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The Healthy Corporate Culture​

CAEs increasingly are being asked to assess, monitor, and report on the health of the organization's culture. 

Charmian Simmons
Risk Market Development Manager

Esi Akinosho
Principal, Global Advisory Internal Audit Leader
Ernst & Young LLP

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How does an organization develop and maintain a healthy corporate culture? 

Simmons Implementing a clear mission and company values sets the tone and messaging from the top, and specifying the organization’s desired risk culture in a way that aligns with these values helps solidify the corporate culture. Establishing a collaborative, open communication approach creates a comfortable work environment and is the best way to maintain a culture where people feel valued, respected, and empowered to offer ideas and make good decisions. Having a leadership team that believes in this approach, lives the mission/values, and knows what employees value contributes to an atmosphere where ideas are celebrated and rewarded, which can lead to a more efficient and productive organization. 

Akinosho First, we need to define a healthy culture. A healthy corporate culture is a) connected to the company’s purpose and strategy; b) positive, inspiring, and engaging for employees who live it, customers who experience it, and shareholders who realize returns from it; and c) strong, consistent around the world, and not overly dependent on the effectiveness of a local leader. Developing a healthy corporate culture takes time, focus, and direction from leadership, as well as level support from key functions to help champion that desired culture. A top-down and bottom-up approach is key in not only the development of a healthy culture, but also in sustaining and fostering changes in it. 

What are the top risks to a healthy corporate culture? 

Akinosho Risk culture connects the overall organizational culture to specific behaviors set along a defined risk framework. It speaks to culture in terms of the three lines of defense and guides how leadership monitors and responds to cultural stress and the risks of an unhealthy culture. Risks relating to corporate culture include a degraded tone at the top, lack of accountability, and minimized transparency. Cultural stress often takes the form of compliance issues, control failures, audit issues, or poor employee performance, and the typical root cause is often a breakdown in trust. Trust can be the biggest risk or asset to a healthy corporate culture, and the erosion of trust can be hard to control and even harder to earn back. By aligning the corporate culture and pulling certain cultural levers, trust can become the driving force for creating a shared vision and turning that vision into value. 

Simmons First and foremost is culture risk, itself. Well-known corporate scandals related to harassment, fake accounts, accounting errors, and misconduct often are symptoms of culture issues and heighten the profile of culture risk as a growing liability for organizations. Culture risk management should be treated as an integrated process of oversight and monitoring that addresses strategy, performance, and risk, and aligns company values, goals, behaviors, and systems with favorable impacts both internally and externally. Other top risks that can affect a healthy corporate culture include financial, operational, market, and reputation risks. The particulars of each risk, such as ranking, priority, and specific factors, will vary by company/industry/geography and by the awareness level of underlying problems, mitigations, and ongoing monitoring. Some symptoms and behaviors that influence these risks include financial underperformance, inconsistencies in business/personnel performance, communication that leads to misunderstanding, unhealthy comparisons and gossip, demoralized employees, customer backlash, and the feeling of destroyed value.

What are the indicators of a weak or failing corporate culture? 

Simmons Indicators can be broadly classified into top-down and bottom-up. Indicators from a top-down business perspective include inconsistent financial and operational success and being perceived by the public and personnel as not conducting business activities with honesty and integrity. From a bottom-up personnel perspective, indicators may include lack of motivation; overwhelming frustration, such as fear of retaliation in speaking out, not being listened to, or pressured to meet unrealistic internal deadlines; poor customer relations; pending investigations; lack of efficiency or ideas; and lack of innovation. These indicators may be noticed by management, personnel, and internal audit, though one must be open and conditioned to seeing the signs to be receptive to raising the matter and taking active and visible action.

Akinosho A weak culture can be characterized by inconsistent programs that deviate from the common goal and vision. Functional groups, including internal audit, that have different strategic objectives or have pockets of opposing forces will create stress within an organization’s operating model and increase the risk of compliance issues, failure to adhere to policies, and internal control breakdowns. Lack of leadership or misaligned tone at the top can hold an organization back and put it at risk for cultural issues. Today, many of these issues are coming to light in very public settings, which is why boards and audit committees are turning to internal auditors, the third line of defense for culture risk management, for insight. 

What should a formal culture risk management program look like? 

Akinosho A formal culture risk management program is embedded throughout all three lines of defense, with the first line implementing the mechanisms to drive culture, the second line taking responsibility for defining the risk culture framework and monitoring effectiveness, and the third line performing independent culture assessments to monitor culture throughout the execution of the audit plan. 

Simmons Recent incidents and news headlines linked to “problematic culture” lead me to say there is no one-size-fits-all program; however, a culture risk management framework should comprise certain key elements that cover all aspects of culture and can be improved and measured over time. First, governance — the mission, values, ethics, policy, board, leadership, strategy, behaviors, and a common understanding of what’s expected. Second, relationships — transparent, honest, and nonthreatening leadership, communications, collaborations, and accountability. Third, environment — the workplace provides for comfortable, productive, inspired, responsive, innovative, rewarded, trusted, engaged employees and supports organizational effectiveness. Fourth, motivation — a fair values system exists surrounding performance, incentive, reward, continuous learning, and clarity of purpose.

How does a dynamic, agile workplace affect corporate culture?

Simmons One affects the other and impacts the success of both. Many organizations want to be more agile to respond to the demands of customers, the digital economy, and rapidly changing marketplaces; however, most don’t appear to have the culture to support this. Being dynamic and agile means being able to quickly and easily adapt to constant change. A workplace environment like this needs to balance the mindset of change with tools, systems, and processes that support an agile approach and allow the four key culture elements mentioned previously to thrive and positively influence behaviors around cooperation, fast decision-making, experimentation, innovation, empowerment, sustainability, and effective cross-functional teamwork.

Akinosho As companies adopt more dynamic and agile approaches and workplaces, they must be aware that the shifting operating models and transient nature of the workforce will have an impact on culture and can even present new risks. When unsuccessfully implemented, an agile operating model can cause a lack of vision or uncertainty in objectives for employees. This cultural stress will work against the achievement of objectives and strategy. Alternatively, an agile workplace can strengthen and foster an existing healthy culture and better advance the people agenda in areas such as development, employee retention, and workforce management.  

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