Host, Nathan Luker, talks to strategy and transformation advisor, Kristy Fotiadis, about boards, governance and data.
In this podcast (27 mins), Nathan and Kristy discuss:
- Why boards need the view from the dance floor, as well as the balcony
- How boards can use meaningful data to track conduct and culture risks
- Why People & Culture leaders should report directly to the board
- The intersection between culture and profit
- Why psychological safety and good governance support thriving cultures
Nathan Luker: [00:00:03] Welcome to the RelyOn podcast, a show that delivers practical insights for leaders to build better organisations where people can live, work and study. I’m Nathan Luker, co-founder at Rely, where we help some of the best-known brands prevent, detect and respond to culture and conduct issues via our intelligent platform. In today’s conversation, I’m joined by Kristy Fotiadis, founder and director of Strategy Coach. And we’re exploring boards, governance and data. Kristy, thanks for joining us.
Kristy Fotiadis: [00:00:35] Thank you for having me.
Nathan Luker: [00:00:36] What an interesting career you’ve had at the intersection of business and IT. You started at Telstra in the business transformation team as a consultant. You had a wonderful career at Grant Thornton, where you advised executives on transformation, change and strategy and now running and operating your own business. Can you tell our listeners a little bit about yourself, your interest in data and technology and why you’re so passionate about good governance.
Kristy Fotiadis: [00:01:03] Thank you, Nathan. I’ve spent the last 18 years working with boards, executive and leaders on defining and realising their strategy, whether it be a strategy for growth, a merger and acquisition, or optimising their existing operations. As you mentioned, it started in technology and specifically how technology can enable organisations and how data and statistics can be leveraged to create insights, meaningful ones. And within this frame, I’ve been able to explore how it intersects and can support organisations in realising their strategy. But more importantly, ensuring robust governance practices.
Nathan Luker: [00:01:42] Fantastic. It’s interesting you said meaningful data. And I know in the lead up to this chat we spoke about the importance of getting that data straight to the board in real time or in a manner that they can actually get inside and take action. What’s at stake for boards when they’re only getting a view from the balcony and not really understanding what’s happening on the dance floor? How does one go about getting them what they need?
Kristy Fotiadis: [00:02:09] Well, I think if we just come back to the role of the board, most importantly, it really is the responsibility for overall governance, management and strategic direction of the organisation. And obviously management’s role is to deliver that, you know, by its very nature, boards need to be across everything, hence the notion of the balcony and they can’t afford to be in the detail, nor should they be. And hence the saying goes, being on the balcony and in the dance as if observing the dance floor from above. And so, I think what’s at stake there a need for boards is to sometimes check what is actually happening on the dance floor. We can’t be there all the time. But the notion of show me. Let me actually see what’s really happening. So, if you’re only getting the view from the balcony, you’re putting all your trust in management that they are telling you the full picture and that the insights that they’re preparing have been summarised appropriately.
Nathan Luker: [00:03:07] And it’s really interesting. My mentor and I speak a lot about information and how we get our information from our services in the hands of a board or a C-suite to be able to make those decisions. And a great question that he asks is what else do I need to know? And other than what I’m seeing the insights that are on this page, tell me, what else do I need to know? So that’s a great point. You need to know when and how to jump into the operational lines to understand what’s happening on the dance floor. How do you think boards are tracking using data to make decisions about company culture? Are they using experience from when they were in an operational role? Are they going on gut instinct and just looking at patterns? Cultures are incredibly important thing for a board agenda now, but it seems like it could be a little bit complex and difficult to do from their position on that balcony.
