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What’s the impact: how do you know if your culture is impacting on (mis)conduct?

21 December 2018


What’s the impact: how do you know if your culture is impacting on (mis)conduct?

Therese MacDermott, Consultant and Rocio Paradela, Graduate Associate

The notion of the culture of an organisation can be hard to define, and it is often considered an intangible concept. Broadly speaking, the culture of an organisation is its character. It is the sum of its values, vision and attitudes, as well as its people; what they say and what they do.

We all know that an organisation’s values statement is meaningless without the right behaviours and actions to support and implement those values. The difficulty for many organisations is knowing whether the behaviours and actions within the organisation are having an adverse impact; that is, whether the organisation’s culture is enabling certain types of conduct, including misconduct.

Public scrutiny of banking and financial Institutions

Recent events such as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Service industry (the “Commission”) have contributed to a focus on corporate culture. The processes utilised by the Royal Commission have led to a detailed examination (in public hearings) of the organisational practices of a number of institutions, as well as the behaviours of individuals within those organisations. Senior executives of organisations have been called to give evidence before the Commission, and subject to detailed questioning and robust cross examination about the manner in which they conduct their business. These hearings are a very public form of holding organisation’s accountable for their practices and the behaviour of their staff. The Commission’s processes have also involved detailed research by its staff and requests for public submissions. These processes provide other avenues by which organisational practices have come under review and have been subject to sustained criticism.

This type of scrutiny has caused a number of organisations to review their governance frameworks and their internal culture. Many organisations have had to undertake detailed reviews internally in order to prepare submissions and to present evidence before the Commission. A not infrequent organisational response to such scandals has been that “any misconduct was caused by a few bad apples and that the issue did not raise broader or systemic concerns1. This type of response tends to ignore the root cause of the conduct, which often resides in a failure to audit and improve the culture promoted within an organisation and the systems and structures that work alongside that culture.

In the case of the financial institutions that have been the subject of the Commission’s enquiries, issues such as remuneration arrangements have been identified as playing a significant role in contributing to (mis)conduct. The Commission has criticised certain practices that have led to poor advice being given to customers to secure commissions. Such outcomes are unsurprising where the culture of the organisation has been to prioritise sales over customers interests. Sales volume was rewarded, whereas doing “the right thing” by the customer was not. In addition, problems of misconduct can be exacerbated where there is a culture of pay secrecy clauses, and where discretionary incentives and bonus payments are common but not disclosed. As a consequence of the public scrutiny of such practices, reforms of pay secrecy provisions are now being considered.

Cricket under the spotlight

An example of the auditing of a specific organisation’s culture that has played out in the public arena is the recent review of Cricket Australia.2 Cricket Australia engaged an independent organisation, the Ethics Centre, to audit its culture. Again, this was as a response to a scandal, rather than a proactive effort to audit or improve culture.

The type of audit process undertaken had as its starting point the identification of the principal attributes (purpose, values, principles) that define and underpin Cricket Australia’s “target culture”. Surveys and interviews were then conducted amongst key personnel (Board members, management, staff, former and current players and other key stakeholders). The process included the review of additional documentation, such as the organisation’s Code of Conduct, the Directors’ Code of Ethics, and the anti-harassment code. On the basis of the data collected, the Ethics Centre prepared a report that detailed why gaps may exist in respect of the “actual culture” and the “aspirational culture”, and how these gaps could be bridged.

In essence, the report showed a disconnection between the Board of Cricket Australia (and its senior executives) and those who play the game. The Ethics Centre report suggests that the unsatisfactory behaviour that engulfed the organisation in a scandal was a predictable consequence of the way the Board of Cricket Australia and its executive team had established a “winning without counting the costs” culture.

The outcome of the audit is an implementation plan designed to achieve better alignment between Cricket Australia’s actual and aspirational culture. The report includes recommendations for structural changes to the team, changes to performance reviews and selection functions, and improvements to basic skills and team culture.

Building, auditing and improving a culture

What do these reviews teach us about the things that stand out in relation to a good corporate culture?

  • Communicate – what is acceptable (and unacceptable) conduct and behaviours throughout the organisation;
  • Challenge – the communication of an organisation’s conduct, values and expected behaviours only gets you so far. This needs to be actioned by management and continually reviewed, enforced and validated. Employees should also be encouraged to raise potential practices or behaviours of concern; and
  • (a lack of) Complacency – the active management of culture necessitates robust and ongoing processes that reinforce the desired culture, are responsive to changing needs and encourage improvements.

A fish rots from the head

An organisation’s culture starts at the top. For an organisation to be effective in reinforcing good corporate culture, it is critical that senior management leads by example. A failure in culture happens when there is poor communication, including when leaders are remiss in reinforcing the expected behaviours and where the organisation’s systems and practices do not lead to the sanctioning of poor behaviours. The culture of an organisation can also be compromised when an individual and an organisation’s values do not align, and this misalignment is not actively managed.

Where an organisation makes clear what behaviours are required, and the consequence of non-compliance, there is a greater chance that behaviour across the organisation will be more consistent, and any non-complaint behaviour will be called out by other employees.

Knowing where the problems lie

One of the key takeaways from the events outlined above is that regular and detailed examination of organisational practices and behaviour is a core aspect of good governance. It is far better to know what lies within your organisation and address these internally, than to wait until poor practices come to light in very public forums. Where problems are identified either internally or publicly, implementing organisational change and establishing accountability mechanisms are crucial to restoring confidence in the organisation’s brand.


1. Interim Report of the Financial Services Royal Commission, available at https://financialservices.royalcommission.gov.au/Pages/interim-report.aspx
2. Australia Cricket, A Matter of Balance. The Ethics Centre Organisation Review Report Oct 2018, available at https://www.cricketaustralia.com.au/media/media-releases/cricket-australia-releases-player-and-independent-organisational-reviews/2018-10-29

 

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