This article was first published in the January 2019 International edition of Accounting and Business magazine.

The role of culture in corporate performance is under renewed scrutiny in Australia, after revelations of widespread misconduct in the financial services sector. Financial services companies have been engaged in sharp practices such as charging dead people for advice, misleading regulators and knowingly selling products to vulnerable customers.

The interim report of a royal commission into the sector last year was blunt: greed is at the heart of it. Banks are driven by the ‘pursuit of short-term profit at the expense of basic standards of honesty’.

The picture is depressingly familiar for those who’ve followed governance matters for any length of time. Complacency about governance and culture allows bad practices to go unchecked; incentive structures reward risky behaviour. And boards frequently govern these issues poorly, with too little visibility or understanding of culture and its drivers.

Responses to the report have yet to fully unfold, but it is clear that an emphasis on sustainable corporate culture will be at the heart of any changes. Regulation, policy and process matter and themselves mould culture – but there is no system that cannot be gamed if the zeitgeist allows. An ethical culture discourages such ‘work-arounds’, encourages others to speak up, helps apply broad principles to a complicated reality and fills in the grey areas. It shifts the emphasis from ‘Can we?’ to ‘Should we?’ – a crucial distinction.

So how to bring about this utopia? Board chairs across Australia should be dusting off their board skills matrix, for a start. Far too few boards have strong representation from outside the traditional skillsets of capital raising, finance and investor relations. Relying on these as the primary competencies for a board director creates a comfortable feedback loop of investors and capital managers that ignores the broader risk perspective.

Boards should be drawing on expertise in human resources, marketing, sustainability – all fields that inherently require the organisation to be considered from the perspective of others. This is exactly what’s needed to understand the broader risk profile of the organisation and engage with investors on managing those risks. Recognising the value of these skillsets will also give boards a much more diverse group of candidates to draw on.

Organisations will also need to invest in technical and practical experience to assess and (if need be) reset their corporate culture. Defining, developing and monitoring culture is no walk in the park. A cultural change programme can easily touch virtually everything in an organisation: from the leadership style of the CEO to the KPIs of line managers, from investor relations strategy to the corporate dress code.

Clearly, Australia’s financial services sector has a particularly long row to hoe if it is to reap the benefits of a positive culture. Its current state is a salutary lesson for the rest of us. 

Vanessa Richards is a corporate communications and governance consultant in Australia.