We have led the way in the debate on corporate culture and the role of internal audit ever since we published our first report on the subject in 2014. But as some organisations have got to grips with shaping and embedding healthy corporate cultures, they have found new and innovative ways of doing so. We believe that the approaches to organisational culture have evolved and our latest research shows that organisations are now utilising new tools and techniques to embed good behaviours into systems of governance.
What exactly is the new approach and how did we get here? Our research, which we have carried out in partnership with the Financial Reporting Council, as part of a contribution to the culture coalition, has found that the techniques we described in our 2014 report are being adopted. But organisations at the forefront of embedding and providing assurance today are doing much more than simply releasing a statement of values into the ether. Simple values statements, whilst useful, are just part of the picture. Organisations on the cutting edge of developing appropriate culture are ensuring that values are embedded at all levels.
Punishing bad behaviour is one way of ensuring that employees work to the highest ethical and professional standards. But organisations that embody the new approach to culture are shifting the focus to rewarding the right behaviours. Safety critical industries such as aviation have tackled issues relating to speaking up and blame and are using new techniques to develop, monitor and - most importantly - embed good behaviours. They emphasise learning and rewarding those employees who apply the lesson learned quickly and effectively, rather than apportioning blame.
New technology has allowed organisations to manipulate and analyse large quantities of customer and client data like never before. This has implications for internal audit work. Practitioners can leverage powerful data tools to provide more objective and robust insights about culture. Boards can be assured that internal audit’s opinion on culture is being supported by hard data. Safety-critical industries such as aviation have been at the forefront of using data to gain insight into, and embed, good behaviour.
For example, some airlines monitor pilots’ performance in real time, and if a safety-related incident occurs then reporting and monitoring technologies are able to pick up the issue, even if the pilot doesn’t report it. Pilots are encouraged to come forward and report issues, and are rewarded when they do so. But there is no need to rely solely on the openness of individuals who are encouraged to provide essential risk information. Could this concept be applied to a number of different industries, not least financial services? It is not difficult to see how a similar system of monitoring data and encouraging reporting of issues could be established on a trading floor, for example.
These tools and techniques can only work if internal audit has the positioning and reach to influence at the highest levels of an organisation. Its role as the insider-outsider is key to success when providing culture assurance. Our research points to a vanguard of organisations who are taking culture assurance to the next level. It will inform the Financial Reporting Council’s own work on culture, which will be published later this year. We hope that organisations, and boards in particular, will look to implement these new approaches to culture in a world where bottom lines increasingly rely on good behaviour.
The Chartered IIA's forthcoming report on culture will be available at www.iia.org.uk/culturereport at the end of May.