A culture of fear?

Sep 30, 2020

Eric O’Rourke explains why organisations should not fear the process of corporate cultural change, and how internal audit can play a pivotal role.

“If you can’t measure it, you can’t manage it”. When it comes to changing a company’s culture, this quote from Peter Drucker is something I, as an Internal Auditor, have heard often over the years.

However, culture can be viewed as amorphous and, therefore, difficult to define and alter. For an organisation’s governance structure (i.e. the board and senior executives), the inability to measure an existing corporate culture can create an apprehension and some degree of fear around how to best progress to a desired culture.

Culture matters for any organisation but from a financial services perspective, a positive culture drives conduct by promoting the benefits listed later in this article and protecting against conduct risk. A positive culture provides a guiding light for an organisation, particularly when it faces challenges and difficult choices.

Culture guides what you should do, not what you can do. It helps organisations do the right thing and, in the context of financial services, this involves restoring trust and protecting the industry’s social license.

In May 2020, the representative body for the funds industry in Ireland, Irish Funds, published the ‘Irish Funds Culture Guidance Paper’ for its members. The paper aims to provide member firms with guidance on key themes and good practices to measure, monitor and embed culture. It considers the critical factors to take into account when implementing cultural change. They include defining culture (present and desired) in addition to metrics that can be used to measure/monitor culture and related changes.

Existing culture vs desired culture

For all organisations, the first step is to evaluate the existing culture while identifying the board’s desired culture, as its members effectively lead the organisation’s strategy. Based on this evaluation, the board can then decide whether a culture change programme is required.

Employees at all levels should be engaged to ensure that the echo from the bottom matches the tone from the top. The tone from the top is critical to ensure that culture and values are articulated and hence, can be measured. A ‘cultural roadmap’ should then be created. This task should be championed by the organisation’s appointed culture champion or chief cultural officer from the senior leadership level.

The advice of Internal Audit (IA) should also be sought at the outset, as the role of IA extends across organisational structures and can provide unique insight.

The art of measurement

To measure culture, multiple cultural touchpoints should be amalgamated to give a full picture to key committees and the board. A ‘corporate culture report card’ should also be compiled every quarter and presented to the board by the cultural champion, as culture change is a long process. The report card should be reviewed thoroughly, and corrective action taken if required.

Below are some of the metrics that were published in the Irish Funds Culture Guidance Paper. Evidence from the suggested mechanisms should form the basis of the corporate culture report card (see Table 1). Furthermore, IA should audit these metrics as part of any thematic culture audit, or question auditee culture as part of any audit undertaken.

Benefits of a considered and defined culture

Many benefits accrue to organisations that embrace a healthy culture, including:

  • Sustainable growth and improved profitability;
  • A more engaged and motivated workforce;
  • The ability to attract and retain top talent;
  • Better and more transparent decision-making;
  • Responsiveness to change and risk;
  • Improved customer satisfaction; and
  • A corporate image and identity that others aspire to.

So the critical question is: what culture is desired? Determining the desired culture and measuring the existing culture are the first steps.

In closing, I note the words of Dale Carnegie: “Inaction breeds doubt and fear. Action breeds confidence and courage”. The time is ripe to review and possibly enhance your organisation’s corporate culture. Do not fear change; instead, focus on what can be achieved.

Eric O’Rourke ACA is Head of Internal Audit at Sumitomo Mitsui Trust Group Global Asset Services and a member of the Irish Funds Internal Audit Discussion Forum.