Kristy Fotiadis: [00:04:03] I think organisations are definitely getting better. I mean, everyone knows that they should be tracking and of course, and monitoring culture. And I think it’s generally accepted that culture is crucial to the employee experience, and employees are crucial to realising that that strategy. I think when we think about the board and how they’re using the data, definitely, I think their experience comes into play. And as you mentioned whether they are in operational roles and but also translating that now to more of that that board oversight role. So, my view is they’re referring to the data. However, I think the way the data is prepared, the way it’s aggregated from data into insights, the perception so the board’s perception and the likeability of leaders and their ability to ask the right questions comes into play. And so, I think things for boards and even executives and leaders to consider when they’re reviewing data around culture. I think the first element is balancing profit and culture. I think organisations are still struggling with that question. You know, which one comes first. And so, I think we’re looking at does this leader truly believe what they’re saying versus those that need to be seen to be doing it? Because I think that that sort of starts to raise some questions in in the board’s mind. The second one is questioning what’s really going on, you know, as you said, with your mentor.
Kristy Fotiadis: [00:05:33] So if we’re if we are reviewing a people well-being report and we can see that this team has high churn, what’s the narrative that’s being told to me as a board member? You know, we might be getting told that these people aren’t on board with the new strategy. Is that really the case or is there something else going on? And I think some of the questions there that can be asked are, you know, can we see this data by team leader who is left? What are the demographics? What was their tenure? What are the actual reasons? But show me show me some of the exit interviews. So, it’s that idea of still being broad, but sometimes on occasions having to go deep into the dance floor, into the show me. I also think the other area around this is when I’m seeing information, what bias do I have and applying a healthy sense of skepticism to it. So, I think if there’s a perception and a likeability of a leader, it might have also affected how I perceive that situation as a board member. And so, I think the board should question themselves and say, do I think this person is a good leader? And generally, am I more likely to believe what they’re telling me? So, what should I be asking?
Nathan Luker: [00:06:51] It’s interesting, Kristy, I just want to jump in for a second. I want to talk about the intersection of culture and profitability. It’s an interesting one. And it’s been talked about for decades. You can have a poor culture with great short-term profitability. We all know that. And you can have a great culture with no short-term profitability. Can you talk further on that, have examples of how you’ve seen this play out or how rewards or incentives lead to decision making in the board?
Kristy Fotiadis: [00:07:20] I’ve definitely seen organisations in my time that have had amazing cultures. It’s all about people and the experience and health and well-being, and you can see that they perhaps have gone a little too far in that. Then we’re not aligning to metrics and overall organisational value. And then on the other extreme, you can reward people for, you know, high sales targets, increasing revenue, and it creates all the wrong, wrong behaviours. So, the challenge is getting the balance in the middle. And the classic example is when you’ve got an organisation and you might have your star sales performer bringing in multi-million dollar contracts every year, but they might actually have the worst behaviours in terms of culture and how they interact with employees, you know, in the background. And so, the question is, how do we handle that as an organisation? And I and I think organisations still struggle between should we allow the great sales performer to keep on bringing in the dollars, yet at the same time it might actually be impacting the culture around the team and within the organisation. So, I think this is something that organisations are grappling with and ultimately it comes down to the board and the executive team going back to their core values and actually going, what is it that we believe and expect of our people? And are the impacts that that star sales performer may be causing? Are they in line with our values? And I think if you were to actually take away that star performer, you might actually find the overall capability and performance of the team increases as a whole. And so, I think for boards and executives, it’s being conscious that sometimes we have these really difficult decisions that we need to make. And the short-term view would be and the easy view would be to say, let’s keep that star performer. But I think over time, actually by removing somebody who’s not in line with your values, you might actually find the organisation as a whole will flourish and you get more to that balance between great culture and aligning it with profit.
Nathan Luker: [00:09:37] That’s a great point. And there’s shades to that example as well, isn’t there? Because, yes, that’s a single point of failure in someone’s behaviour relative to the broader culture in line of achieving profits or an outcome at times as well. I’m sure you’ve seen examples as well through your transformational change experience where sometimes it’s the way success is defined or there’s a reward structure. So, sales is a great example, and this happens across all business units. We’re not picking on sales, but the most common is a fancy trip at the end of the year for the highest sales performers. Now they’ve done nothing wrong as individuals. Like you’re saying that maybe they’re wonderful people living the values, but the measure of success and how it’s celebrated in the dev team in the same organisation is relatively different. No one’s getting flown to Las Vegas or somewhere like Hawaii. Exactly. So, there’s shades, isn’t there? Have you seen that anywhere?
