigh, a founding director of Maynard Leigh Associates, writes and manages
www.ethical-leadership.co.uk. He is author of Ethical Leadership: creating and sustaining an
ethical business culture (Kogan Page 2013).
© Andrew Leigh 2015
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