- Corporate culture is the values, beliefs, and behaviors that determine how employees and management interact in a company.
- A positive corporate culture promotes commitment and engagement among staff, helps attract and retain top talent, and shapes employee-customer interactions to build a strong reputation.
- Corporate culture plays a crucial role in risk management by setting the tone at the top, cultivating proactive risk management, enabling open communication, and promoting compliance and good ethics.
Investopedia defines corporate culture as “the values, beliefs, and behaviors that determine how a company’s employees and management interact, perform, and handle business transactions”.
Often, corporate culture is implied, not expressly defined, and develops organically over time from the cumulative traits of the people that the company hires’. It can also be defined as “the character of the company,” according to Tarver et al in the article Corporate Culture, Definition, Characteristics, and Importance.
The Australian Securities and Investments Commission defines corporate culture as a shared set of values or assumptions that reflects the underlying mindset of an entity.
Therefore, corporate culture can be defined as an unwritten set of norms that an organization operates based on, which is evident in the way employees and management carry out their duties, and matters surrounding their business operations.
Due to the implied nature of Corporate Culture, it has been submitted that it is challenging to put into words what it really means. Several academics have opined that corporate culture is a concept in which everyone knows and understands its importance however, there is no one size fits all definition for it. Awry et al refer to it as ‘inherently Slippery.’
Notwithstanding the difficulties in defining and explaining corporate culture, companies need to imbibe a positive corporate culture.
Why is corporate culture important?
- It promotes commitment and engagement among staff
when the work culture of an organization is healthy it fosters a sense of fulfillment, belonging, and purpose among the workforce.
Employees are more likely to be enthusiastic, driven, and pleased with their jobs when they identify with and share the company’s values; thus, the following results follow increased efficiency, reduced turnover rates, and better commitment.
It helps with the recruitment and retention of ‘top talent’: when companies have a solid and positive corporate culture, it helps them attract top talent and also aids in retaining them.
As discussed in the previous article top talents are 800 times more productive than their less talented counterparts. Productivity improves the bottom line of every company, also productive employees are prone to recognizing certain risks that might jeopardize the company’s reputation or success.
- Shapes employee-customer interaction and helps build the company’s reputation
Have you ever been to an establishment whereby from their entry-level employees to the top management, the service they provided was sub-par, thus leaving you wondering what is amiss? It is most likely their corporate culture.
Also, are there companies that whenever you think about them, it’s a negative thought that comes to mind, their corporate culture is probably responsible for this.
Corporate culture transcends beyond the internal affairs of a company, it also impacts the way companies connect with their clientele.
A strong corporate culture influences the workforce which guarantees that they have a favorable impact on clients thus building a strong brand reputation.
The relationship between corporate culture and risk management?
It has been asserted severally that culture is an integral part of risk management. Good corporate culture is set by the right ‘tone at the top’.
Waxman, I assert that the ‘tone at the top’ is indicative of the overarching concept that the board of directors and leadership team have established to guide the actions and behaviors of all employees.
When the right tone is set it could be transmuted into a ‘high standard of ethics’ whereby employees are more aware of how their choices and conduct impact the company objectives at large.
Pederson K opines that when corporate culture correlates with the organization’s goals and is supported by the leadership, value is preserved and develops; on the other hand, when culture is not in line with the company’s goals, risks grow, and potential value is lost.
She further submits that companies that lead in risk management are aware of the importance of culture and implement culture in curbing risks.
According to a survey carried out by EY, it was asserted that 80% of businesses excelling at risk management frequently discuss the culture required to support the organization’s strategy at board meetings.
The task of building a good corporate culture lies with the board of the company.
In the wake of corporate scandals such as the Wells Fargo fraudulent account scandal, it became imperative for companies’ boards to build a good corporate culture that transcends from top to bottom to avoid such scandals.
When the news broke about the Wells Fargo scandal, the management of the company attributed the misconduct to having “a few bad eggs”.
Subsequently, they fired 5300 employees who were linked to this scandal; Sibley S submitted that it was more of a case of rotting barrels than eggs.
Thus, implying that the whole organization was rotten and had bad corporate culture. Upon thorough investigation, it was discovered that the company had an unhealthy culture of setting unrealistic targets for its employees, pushing them to result in unscrupulous acts to keep their jobs.
How can a good corporate culture help with risk management?
- Cultivates a proactive risk management approach
A good Corporate Culture equips staff with the ability to be proactive in spotting risks before it escalates.
When a company has a good corporate culture, employees are incentivized to foresee potential risks and take appropriate preventive measures.
After all, employees are usually privy to most internal issues before the board becomes aware, therefore companies need to develop a good corporate culture.
- Enables an open door for communication
An effective corporate culture encourages open lines of communication and mutual trust among staff members, enabling them to discuss risk-related information without worrying about consequences.
Employees are more likely to disclose risks and potential problems when there is an open door for communication, it makes it easier to act quickly in averting risks.
- Promotes compliance and good ethics: A good corporate culture instills a tone of compliance and good ethics amongst the staff.
Companies may be able to mitigate risk and regulatory violations by fostering a good corporate culture.
Employees are more likely to make decisions that are in line with the organization’s risk management plans if a good corporate culture has been imbibed in them by the company.
How can companies supervise culture to boost risk management?
- Constantly engage in discussions around building good corporate culture in the organization
All elements of strategy, performance, and risk are tied to corporate culture. In light of this, boards should constantly put discussions surrounding culture at the forefront of the agenda to be discussed during board meetings and matter to be issued out between management and the board.
- Synchronize Culture with strategy and make room for constant change: when culture is not in coordinate with the company’s strategy it poses a great risk to the company.
In a study carried out to determine the greatest challenges culture poses in the workplace regarding risk management; the largest part of the participants, 39 %, identified a lack of coordination between corporate culture and strategy as the biggest challenge to risk management.
Therefore, it is important to align corporate culture with the company’s strategy to avert risks.
- Implementing a structure/culture to constantly learn
Employees who work for companies that value lifelong learning and knowledge exchange are better equipped to learn new skills and keep up with changing risks and trends.
Organizations that promote a learning culture are better able to adapt to change, detect possible risks, and put effective risk mitigation measures in place.
What you should know
For firms to promote successful risk management, corporate culture is essential. Organizations may encourage ethical conduct, identify, analyze, and reduce risks, and integrate risk management into decision-making processes by cultivating a culture of risk awareness.
The benefits of creating a risk-aware culture are significant, including improved risk management results and long-term organizational resilience, but doing so needs a purposeful and methodical approach.
About the author: Oluwaseun Modupe Ogungbe is the Lead on (Research and Publications) at the Society for Corporate Governance Nigeria.
About The Society for Corporate Governance Nigeria: SCGN is a registered not-for-profit organization committed to the development of corporate governance best practices in Nigeria.
Today, the Society is the foremost institution committed to the development and promotion of corporate governance best practices in Nigeria.
moluwaseun@corpgovnigeria.org