Kristy Fotiadis: [00:10:30] I’ve seen that firsthand in organisations that I’ve worked with and even peers and friends. You know, the sales team go on the fancy conference. And actually, what it’s interesting what it does within an organisation, whether it be a conference or whether it be an incentive plan that has an accelerator component to it, people will intrinsically do what they’re incentivised to do. And we saw that in the banking royal commission. You know, so, so, so metrics absolutely matter. And I think it’s thinking about what those metrics do across the whole organisation and how they incentivise or disincentivize people. And I think a great example, a really practical example, would be, let’s just take your local cafe. If the tips are only going to the front of staff and they’re not being shared with the kitchen and the back of house, you could see how that might disenfranchise the chef and the person washing the dishes. Yeah, a great example. So that really basic example can be applied across an organisation.
Nathan Luker: [00:11:38] It’s a wonderful example to riff on your cafe experience. I started and ran it and ran a cafe and it was a disaster. We didn’t do much well. I was very young and it didn’t it wasn’t a huge commercial success. We did do one thing really well, which I’m proud of, and it actually speaks to. I didn’t know this would come up again ever in my life is the way we incentivise staff. We had a long tail incentive for the amount of people that came back and filled out their coffee cards. So, if you could, because it all links to the experience the person’s having in the cafe now, you know, went through the GFC and there were other macro reasons why the cafe didn’t work, but that was a major difference and I’ve never seen or heard that being done somewhere else. And that was our attempt of saying success and happiness and repeat behaviour is important to all of us. It doesn’t matter if you’re the person cooking the food, cleaning the tables, taking the garbage out. We all contribute to the whole, you know, thinking through incentives, data throughput of information to the C-suite and the board people and culture play a huge role in this. And in the lead up to this podcast, we spoke about the possibility about people and culture reporting directly to the board rather than the CEO. And that point fascinated me. I thought it was really interesting and unique. Can you expand on why you think this structure is good for an organisation?
Kristy Fotiadis: [00:12:59] Culture is crucial to organisations and we spoke about the board’s responsibility in overseeing that. And one of the most basic ways organisations are measuring cultures is through your annual culture survey, whether it’s every six months or whether it’s once a year. And when we think about the director of P and C, they ultimately report to the CEO. So, the CEO has the ability to hire and fire that individual and P and C play both a crucial role in protecting the organisation, but also telling the truth. And so, if we think about the example of a culture survey, who is actually compiling the information, who is translating that data into insights, and how is that version of the truth coming through to the board? And so, with that very example, it raises the notion of, well, should People & Culture be a direct report to the CEO considering a different perspective? Should People & Culture report straight to the board so that their version of the truth comes straight through without any filtering, but also with a sense of safety that that individual can represent what’s truly happening in the organisation.
Nathan Luker: [00:14:21] And they have their opportunity to maybe have a difficult conversation directly to give the reality of what’s happening on the dance floor to the balcony.
Kristy Fotiadis: [00:14:30] And I think that’s more important than ever, given how crucial culture is to organisations, but particularly all the challenges we’ve seen with culture. And it may not have been relevant ten years ago, but I think the idea of elevating the exec director of People & Culture and creating a clear channel through to the board in today’s day and age is more important than ever.
Nathan Luker: [00:14:55] Yeah, absolutely. And it sends a strong signal as well to people and culture and the whole organisation that we’re listening as a board. That’s a pretty remarkable, remarkable signal that it would send. You mentioned psychological safety then, which is really important and an element that boards are taking more seriously. Safety in general has been on the agenda for a long time now. From your perspective, how what are boards doing well in terms of measuring psychological safety from the balcony?
