Audit & Risk

Five tell-tale signs of poor corporate culture

A working group organised by the International Corporate Governance Network, ICSA: The Governance Institute, and the Institute of Business Ethics has identified a number of red flags that indicate poor culture.

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A string of corporate scandals at Tesco, Toshiba and Volkswagen have emphasised the importance of getting corporate culture right, but recognising early warning signs of poor culture and addressing them is less straightforward.  

However, a new report lays out a number of qualitative indicators that are all potential signs of a poor corporate culture. These include: high levels of corporate stress, flawed remuneration policies, complex legal structures, a tendency for takeovers to proliferate and lax financial discipline. 

The report, issued by the International Corporate Governance Network, ICSA: The Governance Institute, and the Institute of Business Ethics, represents the conclusions of a workshop of senior regulators, company directors and executives, and investors.

The workshop found that a major source of corporate stress was when corporate leaderships imposed short-term targets which staff found difficult to meet, exacerbating a rift between staff and management. In such cases the board was often unable to get an accurate picture of what was going on in the business.

Elsewhere, the workshop found that poorly implemented takeovers can lead to a multiplicity of cultures within the same group. As with complex legal structures, this can lead to silos and pockets of bad culture emerging unseen by the board. 

As well as highlighting qualitative tell-tale signs of poor culture, it added a selection of indicators that companies can measure, such as staff turnover, customer satisfaction, health and safety records, public commitment to values by leadership, competition rules infringements, regulatory sanctions, qualified audit reports and speak-up or whistleblowing statistics.

The report noted that more attention should be paid to the role of human resource departments, which are often charged with the task of embedding culture, and to internal audit, which is well placed to detect when culture is slipping.

For more ideas on how to spot and address bad culture, read the full report


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