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Debating corporate culture - "Whose culture is it anyway?"

The AQF debate, “Whose culture is it anyway?” highlighted the importance of business culture and the challenges in getting it right. You may wonder why corporate culture featured at an Audit Quality Forum (AQF) event but the debate on 12 November 2015 showed just how important it is to get business culture right – both for business and its auditors.

To inject some pace and spirit into the discussions, Mark Steel, comedian, broadcaster and newspaper columnist, gave his provocation. “There is a sense in the general population that there is something wrong with business culture. That it is distant and removed and those at the top are there to serve themselves,” he said.

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He reminded the audience that most people’s contact with big business is at the point of the call centre and this can shape society’s attitudes to business, its culture and customer service. He went on to add that people’s attitudes to business have changed over the last 20 years. That society has become more ruthless in demanding action against bad behaviours.

“It strikes me that business culture is not just one culture. If you look back through history there is a culture that we would hardly recognise now,” he suggested, referring to the Quaker and cooperative movements of the nineteenth century where business was seen as part of the community. “Years ago people like Robert Owen had a vision but business today doesn’t have the same vision.”

You can listen to more audio clips from the event by visiting our soundcloud.

Developing a culture to support long term success

Challenging how we establish a culture that supports long-term success, Baroness Neville-Rolfe, Parliamentary Under Secretary of State for Business, Innovation and Skills and Minister for Intellectual Property, in her keynote speech, explained: “We always have to remember that business earns so much of the money, creates the jobs, that actually builds the hospitals, builds the schools and there is an important, wider objective and mission there which doing a good job in business makes a difference for.’

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The question being considered is whether strategy is more important than culture and vision? Her own view is that “anyone can write a clever strategy or pay someone else to do it but implementing it and cultivating the right culture is the key to long-term success and goes beyond the business sector.”

Raising the issue of the burden of regulation, she highlighted the importance of having “the right sort of regulation and not the wrong sort”. Drawing on her own experience, the audience heard how important it is for boards to play a central role in shaping strategy and the culture of a business, which should be reflected in the objectives, decisions taken and how staff are rewarded throughout the organisation. “Boards need clarity of purpose of what success looks like and how the company as a whole can meet the needs of its customers and staff to deliver that success.” She highlighted how the digital world brings new market opportunities but noted that businesses must also continue to think about their existing legacy businesses – and must tackle the multiple risks that, for example, changing technologies bring.

She noted the importance of companies’ remuneration boards and good board succession planning for corporate culture – along with the importance of career development, investor stewardship, a focus on the talent pipeline, mentoring, audit committees being prepared to pose the right questions to the Board and the company secretarial role ensuring good company communication. “If everyone, at every level, did their job just a little bit better, then the world would be a better place.”

Embedding a healthy culture

In the second keynote speech, Sir Win Bischoff, FRC Chairman, provided some background on the FRC’s culture coalition project to assess how effective boards are at establishing company culture and practices and embedding good corporate behaviour and to consider whether there is a need for best practice guidance. The project is expected to provide market led observations to help boards establish and embed a healthy culture.

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He observed that society’s expectations of companies had changed; society wants company behaviour to improve and culture to change. He highlighted the role of the Corporate Governance Code and “the need for the Board to define the company’s purpose – the outcomes it wants to secure and the behaviours it wishes to promote.” This, he explained, involves asking questions and making choices, for example, choices about the balance between constructive innovation and disproportionate risk taking and balancing the delivery of short and longer term needs, and encouraging discussion of culture with the investment community.

“Good corporate governance is an essential part of a healthy corporate culture,” he said, but cautioned that “strict adherence to the Code is not necessarily an indication, or not the only indication, that a company culture is completely healthy.”

He noted that poor corporate governance and cultural weaknesses are still being identified as root causes for corporate failings but that culture is not something that can change overnight.

He highlighted that culture can be enhanced by learning the lessons from audit “as at every part of an audit engagement auditors need to have assurance and evidence to prove that management operates with integrity and transparency”. He emphasised the importance of the interaction between risk (predominantly forward looking) and audit (traditionally looking back over the past) culture and noted that the impact of poor culture on risk management and control can now be part of the extended auditors’ report.

In responding to the question posed at the March AQF event about whether business can ever get it right, he said: “If a business gets its culture right then many good things follow, financially as well as reputationally.”

Pre-event survey

  • 96% of those responding said they understood what is meant by business culture
  • 78% of those responding said that diversity in the boardroom is essential for a healthy culture
  • 85% of those responding said that diversity throughout an organisation is essential in developing a healthy culture
  • 56% of those responding said you can measure culture in an organisation
  • 52% of those responding said that both internal and external auditors should have responsibilities in relation to culture

Results taken at the event

  • 99% of those responding said that culture was important
  • 58% of those responding said that they work in business with the right culture