Kristy Fotiadis: [00:15:24] If we start with what psychological safety actually is for everyone, it’s the belief that it’s safe to speak openly and put my views forward without being punished or being judged for doing so. And so, I think it means that as an individual, I will be more likely to raise an issue or a potential risk or something that isn’t quite right. If I know that I’ll be protected and that there are no repercussions against me as an individual. And I think, well, what are boards doing? Well, it’s actually creating and opening up those channels through to board. And you know, the idea of the head of People and Culture as we spoke about leading direct to the board is one channel. It’s obviously about having surveys, tools and mechanisms to raise those items. But I also think it’s important with regards to having leaders that create that sense of safety. And it comes back to the board asking themselves and the executive team, do we have leaders in the organisation who are actually living and breathing what we expect? And that is that is crucial because often sometimes what you what you hear may not actually be the way it translates in reality in terms of actual behaviours. We need to move beyond basic metrics around incidents, long term injuries and sick leave. And I think as an organisation, we need to be monitoring lead indicators around indicating that something is going to happen as well as lagging indicators after something has happened, to tell a story, to tell the story. And they vary by industry. But, you know, some examples here could be, you know, professional services. It might be team utilisation. If I think about a call centre environment, calls unanswered or calls diverted would be a great indicator. If we think about a manufacturing organisation, errors in production or health and safety issues on the increase indicate that something is not quite so right in terms of psychological safety and health and well-being. Absolutely.
Nathan Luker: [00:17:40] It’s interesting as well how those lag and lead indicators can tell a story that those error rates or those whistleblowing reports aren’t showing. There could be, Neal, but you can start to see when you’re asking those questions that provide more of a story that you can place alongside quantitative metrics, a board can start to say, Hang on, something doesn’t seem quite right. We’ve seen this pattern before. It might be nothing, but this could be a near miss. There could be something that we need to double tap into here and explore further. Or it might be just in a pocket of the organisation that you’re seeing happen in a certain region or in a certain culture.
Kristy Fotiadis: [00:18:12] And that’s that healthy scepticism, which is, are we actually seeing the right information, but are we asking the right questions as well?
Nathan Luker: [00:18:22] And we’ve seen us the inability, I guess, to listen, take action or ask the right questions or I guess the way information flow doesn’t happen to a board properly in a range of ways. What are some examples that step out to you that you’ve seen in the past?
Kristy Fotiadis: [00:18:39] I think the classic examples obviously come around the banking system worldwide and both in Australia and the large American bank, Wells Fargo opening fraudulent bank accounts and the board essentially saying, well, it was the fault of the employees. I think that that is the classic example where a culture has gone wrong and perhaps, we haven’t tracked the right metrics to realise what’s in fact happening. And I think if we were to dig deeper in those examples and even examples within our organisations, we would find that culture is and people’s safety is proportionate to the leader of the team. I think that leader plays a huge role. And as you see leaders move across organisations, you see how culture changes. And ultimately culture is people’s sense of happiness, comfort and safety.
Nathan Luker: [00:19:42] The leader’s ability to deliver on creating a psychologically safe culture or team is paramount. And we know that the research supports that. We know that the research supports a psychological safe culture with good governance, helps people thrive. So, in the business transformation world essentially equals operational excellence. And I know I think a lot of operational excellence to McDonald’s. You know, the obvious generalised example of how one can achieve something that’s streamlined, efficient and productive. How can all organisations achieve their version of McDonald’s but with psychological safety, how do they use data and metrics relating to conduct and culture risks to achieve that level of excellence? Is it possible?
Kristy Fotiadis: [00:20:30] I think ultimately it comes back to your organisational strategy and purpose. What do we want to be? How do we want to achieve it? And it can be through operational excellence like McDonald’s. It could be through being really great at product if we just take a Mercedes or a Ferrari as an example. I think most importantly, when we think about achieving excellence in light of our strategy, it’s actually thinking what’s the right data? To support this, to support the story. And I think the balanced scorecard approach of what’s happening with our customers, what’s happening with our people, what’s happening with our financials, what’s happening operationally is a really simple framework to capture data and insights within, and it provides a pulse of the organisation, whether it’s through a growth stage, whether it’s through an M&A. If you’re tracking the metrics, you’ll actually understand what’s happening. And it’s the divergence from the normal that might indicate that something’s not quite right there.
