Turning the tide of Corporate Culture

27 February 2018

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Corporate culture is increasingly under public scrutiny as society questions how it wants businesses to behave. It seems that every time there’s a corporate scandal, the culture of the company involved is blamed as one of the root causes.

It’s a fascinating area, and so I was delighted to be invited to join a debate in New York hosted by the Anti-Fraud Collaboration on the importance of corporate culture in combating fraud. The Anti-Fraud Collaboration had convened a great panel, including an audit committee chair, a prominent academic and the Chief Compliance Officer of Citigroup. I was invited to bring the auditor’s view - how might auditors assess culture as part of a high quality audit?

If you’re interested in the subject, please do watch the debate as there were so many insightful observations. But if you don’t have time, here’s the takeaways that meant most to me.

Alignment of values, purpose and strategy: Corporate values are often one of the most visible ways in which companies express their desired culture. It sounds basic, but the first thing to check is that these values are actually consistent with the company’s strategy. Here’s an obvious example - some US retailers have famously expressed their core value as being “the customer is always right”. That’s great for a retailer that’s aiming to provide an outstanding customer experience. It wouldn’t be great for an audit firm like PwC, where audit quality relies on our auditors being able to challenge and exercise professional scepticism at all times.

At PwC we recently completed a global refresh of our values, where we asked every single one of our people worldwide to tell us the values that they felt were most aligned with our purpose and strategy. This has resulted in a set of values that we really feel we “own” and understand. Hard work, but a really valuable outcome.

The importance of challenge: Challenge and scepticism aren’t essential only for audit firms. Once you’ve described your desired culture and values (and made sure they’re aligned with your strategy and purpose), it’s really important to allow your people, at all levels, to shout when they see examples where culture and values aren’t working. Empowering people to speak up is an essential part of maintaining good cultural health. We should all be lifeguards, keeping an eye on each other to make sure we’re not drifting too far from the shore - and effective lifeguards must be able to shout loudly at a sign of danger.

Culture and behaviours - a continually moving circle: A company’s culture drives the behaviours of its people. And those behaviours themselves create cultural norms. This self-reinforcing circle means that corporate culture is a permanently dynamic concept - it’s changing all the time, often imperceptibly, driven by the tiny “micro-behaviours” of a company’s people. So leaders have to be constantly vigilant for signs of cultural drift - back to the lifeguard analogy - what are the warning signs you’d look for to indicate that your culture might be drifting away from the ideal?

So, they were the three key insights I took away from the debate. But what about our role as auditors….is it our job to understand and assess the culture at our clients? 

The answer is a resounding yes. A high quality audit begins with a deep understanding of risk and control, and a company’s culture can certainly be a source of risk - and should also be a critical part of the control framework.

The current narrative about the future of the audit profession is usually focussed around the use of transformational technology. I’m certainly very excited about the ability of machine learning, robotic process automation and data analytics to bring new levels of rigour and insight into our audit testing. 

But the need to consider the impact of a company’s culture is a core reason why human auditors will always have a critical role to play. We’ve not yet invented a machine that can walk into a corporate headquarters, talk to staff, watch behaviours (especially when problems arise), read the notices at the photocopier, and use all of these tiny observations to form a picture of a company’s culture. In fact, when I think about the future of the audit, I wonder whether we could bring even more psychological and behavioural expertise to this aspect of our work.

Please do watch the debate and let me know your thoughts on this important subject.

Gilly Lord | Head of Audit Strategy and Transformation
Profile | +44 (0)20 7804 8123

 

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