Culture exists in the space between what an organization professes and what it does. Jay Rosen explains why it’s important to pay attention to culture: disconnects can be quite costly.
Over the past few months, senior leaders at both the Department of Justice (DOJ), and Securities and Exchange Commission (SEC), have given speeches discussing the need for appropriate corporate culture around compliance. So, this brings up our first question for our next five-part series, what is corporate culture?
My colleague Eric Feldman believes “culture is everything” for an organization; culture is the foundational internal control, without which all your other controls are likely to be ineffective.
This means corporate culture is the way things really are in an organization and the way things really work. While corporate culture can be reflective of the core values of a company, this usually only occurs if the company operationalizes those values throughout the organization.
There may be more than one culture in an organization, and there might well be multiple subcultures in a company. Management simply cannot force one culture throughout the entire organization. Culture is made up of all the different people that work for the organization, which means that it’s going to differ based on population and geography. This could mean that different locations will have different cultures. The linkage between culture and compliance is that culture drives ethical behavior. Every employee you hire and every organization you acquire will change your organization’s culture.
Therefore, mergers and acquisitions (M&A) due diligence is critical. If you do not understand the culture you may be acquiring, you will not have an idea of how they fit together, let alone whether you are acquiring an FCPA nightmare.
What different kinds of cultural systems could impact a company? It may involve anything ranging from locations to languages, rituals, role models and other informal mechanisms for building a culture. Yet even with subcultures in an organization and throughout the world, the significant thing is to have some overarching key themes of that culture. This involves being consistent with the core values, integrity and ethical behavior.
A key indication of a strong ethical culture is having a “speak up” culture. This leads to more formal cultural systems and processes, which also impact culture. This is often determined by the hiring process: who you hire, how you train people and what performance management systems are used throughout the employment tenure. This also leads to the fair process doctrine and whether it is consistently applied within the culture. Finally, are you incentivizing the right kind of behavior through measurement, compensation and recognition?
So, how can we hold employees throughout the organization accountable? It is no longer just the responsibility of top management. While there still must be an appropriate tone at the top, there should also be an appropriate “mood at the middle” of an organization and “buzz at the bottom” of the company about compliance, ethics and values. This is because employees are more influenced by their immediate supervisor and their peers than a faceless CEO, even if that CEO is saying all the right things and includes a heartfelt introduction page on your code of business conduct.
To have an effective culture, there must be an alignment between what top management says and the company’s core values, as well as between what the organization says and what it does. This all comes from senior management getting out of the headquarters and talking to employees in the field.
No company aspires to be unethical, and most employees do not desire to engage in illegal or criminal behavior, but if senior management does not interact with and talk to employees, they will not know how their messages are being received.
It does not take long to see when there is a disconnect between what senior management says and what the employees take away (hmmm… can anybody say Wells Fargo?). It is often disconcerting how little top management really understands their employees. Because of this, senior leaders do not know what messages their workers are receiving, both verbal and non-verbal.
Please join me next week for part two, when we will explore the factors that influence a company’s ethical culture.
In case you missed the earlier installments of this ongoing series, please see the links below.