Nathan Luker: [00:21:38] Valid points. Kristy But I’m thinking, Ken, psychological safety even fit within the framework of operational excellence. The very nature of operational excellence is black and white. They’re error rates. They’re pass fail. They’re fully based on continually improving and efficiency, and psych safety and culture doesn’t work that way. There are mistakes. You need to be open to those mistakes. You need to accept them, learn from them, allow people to fail, take risks, debate, have conflict that’s purposeful and productive. So, I’m not convinced to be totally honest that operational excellence is the right term or framework to apply here. What do you think?
Kristy Fotiadis: [00:22:14] I think you raise a really great point and a challenge for organisations ultimately operational excellence. I think of organisations that are Lean or Six Sigma, as you said, production of units, etcetera, and time matters. And we’ve heard some interesting stories of Amazon and drivers and behaviours because of those time limits. At the same time, culture and psychological safety is the responsibility of the board. So, there is no choice but to figure out how these two intersect so that we can raise issues to the forefront and have the right behaviours happening. And ultimately, I think it sits with leaders and how they treat their people. But the metrics that we’re measuring and picking the right metrics, if we’re picking the wrong metrics as per the earlier examples, people will just do what they’re told to do. So, I think they can coexist. But it’s actually placing that helicopter view and asking ourselves what are the metrics that we’re putting forward doing and is that creating the right, safe culture that we expect?
Nathan Luker: [00:23:23] And also starting with the end in mind, what are those metrics speaking to? What’s our definition of, let’s say, cultural excellence? And I’d argue a strong definition for us at our organisation is we have difficult conversations; we have them early and we lean into them. We debate at all times possible in a caring, productive and passionate way to ensure that we can get the best ideas out of the system to make sure the best idea wins, not the most senior person. Those things matter, but they come at incredible personal risk to the individual. They need to step outside where their comfort zone is, and that doesn’t fit well in my belief to operational excellence. You’ve been in involved in a number of transactions in M&A activity. How does culture and conduct data play into that system and approach? You have a buyer approaching a target and generally looking for synergies of a financial nature or to reduce risk, increase market breadth and depth. How does culture play into it?
Kristy Fotiadis: [00:24:26] It’s ultimately dependent on what the buyer is trying to achieve and the deal structure and whether they’re prepared to listen and understand the great traits that the target might have. And so, are they buying them for their customers? Are they buying them for their processes? Are they buying them for their IP? It comes back to deal structure and what the buyer is trying to get out of it and where it all goes wrong is when it’s called a merger and it’s not a merger. People aren’t silly. They can see the truth. And so, I think the deal structure has a lot to play in how that scenario plays out in terms of whose culture takes dominance.
Nathan Luker: [00:25:10] I’d love to see our utopia view of organisations and boards. We have people in culture reporting straight to the board. We have an ethics and culture committee. We have strong leaders and psychologically safe environments. We have culture excellence. I’d hope that there’s a world where any deal, irrespective of the motive or what it’s labelled as, if you approach a target, there’s a group of individuals who are just constantly on the lookout for new ways to do things, ways to improve culture and what’s part of the DNA of that organisation that has made it tick and how does it compare to ours and how can we how can we contribute and get better ourselves? Hopefully that is an approach leaders can take in the future if they aren’t already. Kristy has been such a great conversation. We need to have a round two at some point in the future. We ask everyone to complete the sentence. Great cultures rely on.
Kristy Fotiadis: [00:26:01] Asking the right question and being prepared to do something with that information.
Nathan Luker: [00:26:07] Well said. Perfect. Thanks for joining us today.
Kristy Fotiadis: [00:26:10] Thank you very much.
Nathan Luker: [00:26:17] Thanks for listening to RelyOn. You can access the show notes from this episode, download resources and listen to other episodes at relyplatform.com. If you enjoyed the episode, we welcome you to submit a review or send an email to email@example.com.