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Management

The most successful managers and leaders help their teams learn from mistakes in an atmosphere of respect and acceptance. By Annette Clancy Your doctor tells you that you will need to undergo major surgery for a life-threatening condition. Fortunately, you have private health insurance, which will allow you to choose the hospital in which the procedure will take place. There is little difference between the hospitals apart from one issue. Of the three covered by your insurance, Hospital A reported making 100 clinical errors in the past year; Hospital B reported 75 and Hospital C reported just 20. Which hospital would you choose for your surgery? On the face of it, Hospital C seems to be the obvious choice. Fewer errors might suggest that this is a safer place in which to have surgery for a life-threatening condition. Any hospital making five times that number of mistakes must be doing something wrong, surely? Not quite. Amy Edmondson, Professor of Leadership and Management at Harvard University, started out thinking precisely that when, as a graduate student, she undertook research on medical team errors. The data initially didn’t make sense. Why would the best medical teams have the highest rate of reported errors? Edmondson studied the data in more detail to explore exactly how the teams communicated about errors. She discovered that the teams with the highest rate of reported errors were the ones that talked frequently about their mistakes in order to learn from, and reduce them. To do this, they created an atmosphere Edmondson termed “psychological safety”. Anxiety zone vs comfort zone Psychological safety can be defined as “being able to show and employ one’s self without fear of negative consequences of self-image, status or career”. In psychologically safe teams, there is a shared belief that the team is safe for interpersonal risk-taking. As a result, team members can learn from mistakes in an atmosphere of respect and acceptance. In psychologically unsafe teams (or organisations), members are afraid to speak out, particularly to authority figures who may question their credentials or status. Edmondson gives an example of a nurse who suspects that a patient may have been given the wrong dose of medicine but doesn’t call the doctor to check because the last time she did, the doctor questioned her competence.  Psychologically unsafe teams don’t speak up about errors and as a result, mistakes are made – some of which may have enormous repercussions. Edmondson cautions managers and leaders against holding employees accountable for excellence without creating psychological safety, as this creates an unhealthy anxiety zone. The opposite – creating psychological safety without accountability – creates a comfort zone, which is not high-performing. A good balance between the two is what is required, and this can be created through dialogue and discussion. Practical solutions How can team leaders and managers help to create psychological safety? Edmondson has some suggestions. Frame the work as a learning problem rather than an execution problem, thereby highlighting the uncertainty and interdependency required of the team. Frame the project as something that is new¬; as something that has not been undertaken before. No one person can deliver the project, therefore every person’s input is required. Establish that learning is an ongoing and necessary part of the project from beginning to end. Admit your fallibility as the team leader or manager. You cannot anticipate and solve all problems that will arise, and this will create safety for speaking up. The more you admit you don’t know, the more each individual on your team will be encouraged to admit their own fallibility. And finally, model curiosity. If you ask questions, you will create a culture in which others will feel safe enough to do so. Asking questions creates dialogue, and out of dialogue comes learning. Dr Annette Clancy is Assistant Professor at UCD School of Art, History and Cultural Policy. Annette’s research focuses on emotions in organisations.

