The boardroom of the 21st century plays a critical role in setting the ethical compass of its organisation. This was the simple and assertive statement made in a new report from ACCA (Association of Chartered Certified Accountants) and the Economic and Social Research Council (ESRC), called Culture and Channelling Corporate Behaviour.
The report stressed that boards are also critical to help company’s avoid the sort of dysfunctional behaviour that can cause accidents, undermine an organisation’s values or create financial and reputational loss.
Based on a series of roundtable discussions and a survey of ACCA members, the report advises that when assessing their organisation’s culture, boards should ask themselves three fundamental questions, which are seen as basic good corporate governance:
- What are the goals and purposes of the organisation?
- What sort of behaviours does is wish to encourage and discourage
- How is the tone at the top set out and conveyed through the organisation?
We know that an organisation can have the most sophisticated code of governance and rules, but as recent high-profile scandals have shown, poor organisational culture has been a significant cause of corporate wrong doing. To design a system that works, we believe it is important to ask the right questions – especially what kind of culture do you want in your organisation?
The report lists a number of trade-offs that need to be balanced by the boardroom and by staff; is there openness to mistakes, or zero tolerance? Is the organisation innovative, or controlled? Does profit rule, or public value matter more?
Assessing culture can be difficult because it calls upon a brand new set of skills and requires a multidisciplinary approach. But what we hope with this report is that it will help boards and staff avoid some of the potential dangers and help them on their journey towards evaluating and improving the culture within their organisation. For ACCA, this is where the skills and abilities of the professional accountant can make a real difference. Trained to evaluate and measure, the accountant needs to be attuned to ensuring that values can be measured and reported internally and externally – after all, what can be measured can be managed, and the accountant is of course adept at ensuring the bottom line adds up.
The report lists seven points for consideration by the board, serving as a starting point for assessment and possible change:
Align and embed core values at the very top
Do people who do not act in accordance with the company’s stated values get promoted? Do management practices drive people to do things that they regard as unethical?
Watch out for the trickle-down effect and dynamics in groups
What can prevent the tone set at the top from effectively trickling down through the various levels of an organisation?
Track how decisions being made
How aware are decision-making groups, from board level downwards, of the risks of cognitive bias and groupthink? How is diversity of thinking and challenge encouraged?
Be honest about the value of regulation and codes
What attitude to regulation should an organisation have? Does it want to support and work with the spirit and the letter of codes or does it see regulation as something to be avoided or exploited for its customers’ interests or its own sake?
Beware of unintended consequences attached to any incentives structure
Is it understood how incentives (deliberately created or not) work in practice? Can the board identify better measures that properly reflect the long-term aims of the organisation and use them in better ways so they do not get ‘gamed’?
Find out what motivates people
Are incentive structures in place actually fit for purpose? Do they promote long-term sustainable performance or do they encourage immediate self-gain only?
Is the organisation open to new creative ways of thinking or is it constrained by a fear of the uncertain? How aware of global market trends are management and human resources staff?
These may seem like lots of questions, but they are the right ones to ask. The report can be found at this link: www.accaglobal.com/culture.