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Governance  |  Leadership (purpose, values, culture)

Cultivating a healthy culture: the role of boards and how internal audit can support them

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With organisations across all sectors faced with significant challenges in attracting and retaining talent, it has never been more important for boards to ensure they focus on cultivating and embedding a healthy corporate culture. This should include ensuring that workplaces are more, equal, diverse, and inclusive to boost productivity and enhance employee well-being. Spearheading a healthy corporate culture goes to the very heart of the ‘Better Business’ agenda being promoted by NEDonBoard and others.

Indeed, articulating, establishing, and embedding the corporate culture is of fundamental importance to business success, and vital for the effective leadership, resilience, and governance of organisations. The board’s role in leading on this is critical including setting the tone, as well as clear expectations: ensuring that the desired corporate culture is aligned with purpose, values, strategy, and vision for the future.

A healthy corporate culture differentiates an organisation and impacts customers, financial performance, growth, reputation, recruitment, and retention. An unhealthy or sub-optimal culture impacts all these categories. At its worst it is a critical risk to the attainment of the organisation’s aims and objectives and the sustainability of the organisation in the longer term.

This is clearly demonstrated by the many major corporate collapses in recent years, with the root cause of these companies’ failures often attributed to unhealthy or ‘rotten’ corporate cultures, fuelled by misconduct and the wrong tone from the top. The examples are numerous, including BHS, Carillion, Patisserie Valerie, WireCard, and Greensill.

However, with the risks arising from an unhealthy corporate culture once again in the media spotlight, following a string of more recent culture-related scandals that have attracted fresh media headlines,  new research suggests that boards are perhaps not taking corporate culture as seriously as they should be.

The Chartered IIA’s latest report ‘Cultivating a healthy culture: Why internal audit and boards must take corporate culture more seriously in a post-Covid world’, which is based on a poll of over one hundred senior internal auditors across all sectors, found that around a quarter of boards have not even established and articulated what culture it wants. While over half have not asked their internal audit functions to provide reports on corporate culture or equality, diversity, and inclusion initiatives.

The report highlights the risk of a post-Covid organisational culture crisis that now needs to be urgently addressed by board members. With large swaths of the workforce being forced to work remotely for much of the last two years, and the move towards ‘hybrid’ working in the longer term, many organisations are now grappling with how to promote, embed, and sustain their culture going forwards.

The Chartered IIA is therefore urging boards to be pro-active when it comes to corporate culture, and if you have one, to harness the skills of their internal audit function to provide assurance on it. This can be done even if internal audit is outsourced to an external provider. If you don’t have an internal audit function, then there are other assurance providers that may be able to offer support on this.

But wherever you decide to get assurance from, the clear message is that boards should not wait for a major corporate culture related risk event to erupt, a crisis to manifest itself, or for the organisation to topple over before doing something about it. Instead, business leaders, including NEDs, must get on the front foot and get ahead of the curve in cultivating a healthy corporate culture.

The full report ‘Cultivating a healthy culture: Why boards and internal audit must take corporate culture more seriously in a post-Covid world’, which has been published in partnership with AuditBoard and with insights from the London Business School Leadership Institute, is available to download here.

Written by Gavin Hayes.

Gavin Hayes is Head of Policy and External Affairs at the Chartered Institute of Internal Auditors and the author of ‘Cultivating a healthy culture: Why boards and internal audit must take corporate culture more seriously in a post-Covid world’.



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