September 23, 2016 Culture at the heart of governance
When you open the business pages it is hard to escape the fact that governance and culture are amongst the hot topics of the moment. Not that their importance in driving long term stability and growth has ever been in dispute; it’s just that when you’re dealing with recession or changing accounting standards or working out how to stave off the threat from a new player in the market, something inevitably has to take a back seat.
Unfortunately, because it’s not always easy to see the relationship between profitability and corporate culture or governance, it can be all too easy for boards to concentrate on the more immediate concerns and leave the more nebulous areas to look after themselves for a while. But this approach could just be the biggest mistake which a board can make.
Look back at any of the business scandals of the past few years and it’s a fair bet that the root cause has been identified as lack of governance or a poor culture. It’s hardly surprising that when Theresa May earlier this summer set out her plans for business reform they included looking afresh at the way in which corporate governance is managed. When you have poor governance, when effective control over the organisation’s culture is not as it should be; that’s when you get employee disengagement and infighting, that’s when errors and malpractice creep in, and that’s when reputation and profitability and attractiveness to investors all start to fall.
Given this background it is perhaps inevitable that the Financial Reporting Council (FRC) is placing ever more importance not just on corporate governance but on organisational culture as well. In fact, corporate culture was the main theme of the FRC’s 2016 conference on the 20th September. The conference looked to explore the relationship between corporate culture and value creation as well as the links between culture and good governance, and culture and effective stewardship by investors.
In his keynote speech FRC Chairman Sir Win Bischoff highlighted the improvements which have been made over the twenty-four years in which the corporate governance code has been in existence and its effectiveness in promoting good behaviour within corporations. However he also noted that “by itself, a code does not prevent inappropriate behaviour, strategies or decisions” and called on boards to increase their focus on company culture which Sir Win says will lead to “enhanced integrity, confidence, long-term success and ultimately trust.”