Oct 01, 2019
Strategy

Large customers are good for business, but can stretch your cash flow.  By Peter Brady Have you recently received a ‘polite letter’ from your US multinational corporation (MNC) customer advising of a stretch in your credit terms from 30 days to 90 plus? Or, indeed, from any of your MNC customers? In recent years, the extension of MNC credit terms has become business as usual across the globe but for SMEs, it is anything but business as usual. Think about it. How would an extension of credit terms impact on your cash flow and projections this year? And what are the implications for your growth strategy in 2020 and beyond? Winning a contract with a large MNC is a measure of success for established SMEs. However, an extension of credit terms can feel like a double-edged sword as it puts excessive strain on cash flow. Why does it matter? A strain on your cash flow can have many implications, all of them negative. The first impact is on your suppliers – they expect payment in 30 days. There is an immediate gap in cash flow and you are unlikely to have sufficient sway with your suppliers to realign. This could mean: You are not in a position to fund the initial costs of fulfilling contracts; Pressure is placed on your existing supplier relationships in the form of increased risk around quality, timely delivery and higher prices; Capacity to deliver on-time to customers is affected; and Ability to grow the business at pace is limited. The lost opportunity  It may seem obvious, but having cash tied up in debtors with long credit terms is a fundamental challenge for most SMEs. If SMEs could access this cash early, it would give a distinct competitive advantage when negotiating terms with key suppliers. Think of what you could do if your invoices were paid on day one, not day 90. First, you could pay your suppliers early, enhance the relationship and ultimately secure better terms. Second, you could deploy funds into driving new customer acquisition and fund new business tenders with the comfort of cash flow certainty. So what do you do? You have two options: 1. You could try to negotiate: know where you stand in your customer’s eyes. Do your products or services play an important role in their success? Is your product or service critical to their delivery? Even so, unless you are the sole producer of a key strategic element, there’s another company out there to potentially replace you. Alternatively, your customer might offer softer credit terms in exchange for a pricing discount – but cutting margins is an extremely expensive source of finance and unlikely to be recovered. This course of action doesn’t make good business sense, as it is a race to the bottom. 2. Look at funding options to bridge the gap: the financial market is developing all the time to reflect the needs of business. For decades, when Ireland’s SMEs needed to fill the cash flow gap left by extended credit terms, they had limited choices – commercial overdrafts, short-term lending or an invoice discounting facility. That may have been adequate in the past but such is the success, ambition and global reach of Irish SMEs across all sectors today, this range of funding options falls short of their requirements. Commercial overdrafts are harder to secure and are generally seen as an unreliable method of funding, not directly aligned to the changing requirements of a business. Similarly, short-term lending is onerous to put in place and comes with significant levels of conditionality. An invoice discounting facility continues to plug the cash flow gap for many SMEs in Ireland. However, invoice discounting facilities are operationally clunky and carry significant fixed and hidden costs and limitations. They are therefore not really fit for purpose for today’s SMEs. Many SMEs often have a small number of key strategic customers in their sales mix. Supported by government bodies such as Enterprise Ireland, Ireland’s SMEs have a global footprint. Exporting is crucial to scalable business success, and not just to Western Europe. SMEs are securing contracts across the globe – US, Canada, EMEA and Asia. Invoice discounting facility For years, the invoice discounting facility has serviced working capital funding requirements. However, the facility comes with three major limitations: The facility limit; Geographical restrictions; and Debtor concentration risk limits. The facility limit At the outset, SMEs are subjected to a long and onerous process to get approval for the invoice discounting facility. Fair enough, you may say, as this is effectively a loan and it follows that the bank providing it decides how much the facility is for. SMEs must enter into a long-term commitment, often saddled with non-usage charges or exit fees. SMEs must also pay credit insurance and sign a personal guarantee – something entrepreneurs have grown to fear. Geographical restrictions Exporting to the UK? Great. Exporting to United States (US)? Not so great. Country risk and the law of the land plays a major role in how traditional lenders assess the risk and granting of facility limits. If the country in which your customer is located is outside of what is considered in banking terms to be palatable, funding limits and exclusions will apply. Debtor concentration risk limits The most common reason for restricting funding under an invoice discounting facility remains customer or debtor concentration. It applies when an SME becomes over-exposed to a single debtor. The debtor could be a large household brand name, but traditional lenders must impose facility limit restrictions. For SMEs, it is somewhat ironic that the more business you do with a key customer, the more your funding is limited. So, back to your US multinational extending its credit terms. You’ve worked tirelessly to win this business, but you can’t sustain 90 days’ credit and this customer accounts for over 60% of your debtor book. Your business needs: Consistent certainty of funding, without any limit relating to geography or debtors; Funders who recognise the strength of your business model and the substance of the underlying transactions; and Access to working capital to scale your business globally. Market and product innovation Invoice, purchase order and recurring revenue trading are collectively known as “receivables trading”. Receivables trading ticks all the boxes. It enables SMEs to leverage their customer relationships. By selling invoices and future invoices (purchase orders) to a pool of capital market funders, SMEs can access finance when they need it. What difference do capital market funders make? The funders are capital market institutional funders, pension funds, corporates and sophisticated investors – and there is a large pool of these funders. The fact that there is not just one entity, but a pool of funders purchasing the receivables (invoices or purchase orders) eliminates the requirement for imposing concentration or geographic limits on the SME. It extinguishes the need for any commitment, lock-ins or fixed costs. At no stage is there an ask for a personal guarantee. This funding solution puts control back into the hands of SMEs and allows them to decide when they need to access funding on their terms – a liberating benefit. How does it work? Receivables trading is available via an online platform. A pool of institutional funders (the buyers) are members of the platform. SMEs (the seller) uploads their invoice or purchase order and the buyers purchase them. The model is ideally suited to established SMEs with MNC or sovereign debtors. The SME can use the online platform in conjunction with their existing facility by carving out specific debtors from the invoice discounting facility. In conclusion Business is constantly changing and working capital funding has caught up. Alternative funding where sellers and buyers connect directly via an online platform is fast becoming the norm. With this funding solution, SMEs can tender for business of any scale globally – confident that they can fund the upfront costs. It’s a gamechanger for most. According to the Central Bank Survey of SMEs, which was published in January 2019, the top two reasons for credit applications were working capital, and growth and development. ISME’s quarterly business survey reveals that 70% of Ireland’s SMEs still rely solely on traditional bank funding. In Europe, it’s only 30%. Alternative funding is the future of funding. Peter Brady FCA is Co-Founder and CFO at InvoiceFair.

