The public simply do not trust our business leaders to act in their interests. Edelman, a public relations firm, has found that trust in business declined in 2015 for the first time since the recession of 2008/09. It is no wonder given the number of high-profile corporate scandals that have been splashed across the newspapers and 24-hour news channels. The troubles of Volkswagen, Toshiba, TalkTalk and Tesco have all made headlines and sewn seeds of doubt in consumers’ minds. There is one thing which arguably links all of these scandals and is the root cause of the public’s mistrust – poor behaviour.
Poor behaviour at some of our largest and most prominent businesses is the underlying cause of many of the corporate scandals which have materialised recently. The contagion of bad behaviour is not just limited to business – we can all think of examples of scandals in government, charities and sport that have had bad behaviour at their root. The behaviour of one or a handful of individuals has the potential to have a massive impact on reputation, goodwill and share value. This is exactly what we have seen at Volkswagen, which could face massive repercussions.
The consequences of failing to keep a check on bad behaviour can be costly. The reputational damage done to businesses like Volkswagen and Toshiba will take years to repair. In the meantime the damage is felt by all stakeholders, including customers, employees and shareholders. Customers lose faith in brands they have thought of as trustworthy; valued employees leave the business and are difficult to replace; and shareholders and other investors lose confidence, money and patience. But it does not have to be this way. The consequences, and indeed the root causes, of bad behaviour can be mitigated by company boards should they wish to do so.
Boards already have all the tools they need at their disposal to manage and mitigate against the risk of bad behaviour. The board performs a vital function in any business and it must set the tone for the rest of the organisation to follow. This begins with defining an effective organisational culture which can only come from the top. Boards shape policies including on recruitment, remuneration, management of risk and customer care, all of which contribute towards a healthy organisational culture. Boards can ultimately boost the trust that stakeholders have in the business, making scandals like the one at Volkswagen easier to avoid.
However, the question that the public will ask is: How do boards and the organisation’s stakeholders know that the board’s policies are being carried out throughout the business? This is where internal audit can make a real difference.
A properly deployed internal audit function, with sufficiently high status within the business, with adequate resources and a wide scope for pursuing risks to the business, can be a real asset to the board. In doing so it can provide the assurance that the board needs: that risks are being properly managed and a healthy organisational culture is prevalent.
As Sir Gerry Grimstone, chairman of Standard Life, said at our annual conference, quoting Winston Churchill: “The motto that should be engraved on every board table is ‘We did not know, we were not told, we should have asked’.” It is the board’s job to ask and internal audit’s job to do the telling, and in doing so help to rebuild the public’s trust in business.