Challenges in changing culture: lessons from The Star

The recent public hearings from the 2024 Independent Inquiry into The Star Entertainment Group (The Star) conducted by Adam Bell SC have brought to the forefront the issue of corporate culture and, in particular, the ability of The Star to effectively implement cultural change.

A number of key themes emerged from the inquiry, which highlight both the importance of culture within an organisation (particularly in the context of both regulatory obligations and social licence) and the challenges faced in effecting a cultural transformation. These themes include:

• change requires leadership (and, in particular, stability in leadership);
• cultural change requires behavioural change (and this can be hard); and
• the pressure to deliver results in the short-term can make long-term change difficult.

Comparisons (or, more accurately, contrasts) between the approach to remediation and transformation at The Star, a public listed company, and that at Crown Resorts (Crown), which is privately owned were also drawn and the comparison raised the interesting, and perhaps uncomfortable, question of whether The Start’s public ownership structure has constrained its ability to reform itself?

Effecting cultural change

Culture was described at the inquiry as being the (collective) reasons why people do what they do; the relationship between an organisation’s structure and how that structure impacts the way people behave. There are two categories of culture – formal (being the policies, systems and processes) and informal (being the way in which people operate on a day-to-day basis).

Cultural change is not just about changing formal policies and processes. Rather, it is about "closing the gap" between those policies and processes and how people within the organisation actually behave.

Change requires leadership (and people)

The board is generally responsible for setting the overall direction and management of an organisation. This means that effective leadership and oversight from the board is critical.

But more is needed.  Effecting change requires the people within the organisation (particularly middle management) to be committed to the cause. This requires the development of an internal narrative to explain why change is needed, and individual employees need to be empowered and motivated to change their mindset and to align themselves with the (new) values.

Although a change in leadership can present an opportunity to “reset” the cultural values, a lack in stability at the upper levels can also make implementing change hard, as it can result in changing priorities and inconsistency in messaging.

It is also important that the actions of the leadership teams align with the organisation’s values, and that reward and recognition programs support these values. How behaviour is rewarded can have a significant impact. Individuals are unlikely to be motivated to change if actions that are inconsistent with the refined cultural values continue to be recognised and rewarded.

Behavioural change is required (and this can be hard)

Implementing cultural change involves people.

While policies, procedures and systems set the tone and signal intent, it’s the actions people take and what they do that that drives change. To this end, it was observed at the inquiry that the most important drivers of organisation culture are leadership (in terms of setting priorities, values and behaviour), communication (in terms of both effectiveness and frequency) and employee empowerment and engagement.

It is also necessary that the cultural change and vision is integrated into the business strategy and the organisation's commercial objectives. As was noted at the inquiry, "you can't just push policies down and expect that people are going to change because you have changed the policy".

The pressure to deliver results in the short-term can make long-term change difficult

Competing priorities can have a significant impact on an entity’s ability to implement cultural change. This means that the environment in which the organisation operates can (potentially) be a hinderance.

Listed entities (such as The Star) have responsibilities to their shareholders and are often judged by their financial performance and shareholder returns.

Following the initial finding in 2022 that The Star was not suitable to operate its casinos in both Queensland and New South Wales, and the appointment of a manager over its casino operations in both States, there is no doubt that The Star (and its directors and management) were under significant pressure to “move on” from the past as quickly as possible.

Other factors were also at play. The Star was facing significant financial uncertainty and undertook two significant capital raisings.

Seeking to balance these competing priorities against the need to demonstrate the significant reform required to regain control of its casino licences cannot have been an easy task.

Although it is clearly not in the long-term interests of The Star or its shareholders to risk losing its casino licences, evidence led at the inquiry suggests that it may have been too focused on short-term actions.

Naturally, comparisons were drawn between The Star and Crown (which had, itself, recently undergone a process of change). In particular, it was acknowledged at the inquiry that, following its takeover by Blackstone, Crown had significant financial resources available to implement its transformation, and was able to do so without the pressures of being a listed company.

Does this mean that The Star’s position as a public listed company affected its ability to implement change? Possibly. While this is obviously a factor and may make change more difficult, the ability to effect change also has a lot to do with a willingness to change.

The inquiry heard that Crown had focused on middle management and invested in significant training about leadership, what mattered and what the (new) priorities were. Although The Star may not have had the same resources available to it, it was suggested that The Star implemented its cultural transformation program in a manner that did not support “genuine sustained change”, focused on “actions versus outcomes” and allowed an “us versus them” mentality to develop internally.

This meant that the front-line staff, the ones whose conduct determines the informal culture of the organisation, formed a view that the changes were being driven by the regulator, rather than The Star itself.

In other words, Star’s process simply didn’t facilitate the mindset required.

Key takeaways

The inquiry has provided an interesting and practical reminder of some of the fundamental challenges to, and requirements for, cultural transformation efforts:

• Oversight is needed. The board is responsible for the overall direction and management, and ongoing supervision and oversight is required.
• People drive change. To effect change, individual employees need to be empowered and motivated to align themselves with the organisation’s values.
• Be a role model. What leaders do matters and is replicated by others. How behaviour is rewarded is important.
• Don’t (over) rely on others. External consultants can assist in designing transformation programs, but ultimately the organisation itself must embrace and drive the change from within.
• There are no quick fixes. Cultural transformation takes time. While the seeds of reform can be planted relatively quickly, it can take years to embed sustained cultural change.

For any questions or comments on this article, contact Isaac Evans.