Oct 01, 2019
Comment

When it comes to finance process outsourcing, how do we keep up with industry trends? By Sinead Donovan Whether an organisation uses an in-house shared services centre (SSC) or external service provider, outsourcing has become a familiar concept to many of us in industry and professional services settings. It is no longer a new idea when it comes to finance and non-core process solutions. Long gone are the days when terms such as SSC and business process outsourcing (BPO) were treated as an innovation. Rather, it has become a finance strategy staple for most mature and growing multinationals. The first outsourced centre in Ireland opened its doors in 1995 – an SSC of a large US multinational. Others quickly followed suit and there was an explosion of SSCs across Ireland supporting multinational organisations globally. Many have since moved away from the Irish market, or made a complete turnaround by transforming their services in the last number of years. This is a natural progression in the lifecycle of outsourcing and service transformation. Coinciding with this evolution, a new era of outsourcing has emerged which is a very interesting and indicative trend. Traditionally outsourced services concentrated on high volume and low complexity, non-value-add processing tasks – be that booking of accounts payable invoices or entering pre-approved journal vouchers. A typical offering comprised of three main functions: accounts payable (AP), accounts receivable (AR) and general ledger (GL). While you may have occasionally found other support functions (think of master data management), this was not standard practice in the early days. Business partner Some 20 years on, the situation is rapidly changing. SSCs and BPOs are now expected to remain relevant while delivering valuable services to the parent company or clients they serve. With the increase of automation and technology, there is decreased need for support of high volume, low complexity tasks. Instead, there is an increased requirement for higher value-add analytical services. System transitions and implementations, process improvement and historical issue resolution are among the services now provided by BPO teams across professional services and SSCs alike. Additional value-add supports sought by the parent company or client now include financial planning and analysis, advice on enterprise resource planning (ERP) and business combinations. If we were to sum up this trend in one sentence, ‘a move from processor to business partner’ seems the most fitting. From a business perspective, what do companies look for when transforming their finance function? It seems that demands placed on service providers have evolved from what they would have been some 20 years ago, when the main consideration was which finance process could be outsourced using a straightforward ‘lift and shift’ model. Today, this approach has changed. Many businesses are undergoing systems and process transformation. Thus, shared services providers need to take that into account and adjust their solutions to add real value and innovation. This is often done by utilising technology, robotic process automation (RPA) or artificial intelligence (AI) to tackle all the repetitive and high volume tasks while allowing employees to concentrate on process improvement, in-depth analysis of big data, and key risk areas instead. Looking to the future With this trend, it is easy to see that the key to success for any SSC or BPO service provider – especially those in a professional services environment – is to remain relevant and to continue looking for new ways to improve efficiency, add value and innovate. Exactly how to stay relevant is, of course, a bigger question. It can be easy to get lost in multitudes of considerations, trying to keep up with changing attitudes and demands. While there is no doubt that continuous improvement and development is important to successful client-provider relationships, there is another more subtle – but equally important – aspect that should be given just as much attention. Indeed, it is especially relevant in the professional services setting. Mutual trust in the relationship between provider and client can be the deciding factor in the success or failure of a project. Both parties should be committed to the mutually beneficial collaboration that allows BPO providers to continue adding value and evolving to support clients or parent companies – all with a view to remaining relevant in this dynamic market. Sinead Donovan FCA is a Partner in Financial Accounting and Advisory Services at Grant Thornton.

