The Importance of Corporate Culture

Earlier this month at CEB’s Finance and Strategy Summit in Washington, D.C., a panel of leading audit and compliance professionals discussed how assessing and managing company culture can pay significant dividends and improve a company’s bottom line. Managing the culture at a large firm can be difficult, particularly given the fact that business units often have their own unique culture.  However, properly managing culture is a task that should not be overlooked. CEB research shows that there is a strong correlation between business performance and a strong ethical culture: stronger ethical cultures were found to deliver higher shareholder returns over a 10-year analysis period.

Speaking Up

The degree to which an employee feels comfortable speaking up is a fundamental driver of ethical culture. The more willing an employee is to speak up and voice concerns, the lower the levels of misconduct at a given organization. Conversely, if an employee has a fear of retaliation or is uncomfortable relaying concerns for another reason, an organization is more likely to experience cultural and ethical issues. Our research shows that almost 58% of employees at member companies avoid sharing bad news and negative feedback because they fear it will negatively impact their careers. The key is how organizations choose to address this fear. Contrary to popular belief, increasing investments in technology (e.g., hotlines) is not the solution. Instead, companies will benefit from gaining an understanding of their culture and encouraging employees to come forward with their concerns. Leaders must be willing and able to listen, and encourage employees to speak their mind – particularly about difficult issues.  Effective managers know their people, spend time with them, and are present to raise an issue and talk about it. Employees are often unsure of what will happen if they raise an issue or concern, implying that leaders and managers need to increase comfort with talking about serious issues.

Instilling a Culture of Integrity

While the tone at the top from executives and senior management is certainly important, employees orient most strongly to their direct manager. Therefore, the correct ethical “tone” has to come from the middle levels of the organization. Unfortunately, many managers do not feel prepared to address employees’ reports or concerns of misconduct. This is not only due to a lack of training, but also due to the company’s cultural environment.

Our summit panelists all described an optimal corporate culture as one consisting of trust and integrity, in an environment where employees feel valued and safe. Companies should establish and adhere to their values, particularly when faced with difficult situations. By establishing a visible culture of integrity, it becomes easier to address issues when they arise.  This will lead to a more transparent organization as employees feel motivated to maintain the internal trust between management and employees. This must be achieved through effective communication. Management’s ability to communicate with rank-and-file employees is a critical factor in a company’s corporate culture. This is particularly the case with business units and functional areas, as it is easy for individual parts of the company to become “siloed” and closed off.  Leading organizations create opportunities for cross-functional information exchange, which helps promote a more compliant culture.

Practice What You Preach

Having idealistic compliance policies and programs is far from sufficient, as external investigators become skeptical when these policies aren’t acted upon consistently.  Companies must be able to execute on policies, procedures, and internal controls, especially in difficult situations. Policies and procedures should set expectations for executives and senior management, as well as the broader employee base, creating a common language and culture of compliance. Boilerplate compliance policies are ineffective, as employees may perceive that the organization is not committed to building an ethical culture. Actions speak louder than words, and a lack of commitment to company values can cost the organization when it matters most.