AAA Spark Meeting of the Regions

Does Mandatory Firm Culture Regulation Impact Management Focus and Employee Perception?

• In Event: Corporate Culture and Stewardship

Abstract

In July 2018, the UK Financial Reporting Council finalized an update to the UK Corporate Governance Code requiring that the board of directors assess and monitor firm culture to ensure alignment with firm purpose, values, and strategy, and disclose the activities taken to do so in the firm’s annual report. We study the implications of this landmark requirement on management’s focus on and employee perception of firm culture. We find that the Governance Code Update drives increased voluntary disclosure from management on topics related to firm culture. This finding is amplified in firms with low quality board governance indicating that management at firms with high quality board governance were focused on firm culture in advance of the Governance Code Update. However, in analyzing employee reviews of firm culture from Glassdoor, we find no evidence of improved employee perception of firm culture for affected firms subject to the Governance Code Update.

Authors

• Jagan Krishnan, Temple University

• Jayanthi Krishnan, Temple University

• Steven Maex, George Mason University

• Colin J. Tipton, Temple University