Oct 01, 2019
Careers

Work-life balance can have enormous value in any organisation,  but meeting the needs of a broad spectrum of employees is more art than science. By Ed Heffernan For well over a decade now, work-life balance has been part of the conversation. The 2019 Leinster Society Salary Survey cited, perhaps unsurprisingly, that 86% of respondents said it was a key factor when considering an external move. Surprisingly, however, some 52% of respondents cited they would sacrifice up to 10% of their financial reward for better work-life balance. What is this mysterious, evasive thing that the majority of accountants would take a pay cut for? How is work-life balance defined? Sometimes things are more easily defined by what they are not, rather than what they are. Here’s an example: Work-life balance does not mean equality between work hours and non-work hours; Work-life balance does not necessarily mean working fewer hours than you are working now; Work-life balance is not a one-size-fits-all matter; it means different things to different people and will have a varied meaning over time for each individual; and Work-life balance means different things to different generations; for some, it’s a nice-to-have while for others, it’s an expectation. More often than not, work-life balance comes down to three things – flexibility, achievement and enjoyment. Flexibility is doing your job at the times that work for you. We all have different commutes and different responsibilities outside of work; the employers that recognise this as a fact of life are the ones who retain their people for longer and get more return for their people’s time. For example, some employers will: Allow some degree of flexibility on start and finish times to allow for commutes, family responsibilities, sports commitments or even to make sure that when someone needs to finish a little early, they feel that they can; Allow people to work from “not the office” and trust that they will. Numerous studies suggest that the worst possible place for employee productivity is the workplace – there are just too many distractions. Enabling certain types of work, especially the type of work that requires uninterrupted focused activity, to be conducted outside of the office can lead to substantial  increases in productivity; and Giving a little can mean gaining a lot. If one of your team has a medical appointment or another one-off event, allowing them the freedom to be away from the desk without deducting the time from their holidays, or stating that they have to make the time up, can have enormous reciprocal effects in the future. Small, random acts of kindness are more powerful than any policy. There is a catch, though. Even if a company does manage to create a flexible working environment, it is still not going to please all of the people all of the time. When it comes to flexibility, some people at certain stages in their life will need a little more; others a little less. Implicit to the flexibility component of work-life balance is that it means different things to different people at different stages. Companies that create a culture of flexibility as opposed to enforcement often get the best results. Achievement is the cornerstone of human ambition. Everyone needs to have a clear understanding of what they need to achieve in their role and to be recognised when this achievement occurs. This can be weekly, monthly or even annually. It must be measurable in some way and it must be recognised, either intrinsically (for example, a simple ‘thank you’ for a job well done) or extrinsically (for example, some type of financial reward – a token, an unexpected gesture, a bonus, or even a salary increase). Everyone needs to feel that they are achieving something in their role and it is ultimately up to their direct manager to ensure that achievements are recognised. Those who feel they are achieving something tend to feel like they have work-life balance and in many cases, they feel this way regardless of the hours they work. Enjoyment is a less tangible, but equally important, part of work-life balance. Enjoyment does not just mean having fun – that’s only part of it. Enjoyment has a much wider definition when it comes to work-life balance. It’s how you feel about what you do; it’s how it feels to work in your team; it’s feeling that you are working towards a shared goal; it’s respecting and learning from the people you work with; it’s celebrating success and learning from failure with your colleagues; it’s the opportunity to help others learn; it’s the opportunity to work in a business that you believe in for a cause you admire; and it’s a whole lot more. Flexibility and achievement are the easy ones to define and create a policy for – enjoyment is the piece that is really personal, and the piece that many managers often get wrong. Work-life balance can have enormous value in any organisation. Get the mix of flexibility, achievement and enjoyment right, and your people will work harder, be happier, be more productive and will stay longer. Get it wrong these days, and you will end up with the opposite. It’s that easy. Why authentic leaders listen For some people, it isn’t the work component that creates the imbalance; it’s the life component. At certain times, we all come under stresses that have nothing to do with work. Some people make work the escape from these stresses; other people bring these life stresses into the workplace with sometimes devastating consequences. People don’t change without reason. If someone on your team begins to submit work that isn’t up to their usual standard, uncharacteristically misses multiple deadlines or just seems ‘off form’ in the office, don’t get annoyed – get curious. Sometimes it might just be listening; sometimes it might be arranging some extra flexibility or a reduced workload on a temporary basis. Regardless of the situation, every time you engage and, where you can, offer to take action, you will not only make a difference for that person, but you will create longer lasting, deeper bonds between yourself and your team. You can create the space your people need when life causes an imbalance. And from experience, that’s where the real magic happens. It’s easy to ignore the problem, but it takes bravery to ask the question. Which type of leader are you?   Ed Heffernan is Managing Partner at Barden Accounting and Tax.

