Boards urged to ‘get a grip’ on unhealthy corporate culture

With unhealthy corporate culture regularly in the spotlight, new research seems to corroborate that boards are not taking culture seriously, despite the visible impact it can have on reputation, public trust and damage to long-term sustainability.

The Chartered Institute of Internal Auditors' latest report ‘Cultivating a healthy culture: Why internal audit and boards must take corporate culture more seriously in a post-Covid world’ is based on a survey of over one hundred senior internal audit executives from the private, public, and third sectors across the UK and Ireland.

John Wood (pictured), CEO of the Chartered IIA said: “Recent culture-related scandals have unfortunately shone a spotlight on the impacts associated with an unhealthy organisational culture – including catastrophic damage to reputation, public trust, and value. Yet as our research demonstrates those at the top do not appear to be taking the risks associated with corporate culture seriously. Urgent action is now required by leaders across all sectors to cultivate a healthy corporate culture to protect reputation and long-term sustainability.

“With organisations adopting new working models in a post-Covid world, now is the time for boards to get a grip on corporate culture, including seeking assurance from their internal audit functions.”

The survey found that over half of senior internal audit executives have not been asked by the board or audit committee to provide reports on corporate culture or equality, diversity, and inclusion initiatives.

Around a quarter of those canvassed said their board has not established and articulated what culture it wants, despite this being fundamental to the effective leadership, resilience, and governance of an organisation.

And almost two thirds believe the Financial Reporting Council should act by further strengthening the UK Corporate Governance Code in regard to corporate culture, putting greater emphasis on the responsibility of company directors to promote, monitor, and assess the culture, and, if required, seek assurance that management has taken corrective action.

Sir Jon Thompson, chief executive, Financial Reporting Council commented: “Company directors must start taking corporate culture more seriously. A series of company collapses linked to unhealthy cultures, whether that be BHS, Carillion, Greensill or Patisserie Valerie, have demonstrated why cultivating a healthy culture, underpinned by the right tone from the top, is fundamental to business success. The UK Corporate Governance Code makes clear the board’s responsibility to promote, monitor, and assess the culture and I urge businesses to ensure they are compliant. As the audit regulator, we want to see progress accelerated in this area. Internal audit has a vital role to play in providing assurance and reports to the board that the culture is healthy.”

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