Managing corporate culture

It’s not uncommon these days to hear regulators sounding warnings about culture.

They point out that it’s a crucial role of boards to determine the purpose, values and principles of the company they govern, whilst the CEO and senior management have responsibility for implementing the desired culture. Personnel in human resources, ethics, compliance, and risk functions all have a role to play in embedding values and ethics.

Culture, we hear, has an important role to play in risk management and risk appetite.  Weak risk cultures are often the root cause of the most spectacular governance failures. Firms lacking good corporate culture will fail investors and stakeholders.

“Trust, like beauty, is in the eye of the beholder,” says John Price, Commissioner of the Australian Securities and Investment Commission (ASIC). “If consumers don’t like the way a firm has behaved, they can take their business elsewhere and tell everyone about it through the wonders of social media. Loss of reputation due to poor conduct destroys value in a firm.  Even more challenging is that poor conduct may be technically within the law, but still have negative impact on a firm’s reputation.

“The possible loss of trust and confidence is a key business risk. If the conduct of a firm genuinely reflects ‘doing the right thing,’ this mitigates conduct risk and will be rewarded with longevity, customer loyalty, and a sustainable business.”

All very well, we hear you say: but how does a company manage culture?  What does good culture even look like? By what standard do we measure it or assess it? How do you shift from the culture you’ve got today to the culture you aspire to for the future?

The Ethics Centre has been exploring this subject for many years, developing frameworks and methodologies for measuring and improving culture along the way.  We’ve played a significant advocacy role as well, arguing for boards to accept responsibility for setting and maintaining the culture standard in the organisations they govern.

The Ethics Centre recently partnered with the Governance Institute, the Institute of Internal Auditors and Chartered Accountants Australia to produce Managing Culture – A Good Practice Guide. This publication sets out to define culture and explores challenges in identifying, monitoring and driving culture, including organisational change programs. The guide also explores the importance of embedding culture and the nature of the board’s role in evaluating and overseeing culture.

Research has shown that companies that have a good culture perform better than companies that do not. The Guide outlines how each group in an organisation can contribute to a good culture, the first step of which is to create an ethical framework that provides guidance on decisions and an appropriate ‘tone from the top’.

While having an integrated governance and risk management framework is important, unless an organisation establishes a culture that promotes risk awareness into everything it does, it is unlikely to achieve its objectives. Governance and risk management must be at the core of an organisation’s culture.

Download your copy of the guide here.