Boards and the Culture Test

“Boards as custodians of culture” is now a familiar governance line. The problem is that it is widely repeated and poorly operationalised. The QCA Corporate Governance Code 2023, FCA expectations on conduct and non-financial misconduct, PRA focus on accountability, and broader investor scrutiny are all moving in the same direction: boards are no longer judged only on performance, but on the behavioural conditions that make performance sustainable.

What boards are really being asked to do

Regulators and shareholders increasingly understand what most organisational failures have in common: people usually knew there was a problem before the organisation admitted there was one. The issue, therefore, is whether the culture allowed reality to travel upwards quickly enough.

That is the custodianship role: ensuring the business has enough openness, challenge and behavioural resilience to surface risk, dissent and uncertainty before they become operational, regulatory or reputational failures. This is not achieved by writing values statements or approving engagement dashboards twice a year.

The QCA Corporate Governance Code 2023 sharpened board responsibility in this area, particularly across AIM companies, with greater emphasis on culture, behaviours and stakeholder relationships.

How culture behaves under different ownership models

For larger companies, such as the AIM 100, the most useful culture shift is to focus on a small number of observable behaviours that indicate whether the organisation is still telling itself the truth in real time. Boards need to understand whether challenge is visible and productive, whether underperformance is addressed early, and whether leadership teams are able to surface uncertainty rather than manage it away.

For smaller, earlier-stage AIM companies, the key culture question is whether the organisation can move to shared behavioural standards without losing speed as it scales. Boards need to test whether challenge is becoming possible beyond the founder or core leadership group, and whether performance expectations are becoming explicit rather than implicitly dependent on proximity to decision-makers.

In private equity-backed businesses scale becomes the dominant operating system – decision cycles shorten, confidence gets rewarded, and management teams quickly learn investor expectations. The culture risk is not usually lack of performance; it is narrowing information flow. Boards need to preserve enough space for uncomfortable conversations before the board pack becomes theatre.

FTSE 250 boards often sit at the opposite end of the spectrum. Governance structures are mature, reporting is sophisticated and processes are well established. But culture can become over-managed – materials and meetings become curated around a positive narrative, and conversations lack candour and constructive conflict. Increasingly, boards rely on internal audit, risk reporting and speak-up data to triangulate how culture is actually experienced inside the organisation, not just how it is presented to it.

In family offices, culture is often highly relational, with trust, loyalty and identity deeply embedded. But as they institutionalise, scale or introduce external capital, the culture needs to survive scrutiny and succession. Boards often find themselves translating unwritten norms into something durable, without sterilising the entrepreneurial core of the business.

In tech start-ups and high-growth scale-ups, speed, ambiguity and constant prioritisation define the environment. In these contexts, the strongest Chairs understand that culture is not whether people are happy at work. It is whether the organisation can process uncertainty without collapsing into silence, escalation or information being softened on the way up.

Pre-IPO and transitional businesses often sit between founder-led, private equity and public market dynamics. Here, culture risk emerges during the shift from private, investor- or founder-led decision-making to greater external scrutiny and governance expectations. The key question is whether behaviours that worked under private ownership can survive the discipline and visibility of public markets.

Where culture becomes visible

Remuneration structures are often where culture becomes visible in practice. Incentives shape what gets prioritised, escalated, challenged or ignored. Boards therefore need to consider whether reward structures are reinforcing resilience and judgement, or unintentionally encouraging overconfidence, short-termism and narrative management.

The practical signals are usually behavioural, not procedural:

• Does our culture accelerate the execution of strategy, or slow it down?
• Do remuneration structures reinforce the right behaviours, or unintentionally reward the wrong ones?
• Does what we hear about culture in the boardroom reflect lived experience across the organisation?

Most major cultural failures begin when organisations slowly lose the ability to hear uncomfortable information.

That is why regulators are increasingly linking culture to governance, resilience, conduct and accountability frameworks. They understand that culture sits upstream of all of them.

For boards and RemCo Chairs, the implication is straightforward: culture oversight is about protecting the organisation’s ability to tell itself the truth.

If you want to discuss culture measurement and board effectiveness, contact Tamsin Howells  (tamsin.howells@mm-k.com).

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