Oct 01, 2019
Financial Reporting

The provision of environmental reporting clearly aligns to our profession’s core values, so we can all play a role in the drive for sustainability. By Kate van der Merwe Since the 1970s, the influential Business Roundtable has exclusively represented CEOs of the most prominent US companies. In August 2019, 181 CEOs issued a new mission for the group and the companies they represent. No longer singularly focused on maximising shareholder wealth, the mission proposes to benefit “all stakeholders – customers, employees, suppliers, communities and shareholders”. This represents a significant shift in how a company’s purpose is understood. Reporting business performance was traditionally one-dimensional, with an annual presentation of structured figures delivered primarily to shareholders. Over time, this has proven insufficient as it doesn’t explain “how” a company achieves its financial results. In response, the content of reporting has transformed. The increasing demand for, and provision of, non-financial reporting within the external reporting cycle is part of a broader shift. Corporate Social Responsibility (CSR), Environmental Social and Governance (ESG) and integrated reporting won’t be new concepts to readers, having been previously covered in this publication. Reporting continues to evolve, recognising the value of social responsibility, ethics, and diversity equity and inclusion (DEI) to tell a fuller, more meaningful story and in doing so, making the numbers three-dimensional. Companies’ impact on the environment is increasingly being scrutinised, driven by the visibility and awareness of the climate crisis coupled with the current expectation of corporates to be “responsible citizens”. We can see this manifesting in the investment trends of both personal and institutional investors. For the personal investor, investing increasingly requires value-alignment, with impact investing prioritised with younger investors in particular. Both pollution/use of renewables and climate change were two of the top five areas of importance for personal investors in 2018, according to Schroders. Meanwhile, 52% of young investors (18–34) always/often invest in sustainable investments instead of those that aren’t considered sustainable or contributing to a sustainable society, with at least a further $12 trillion estimated to pass to these potential investors over the next decade. Diverse institutional investors, similarly, continue to shift towards impact investing. The Global Impact Investing Network (GIIN) values the impact investment market at $502 billion while its 2019 Impact Investor Survey found that 56% of investors target both social and environmental impact objectives, with a further 7% specifically targeting environmental investments. Meanwhile, fossil fuel divestment is approaching a valuation of $10 trillion across 1,100 entities including nation states, banks, universities, NGOs and faith groups. As Jim Yong Kim, a former president of the World Bank, put it: “Every company, investor and bank that screens new and existing investments for climate risk is simply being pragmatic”. With such appetite, the need for deep understanding of the relationship between business and the environment is clear. Such environmental information exists in a number of forms – as part of non-financial reporting (such as ESG reporting); independent accreditations or affiliations (from the Forest Stewardship Council (FSC) to Certified B Corporations); award recognition (for example, the United Nation’s (UN) Champions of the Earth); and, finally, less formal self-assessments. This environmental information informs reporting and has significant benefits for the relationships with stakeholders, including employees and consumers. As environmental reporting develops, there are several players attempting to define a standard, yet relevant, framework to capture environmental performance. Multilateral bodies such as the UN and European Union (EU) have issued guidance; the Swedish government, for example, has introduced prescribed reporting; and independent organisations have issued frameworks to further this agenda. However, development has been fragmented and criticised for a lack of maturity. Two key criticisms are the lack of comparability (given the array of frameworks to choose from) and the lack of prescription or detail (succumbing to either greenwashing, or irrelevance due to a lack of nuance). The need for clarity in this area is highlighted by a Schroders investor survey, which notes that 57% of people held back from investing or investing more in sustainable investments due to information gaps. While investor appetite represents a significant carrot, the sticks of regulation and public relations (PR) penalties must also be considered. The direction of regulation can be seen with the EU’s Technical Expert Group on sustainable finance (TEG), established in 2018, whose remit includes defining metrics for climate-related disclosure. Irrespective of the current maturity of environmental reporting, there is increasing pressure to get it right. Both Ireland and the UK recently announced commitments to invest in “green” projects and infrastructure. With companies, governments and individuals looking to invest in sustainable businesses, projects and infrastructure, it becomes ever-more important for every business to be able to tell their sustainability story