How Boards can review Corporate Culture and People Risk

Corporate culture means many things to many people. Culture risk can be defined as the hidden attitude and unsanctioned behaviour and decision making of employees and managers which undermine the shared values, standards and beliefs of the organisation, and which are found at the heart of most corporate scandals. A high culture risk exposure can result in significant financial and reputational damage to an organisation.

Effective Governance (eG), the pre-eminent corporate governance firm in Australia, is the expert in reviewing and advising on corporate culture and the associated culture risks, an area of risk until now neglected. As the first of its kind in the Australian market, the eG Corporate Culture Risk Diagnostic uses advanced analytic techniques to unearth risky behaviour patterns that are hidden from the eyes of management and the Board.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Hayne Royal Commission) has highlighted this area of risk.  With unprecedented scrutiny from the corporate and prudential regulators, effectively managing culture and culture risk is the key to keeping your Board out of the headlines. In a complete shift away from the more traditional human resources tactics including culture programs and employee engagement surveys, we critically analyse the six core components of culture risk including:

  • Ethical or Appropriate Behaviour
  • Quality of Decision Making
  • Role Competence
  • Capability or Talent
  • Recruitment or Staffing Levels
  • Morale or Staff Engagement

The result is an immediate, independent and objective assessment of an organisation’s exposure to culture risk along with targeted remedial strategies that Boards and management can action to address areas of concern. We will provide you with a business plan to implement a more robust governance system that not only provides oversight for financial, regulatory and strategic risks, but also monitors the less visible risks within our people and social systems.

Benefits to the organisation

The benefits of applying the eG Corporate Culture Risk Diagnostic include:

  • Identifying any misalignment of the Board’s expectations of the organisational culture and the staff culture in the workplace;
  • Establishing a clear and consistent reporting dashboard or people governance for the Board;
  • Promoting transparent reporting relationships between management and the Board;
  • Providing tailored information and guidance on mitigation of culture risk; and
  • A demonstration of the Board’s proactive oversight of culture and associated risks.

Our approach to culture risk

The eG Corporate Culture Risk Diagnostic is a four-stage process delivered over approximately two months.

Throughout the process, our advisors identify the behavioural markers of a dysfunctional or shadow culture and where these risks are likely to reside within the organisation’s systems of leadership procedures, performance and capability. We then report back to the Board with a series of recommended remedial strategies and ongoing monitoring mechanisms to better align and manage the organisation’s culture and associated risks.

A functional business plan will allow management to drive cultural change and provide a reporting framework to the board to ensure defensible decision making.