Posted in Reporting, Brand on 27 October 2015 By Kay Kayachith, Reporting Consultant
These events seem to have crystallized a larger need for change. Like Mephistopheles clipping at the heels of executives, the relentless need to meet forecasts and deliver results, can push management towards unethical behaviour and the eventuality of a corporate crisis. How can the board help prevent these crises from happening? What is the board’s role in creating the right culture?
improved evidence of oversight to show that reasonable steps have been taken to prevent, stop, or remedy breaches of ethics and culture
Imagine a drop of blue ink dispersing in a glass of clear water. Like that drop of blue ink, corporate culture and in particular, the influence of its CEO, spreads throughout the company in a myriad of ways, seen and unseen, from processes they put in place to the values they themselves carry as internal barometers of moral guidance. Culture plays an important role in how a company functions and is embedded throughout the ranks. Although a company’s culture can be a nebulous concept, every company has an ingrained one and it permeates and impacts every part of the company from how a phone is answered in reception through to the company’s implementation of strategy and compliance.
This is part of the reason why the Financial Reporting Council (FRC) has embarked on a project that will be assessing how culture can play a more prominent role in the board’s oversight and why the UK’s Senior Managers Regime has required “improved evidence of oversight to show that reasonable steps have been taken to prevent, stop, or remedy breaches of ethics and culture”, according to a recent EY Audit Committee Summit.
As Warren Buffet once said, “Chains of habit are too light to be felt until they are too heavy to be broken”. Whether a company’s culture has evolved organically over time or transformed due to an acquisition or merger, it does need to be monitored and changed if it is not working. There needs to be systems put in place to overcome complacency and overhaul a culture that the board feels is undesirable. Corporate culture needs to transcend the CEO and the entire executive management team, meaning that if the culture in place is not the right one, then it is up to the board to establish the right one even if that means starting with a clean slate.
Chains of habit are too light to be felt until they are too heavy to be broken
After all, it is the board’s responsibility to act as the conscience of the company and steer it in the direction it needs to go in order to prosper. As nebulous a concept as culture can be, it is unmistakably the oil that keeps the corporate machine running, and if the oil dries up or is controlled by a faulty valve, then the engine will fail and the company will stop functioning as it should.
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