with credibility and depth. Accountants have an opportunity to leverage their complementary skills and experiences to aid the transition to meaningful environmental reporting. Furthermore, the provision of environmental reporting clearly aligns to our core values and serves the common good by meeting public expectations and ensuring transparency and accountability. Environmental reporting is an immature but growing area that is here to stay. It is best viewed holistically, as part of a bigger shift to intersectional environmental information. It is central to our values not just as human beings, but as accountants, finance professionals and business leaders. All businesses, whether multinationals or small- or medium-sized enterprises (SMEs), should embrace this as an opportunity to tell an authentic, winning story to an extensive audience as the absence of information will inevitably generate its own noisy static. As accountants, we have an exciting opportunity to play an integral part in solving a problem for the common good.   Kate van der Merwe ACA is responsible for Global gFA Reporting Optimisation  at Google.

Oct 01, 2019
Ethics

The Institute’s new guide, a five step approach to considering organisational culture,  serves as a useful starting point for a board, or those in executive or senior management positions. By Níall Fitzgerald The Business Roundtable is a group of influential CEOs from America’s leading companies, and it recently renewed its “statement of purpose”. Having spent 22 years following a shareholder-first philosophy, the group has adapted to societal expectations for better business behaviour by expanding its fundamental commitment to deliver value to other stakeholders including customers, employees, suppliers and communities. It is hard to imagine how this commitment will be honoured without changes to organisational culture by the 181 CEOs who pledged to lead their companies for the benefit of all stakeholders. Closer to home, the UK Corporate Governance Code was revised by the Financial Reporting Council (FRC) in 2018. Its original source from 1992, The Financial Aspects of Corporate Governance (otherwise known as The Cadbury Report), outlined the importance of a principled corporate governance code “for the confidence which needs to exist between business and all those who have a stake in its success”. The only stakeholders mentioned in that version, and successive ones, were institutional investors and shareholders. Twenty-six years later, the Code not only refers to “a wide range of stakeholders” but also formalises the board’s role in aligning an organisation’s culture with its purpose (vision), values and strategy (mission). Reflecting this trend, investors and business analysts are ramping up their cultural assessments of organisations. A study conducted in 2015 by global culture organisation, Walking the Talk, with Stamford Associates in the UK, revealed that 94% of investment managers based mainly in the United States (US) and UK include culture as an important consideration in their investment decisions. In January 2019, State Street Capital, one of the world’s largest asset managers, wrote to the chairs of more than 1,100 organisations in the S&P 500, FTSE 350 and similar organisations in France, Germany, Australia and Japan, calling on them to review their culture and explain its alignment with their strategy. Investors are voting with their feet, which was evidenced by the dramatic fall in Barclays’ share price in 2017 following CEO Jes Staley’s attempt to identify an internal confidential whistleblower, which went against the organisation’s espoused values and culture. Institutional investors are also taking a more active role in driving change by making their expectations clear – not just around the rate of returns, but also on the organisational culture they wish to align with. The Japanese Government Pension Investment Fund (GPIF), one of the largest pension funds in the world, implements an environmental, social and governance (ESG) investment decision-making methodology. This methodology considers factors such as the quality of a company’s culture as well as management, risk profile and other characteristics. They are not alone, with many other institutional investors following a similar approach. In producing Chartered Accountants Ireland’s Concise Guide for Directors: A Five-Step Approach to Considering Organisational Culture, we identified a consensus that organisational culture plays an increasingly important role in influencing behaviours in an organisation. Given the importance of organisational culture, several questions were raised during the production process. Four of the most common are outlined below: 1. Who is responsible for organisational culture? The board has overall responsibility for ensuring that an organisation’s vision, mission and values are aligned with the culture of the organisation. In the same way the board is responsible for approving the strategy of the organisation, it is also responsible for agreeing on what the target culture of the organisation (i.e. the culture the organisation should aspire to) should be. Each member of the board, executive or non-executive, has a responsibility to lead by example and promote the target culture; this involves ensuring that adequate time is allowed on the board agenda for discussions on organisational culture. 