Corporate culture, corporate values and ethics
This article was submitted to the Governance Institute for publication in the Governance Directions magazine in September 2016
An edited version of ASIC Chairman, Greg Medcraft’s speech at the launch of the Inaugural Governance Institute Ethics Index
We are at an exciting time in history, when technological innovation is rewriting almost every industry including the financial services industry. In a recent Telstra report, "Millennials, Mobiles and Money"*, it was stated that "the threat from fintech is significant". It notes that two thirds of millennials prefer to receive advice on financial products and services via a digital platform, and that automated robo or digital advice is perceived to be more independent and preferred. In this environment, building and maintaining a culture that your customer can believe in is imperative and firms that do not have a good culture risk losing their customers to firms that do.
An organisation's culture is its set of shared values or assumptions. It can be described as the underlying mindset of the organisation. Culture shapes and influences people’s attitudes and behaviours towards, for example, customers and compliance.
ASIC sees culture as a driver of conduct. A poor corporate culture can be a driver of misconduct. Conversely, a good corporate culture can be a driver of best practice, or ethical conduct. Ethical conduct can help organisations move beyond minimum standards and "tick a box" compliance practices to best practice standards and compliance practices that protect stakeholders and which are commercially valuable.
So, what is a "good corporate culture" and how can companies work towards having one?
A key starting point for a good corporate culture is developing your firm's values, and ensuring that these are implemented in practice. Decisions about an organisation's values begin at the top. A values-led corporate culture supports ethical conduct. However, for your values to be effective at supporting good corporate culture, it is critical that the leadership team cascades the firm’s values to the rest of the organisation. Leaders need to ensure that firm values are understood throughout the organisation, and are "lived" by employees as part of their day to day roles.
Why is ASIC focusing on culture?
ASIC is concerned about culture because it is a key driver of conduct within the financial industry. By focusing more on culture, we expect to get early warning signs where things might be going wrong.
Poor culture often leads to poor outcomes for investors and consumers, impacts on the integrity of the Australian financial markets and can erode investor and financial consumer trust and confidence. Domestically, the ongoing issues within Australia’s financial advice industry, along with continuing media reports relating to bank culture, misreporting of profits and the manipulation of the bank bill swap rate (BBSW), undermine investor and financial consumer trust and confidence in the system.
Key points from the Ethics Index
In relation to the banking sector, the Ethics Index shows that 78% of Australians think that corporate culture is important to ensuring ethical behaviour within the in banking and finance sector. The vast majority of Australians also think that corporate governance practices and structures are important to ensuring ethical behaviour within the banking and finance sector. The role of leadership in ethical conduct in the business sector is seen as crucial by 82% of Australians. Accountability and transparency were also ranked the top two most important factors in ensuring ethical conduct.
These are cornerstones of a good governance framework, and tie into ensuring that business practices encourage transparency and ensure that staff at all levels are accountable for their conduct.
ASIC's new Corporate Governance website.
ASIC recognises the importance of Australian companies adopting good corporate governance practices. To provide support for companies and their officers to understand their obligations and improve their governance practices, ASIC has established a new corporate governance webpage. This new webpage includes speeches and published articles as well as relevant regulatory guides and information sheets in the one location. The new webpage is located at: http://www.asic.gov.au/corporate-governance.
[The full transcript of Greg Medcraft’s speech can be read on the ASIC website at www.asic.gov.au)