Culture is now like to Safety -Executive & Board Responsibility

Sean Bowman, Director, Stagira Consulting

Safety is a serious and important responsibility for CEO’s, Senior Executives and Board Directors. In Australia and many countries around the world, corporations and individuals face serious sanctions for safety breaches including huge fines and, in serious cases, incarceration.

It now seems as though Corporate Culture is heading down the same path. Not just in building a safety culture, but for any lapses in corporate culture generally that result in corporate or criminal misconduct and/or losses to stakeholders.

Today (6 May 2019) in the Australian Financial Review, Michael Pelly reports that Allens, a leading law firm in Australia are warning clients about “culture prosecutions”. The article states that “the whole notion of regulators assessing culture, and holding corporations to account on the basis of… corporate culture will become the norm”.

The article quotes Rachel Nicholson, Head of Allens Risk and Compliance Practice, of the “very stark” downside of a having a poor culture. Ms Nicholson is quoted as saying:

“From a legal perspective, our criminal code attributes liability to criminal conduct directly on the basis of a deficient corporate culture. It sets out it in black and white, and those provisions are increasingly being imported into other laws outside the criminal code…A corporate can be liable for anything in the criminal code – and corporate culture is the way of sheeting that home”

My colleagues and I at Stagira Consulting have written previously about the importance of measuring culture – in August 2018 and in February 2019. We have found it interesting and somewhat bemusing that, notwithstanding the unprecedented exposure of the importance of measuring and managing culture, very few organisations are proactively managing their culture.

Potentially this is because when companies are performing well, or at least against market or owner expectations, there is no apparent imperative to be spending time and money on measuring and managing culture.

But we assert that this is like an organisation saying we don’t need a safety plan as we have never had a death or serious incident.

Another potential reason that organisations don’t measure culture are the confusing and conflicting messages that the HR profession pushes into the public domain around culture – messages like “it can’t be measured”, or viewing it only as a risk and compliance issue, or even suggesting that notion of culture is unclear through articles “starting conversations about what culture is”.

In our previous articles, we have explained what culture is and its importance in achieving the marketplace success. However Michael Pelly’s article and the Allens legal report highlights the very real and serious downside of not managing and measuring culture.

Adherence to the spirit and letter of the law is obviously the start point. But what is the exposure for culture beyond this?

At Stagira Consulting we articulate this risk very simply.

Most organisations have Corporate Values. These are usually published on corporate websites, in annual reports and published extensively otherwise in the public domain. These values are usually stated in the affirmative ie “We are…Customer Focused…High Integrity…People First…Committed to Diversity…etc”.

Beyond the letter of the law, this is the clear commitment that each company makes to the community as to their own self set standards of behaviour. Effectively companies say “buy our products or services, invest in our stock, engage with us generally” on the basis that we will behave in accordance with these standards.

So it stands to reason that if there is a gap between these articulated standards of behaviour, and actual behaviour, then legal exposure for culture potentially arises. And the issue for many companies is that they have no idea if there is a gap.

Many of the examples in the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry were shocking when revealed (dead customers being billed, regulators being mislead, billing for services not provided etc). However in most circumstances, the Board and Senior Executives were simply not aware that these cultural practices had become the norm. Part of the reason was that the banks were performing well, and were reporting success on other people measures.

Let me restate – the gap between actual behaviours and the stated values of an organisation creates legal exposure for Board members, Senior Executives and Corporations generally.

As a minimum each organisation should be actively measuring the extent of this gap and have plans in place to manage this. CEOs and HR leaders that are not doing this are creating legal exposure for their Company and its Officers.

The overall benefits of managing and measuring organisational culture are more than this. What we are describing here is the downside of not measuring and ensuring that, at the very least, organisations are aligning behaviours with their values.

If there are practices/behaviours that are not aligned, and if these result in criminal misconduct and/or loss, without any effective measurement or action plan in place, serious liability will potentially follow. Think Safety and you get the parallel picture.

To provide an example from the UK, Michael Pelly highlights the GBP 642,430 fine for Jez Staley, CEO of Barclays Bank, for a breach of values in trying to identify a whistleblower. Combined with a clawback of his GBP 500,000 bonus, this breach cost the executive more than GBP 1.1M or over $2M in Australian dollars.

At Stagira Consulting we have a comprehensive methodology known as SCART(c) that allows organisations to measure actual behaviours against their stated values. This tool allows organisations to demonstrate that they have active culture measurement in place and will provide recommendations on the key areas of focus in aligning behaviours to corporate values.

For more information, please visit us at stagiraconsulting.com or send us an email