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Culture is important for getting corporate governance right

Achieving good corporate governance and behaviour must go beyond codes and towards developing the right culture across organisations and the leaders of companies must be integrated into that culture, according to Sir Wim Bischoff chairman of the Financial Reporting Council (FRC) speaking recently at the Financial Times Banking Standards Conference (8th March).

Bischoff said, “Codes put forward principles for best practice that make bad behaviour less likely to occur; and public reporting can make it harder to conceal such behaviour. But, by itself, a code does not prevent inappropriate behaviour, strategies or decisions. Only the people, particularly the leaders within a business, can do that.”

In order to develop the appropriate culture Bishchoff said a board must define the purposes of the company and what type of behaviours it wishes to promote in order to deliver its business strategy. The culture will be particular to that organisation he said. Companies need to think about how the culture can be maintained even during times of change and stress and how new leaders can be integrated into the culture. Additionally, communicating the culture to shareholders was important to ensure they could have constructive dialogue with the company’s management.

Within banking Bischoff noted that with the LIBOR and Foreign Exchange scandals it was clear to see how failings in corporate culture could lead to consequences, not just of a financial nature.

“When there is a healthy culture, the systems, the procedures, and the overall functioning and mutual support of an organisation exist in harmony. When this is not the case, the potential for disaster is just around the corner,” he said.

To achieve a good culture Bischoff said company boards must ensure sufficient internal audit arrangements are in place and pay attention to their findings.

To encourage healthy corporate cultures across all sectors the FRC has formed the Culture Coalition with the Chartered Institute of Internal Auditors, the Chartered Institute of Personnel and Development, the Chartered Institute of Management Accountants, the Institute of Business Ethic and City Values Forum. The coalition proposes “to assess how effective boards are at establishing company culture and practices, and embedding good corporate behaviour, and to consider whether there is a need for promoting good practice”. Bischoff said it had had a very encouraging response to this initiative from many individuals and organisations, including within the banking sector.

“Our aim is to deliver practical, market-led observations, not, I hasten to add, a Code, to help boards and companies establish and embed their desired culture,” Bischoff said.

In conclusion he said, “Values, behaviours and corporate culture are central to the way an organisation achieves its objectives. When these are integrated into its business model, good and sometimes great things will follow, financially as well as reputationally

“Trust in banking we know is at an all-time low, but there is no reason to think that what works for the non- financial sector should not work for the financial sector itself.”

What do you think?