Culpable Culture – Regulatory Risks and the Challenge for Boards
By Deborah Latimer, Sector Seven
Following a spate of high profile industry scandals across banking, insurance, and wealth management, Australia’s financial regulators, ASIC and APRA, are training a spotlight on ‘corporate culture’ and ‘risk culture’ in particular.
What does this mean for Boards, the HR/OD function and executive coaches?
ASIC believes that poor culture leads to poor outcomes for investors and consumers and impacts the integrity of the Australian financial markets by eroding trust and confidence in them. APRA believes it is essential that prudently regulated institutions conduct their affairs with a high degree of integrity. Both regulators closely link culture to conduct.
Landmark allegations of unconscionable conduct as strongly indicative of poor culture have been exacerbated by concurrent wrongful dismissal claims that have brought apparently disturbing behavioural norms into the spotlight. Claims of a “toxic culture” featuring norms of excessive bonus payments, high autonomy, drugs, alcohol, lap-dancing, misuse of corporate credit cards and obscene language, leading to the inability of some staff to effectively control themselves, point to a real disconnect between an organisation’s espoused values and the ‘real culture’. The question has to be asked how people who are apparently operating within an organisation’s cultural, conduct and risk frameworks, are able to behave in this way?
Australia has a unique concept of a ‘culpable corporate culture’ that makes the ‘culture’ question an increasingly urgent issue for Boards. Whilst it is clear that the regulation of culture is increasing, there is no need however, for Boards to passively accept regulators as the ‘culture police’ and wait for their organisational culture to be prescribed, or even worse, prosecuted.
“Now is not the time for Boards to be complacent about culture. The culture challenge for Boards is how to meaningfully diagnose and oversight the company’s culture – including its risk culture. The first step for Boards is to obtain a true reading on what the culture is now and agree on the desired culture going forward.”
Director, Sector Seven
Recognising that a values-led corporate culture supports ethical conduct, ASIC suggests a good starting point for building culture is “developing your firm’s values, and ensuring these are implemented in practice”.
APRA is actively engaging with Boards on the views they have formed as to the appropriate risk culture and how it is implemented. Risk appetite should be clearly articulated and communicated in terms of how the Board expects people at all levels of responsibility to conduct themselves. Promoting an ethic of personal responsibility contributes to building a strong risk culture.
Now is not the time for Boards to be complacent about culture.
Research reported in ‘5 Signs of Burnout, Impact on Decisions & What to do About It’ (Audrey McGibbon LinkedIn June 19, 2015) shows that where burnout is part of an organisation’s culture, then riskier and poorer quality business decisions will ensue, so a tool such as MEWS that helps mitigate the risk of burnout puts organisations in a position of knowledge to start addressing some of the questions Boards can be expected to increasingly engage with. Whilst MEWS is not the whole part of culture, the extent to which an organisation’s leaders role-model respectful, open, collaborative, reasonable, sustainable behaviours, values and working practices is surely an important piece of the jigsaw?
If you would like more thought leadership and the opportunity to engage further with Deb in relation to understanding and mitigating the risks posed by culture, then please join us for a special MEWS Breakfast Event on 4th April, where she will be our distinguished guest speaker. Click here for event details.
 Defined in the Commonwealth Criminal Code as “an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place”.
 Defined by the Institute of International Finance as “norms and traditions of behaviour of individuals and of groups within an organisation that determines the way in which they identify, understand, discuss, and act on the risks the organisation confronts and the risks it takes.” –December 2009, ‘Reform in the Financial services Industry: Strengthening Practices for a More stable System’
About Deborah Latimer
Deborah Latimer has 25 years experience in legal practice with specialist expertise in governance, risk, and compliance and is passionate about ‘sense- making’ in governance, risk, and compliance as ‘whole of enterprise’ capabilities.
About Sector Seven
Sector Seven is an incorporated legal practice and boutique professional services consultancy, with specialist expertise in corporate governance, risk, compliance and the law. Sector Seven understands such matters form fundamental responsibilities of the Board and must be aligned to organisational strategic and business objectives, to maximise opportunities and protect against threats. Sector Seven partners with EEK & SENSE where people and culture are high on the agenda.