Time to listen up

Comments (0) | 21 Nov 2012 | Rating by Alan Rudnick

The right corporate culture can mitigate risk and be key to making money.

Corporate culture is a key to a productive work force and a successful company. The right corporate culture becomes a powerful risk-mitigator, and the right culture is one whose tone is set at the top – by the board and the CEO.  

Remember Enron, brought down by a culture that mouthed all the right words, but valued deals and paper profits at any cost to the point that proscribed criminal behavior flourished? Notice that Massey Energy is now gone, a victim of a culture where safety ‒ absolutely vital to successful operations in a dangerous industry ‒ was sacrificed for a quick buck? Bear Stearns, whose culture elevated personal greed over the firm’s and customers’ best interests: also gone. Walmart’s carefully constructed good citizen reputation is in the toilet because of reported widespread bribery in its Mexico operations and lax oversight at corporate headquarters.

Corporate culture basically involves the kind of company we are and the kind we aspire to be.  Although it sounds preachy to say, it is about the moral, ethical, and social environment in which a company conducts its business. The company’s culture is a key to real dollars and cents ‒ both for making money and for losing lots of it.  

In past times, corporate culture was a euphemism for ‘code of ethics’. In fact, culture is broader than the ethics code, but it’s the right place to start. The company’s code of conduct or code of ethics forms the cultural core that expresses values most important to the company, proscribes conduct harmful to those values, and prescribes steps to take if the code is breached. It is the board’s job to ensure the CEO and senior management take the code seriously; that it pervades the entire company is critical.  

Paper values

Codes always look good on paper. The salient question for the board is whether the prevailing ethic in the company is the one the code commands. In other words, do employees believe the board and senior management as to what constitutes correct conduct, or do they know to pay lip service and look the other way? KPMG, in a corporate ethics survey, found that in the period 2008-2009, approximately 74 percent of employees surveyed said they had seen illegal behavior. The survey also concluded that ethics and compliance programs boost employee awareness and facilitate increased reporting of wrongdoing.

How can a board find out what its company’s culture really is and whether its ethics and compliance programs are taken seriously? Here are a few suggestions:

1. Set the right tone at the top.

2. Get the right CEO, and make sure he or she is in sync with the tone and knows you mean it when you say that tone at the top is important.

3. Regularly discuss code of conduct issues with senior management members, both formally and informally. Let them know the board isn’t kidding – no ‘wink winking’ at the code as a smokescreen for an ethic that emphasizes earnings at any cost.

4. Validate! Some companies engage outside professional firms to survey employees and assess what the real ethic is within the company.

5. If the board, or a committee of the board, has concerns about anything, a real hard discussion with the CEO is in order. Do we need more situations like the one involving, for example, Mark Hurd at Hewlett-Packard?

6. Systematically track any violations of the code of conduct ‒ hotline complaints, internal investigations, and so on.

7. Insist on regular ‒ at least annual ‒ ethics code training. Does everyone know what the code says and what to do if there is a violation?  

8. Know what ethics/compliance training encompasses, the languages in which it is provided, and the means of determining that employees actually have paid attention. Determine appropriate metrics, and have management report on these matters at least annually.

9. Make sure someone from the C-suite owns ethics and ethics training. Ask that officer pointed questions about ethics and compliance training.

Don’t become part of the corporate detritus. Ethics and culture are enormously important to long-term survival – and it all starts with the tone at the top.

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