2. Who influences organisational culture? It depends. This is where the phrases “the tone at the top” and the “echo from the bottom” comes into play. Unlike strategy, culture is an organic and fluid ecosystem, and while a target culture will be agreed by the board, the process of shaping and realising it is gradual. It involves leadership from the top of the organisation (top-down) and engagement from the bottom of the organisation (bottom-up). Who has the greater influence in shaping organisational culture will differ from one organisation to the next. For example, it may be the director(s) in a small owner-managed family business, the CEO in a multinational, the founder in a not-for-profit organisation or the legacy staff in a government department. It isn’t just internal people or politics that influences the target culture. It will be influenced by many other internal and external factors including, but not limited to, regulatory landscape; political environment; social norms; trade union participation; the history of the organisation; leadership capability within the organisation; level of ambition of people to lead change; common values shared across the organisation; and both internal and external drivers of change (e.g. digitalisation). The organisation’s culture ultimately influences and shapes the interactions with all stakeholders. 3. What are the best organisational culture traits to have? There is no one-size-fits-all. What works for one organisation may not work for another in a different stage of development or in a different sector. The objective is to determine common cultural traits that can be embedded across the entire organisation, while recognising and accepting that sub-cultures also exist. For example, larger organisations may have subcultures in different geographies or in various departments or business units. To be effective, cultural traits should be realistic and counterbalanced. Promoting a culture of collaboration and collective responsibility, for example, should be balanced with ensuring that people are individually accountable for their contributions and actions. It is also important to acknowledge that organisational culture is dynamic; it is constantly changing in response to internal and external influences. Culture risks exist, like any other risk, and organisations will need to manage accordingly. Mitigation measures include ongoing communication and reinforcement of the organisation’s core values and behaviours, combined with risk-based culture audits or reviews. Internal controls with early warning systems are useful for alerting management to behavioural changes that can negatively impact culture – for example, where a production line debriefing identifies that downtime is being recovered by taking shortcuts to stay on schedule. 4. Where do I start when considering organisational culture? The five-step approach to considering organisational culture is presented in Figure 1. This approach serves as a useful starting point for a board, or those in executive or senior management positions, to consider organisational culture. It is designed to work in tandem with the vast reservoir of tools and methodologies for assessing, defining and shaping organisational culture. The steps can be summarised as follows: Assess current culture: every journey has a starting point and it is important to understand the current culture of the organisation before agreeing the path forward. Evaluate effectiveness: determine what works well with the current culture, and what doesn’t. Are there opportunities for quick, positive change for better business behaviour? And what will require more effort? Define/refine target culture: what influences the organisation’s target culture? And does it clearly align with the business purpose (vision) and values? Identify gaps: identify, prioritise, risk-rate and cost the gaps between the target culture and the current culture in order to inform the organisation’s cultural change programme; and Close gaps: prepare the change programme to shape the organisation’s culture. Throughout the journey, it is important to communicate the changes, evaluate whether the implemented changes are having the desired effect, and reinforce the reasons for change and how they align with the organisation’s vision, mission and values. Organisations are investing more in getting their culture right. The various roles that Chartered Accountants play within organisations involve a level of influence in assessing, defining and shaping organisational culture. While this influence may not seem obvious at first, it becomes more apparent when you consider that many Chartered Accountants hold positions that provide a strategic, overarching view of what is happening in their business unit or across their organisation. By applying their analytical and reporting skills, Chartered Accountants can use their access to information and insights, as well as their opportunities to observe behaviours across the organisation, to significantly support the development of a healthy culture. Whatever role you play within an organisation, consider how you can positively influence and shape a healthy organisational culture.   The Concise Guide for Directors: A Five-Step Approach to Considering Organisational Culture is available to download from Chartered Accountants Ireland’s Governance Resource Centre. Níall Fitzgerald ACA is Head of Ethics and Governance at Chartered Accountants Ireland.

Oct 01, 2019