Corporate culture is a success factor!
The manner in which the culture of an organisation is lived has a greater influence on the behaviour of the members of the organisation than perhaps policies, regulations and codes of conduct. That is the result of the current survey conducted by the Association of Chartered Accountants (ACCA). In this context it is readily understandable that steering, controlling and monitoring a company solely on the basis of rules and control will increasingly reach its limits. However, few top managers or supervisory bodies are presently willing to critically deal with the characteristics and excesses of the corporate culture spawned in their companies although they frequently do become known to the public.
Yet there are ever more initiatives being undertaken to fill these management gaps. Particularly companies in the financial services industry are implementing more value and principle-related control mechanisms, which are meant to contribute to the development and sustained implementation of an organisational culture that primarily protects the company, its customers and its markets from damage. The objective is to identify undesirable developments in a company’s organisational culture as they arise and to prevent them.
Corporate culture must be well defined!
None of the significant factors for a company’s development should be left to chance. The British Chartered Institute of Internal Auditors (IIA-UK) already early on became involved with exactly these challenges in the ever changing environment of regulations. In the Financial Services Code published in July 2013 the IIA-UK, in particular, recommended scrutinising the risk and control culture of an organisation in conjunction with internal audits and reasonable assurance reviews. Furthermore, the auditor or practitioner is to provide an assessment of whether and how the processes and measures implemented as well as the personal attitudes of top management are in line with the values of the company, with ethical principles, with staff’s willingness to take risks as well as with the organisation’s own guidelines. This also includes, amongst others, specific aspects such as performance evaluations, remuneration policies, decision-making parameters and the so-called” tone at the top”.
Corporate culture reasonable assurance review: this is what your company can expect!
As soon as the specific objectives of the reasonable assurance review (e.g. analysing the company’s organisational culture, conducting integration work within the framework of an external acquisition, looking and asking what is behind the company’s guiding principles, etc.) have been determined, detailed planning for the review is done. For example:
- Delineating the specific components of the organisation affected (e.g. company management, certain divisions, committees, subsidiaries, functions, etc.)
- Recording known cultural deficits in connection with a preliminary analysis (e.g. employee turnover, illnesses, burn-out percentage rate, customer churn, damage to image and reputation, management style, incidents of non-compliance, integration problems, lack of identification with the organisation, e.g. attendance at trainings, social events, internal surveys, etc.)
- Analysing the results of existing measures/activities from which conclusions can be made on organisational culture (e.g. HR measures, such as 360-degree feedback, inquires of employees, soft skill trainings, coaching, etc.)
In the last step individual workflow steps are illustrated by relevant indicators. In the future these indicators will regularly be surveyed in connection with a target-actual comparison for measuring the development of an organisation’s corporate culture.
The great importance of the corporate culture factor has been becoming ever more apparent. In particular, because solely basing the steering and monitoring of a company on rules and control will increasingly reach its limits. However, many companies underrate this topic and are thereby at risk of having significant control and steering gaps.
Not only regulating authorities but also internal and external stakeholders are increasingly demanding a specific review of their own corporate culture as well as its influence on how a company is steered and develops. This review in the sense of a corporate culture reasonable assurance review is still new ground for a majority of companies even if first initiatives and associations pick up on exactly this point and develop concrete concepts.
A tool that has established itself on the market is the Mazars Cultural Compass. The Mazars Cultural Compass makes corporate culture visible in the first step and then makes it possible to design, steer and monitor corporate culture. For this purpose Mazars has compiled approximately 300 worldwide valid indicators of a sustainably successful corporate culture in line with stakeholder needs. These indicators (target state) are investigated in connection with a review of a company’s corporate culture and are compared with the actual state. The results of such a review will reveal areas where action needs to be taken in order to bring how a company is steered, controlled and monitored in line with its own strategy.
For further information on this topic, please refer to the essay entitled “Reasonable assurance review of organisational/corporate culture” by Hubertus Eichler in the Journal for Proprietary Information Law [Zeitschrift für Informationsrecht (ZIR)] April 2015 issue. Or please feel free to contact Hubertus Eichler or Kai M. Beckmann directly.