Creating a Culture of Compliance
Posted on April 17th, 2008 by Julie Garland McLellan »Permalink
Governance relies on culture, and establishing an appropriate culture is one of the most important jobs for a board. Checking that the culture the board wanted is the culture they actually have is also important.
The board will get some idea of the culture within the organisation by observing the behaviours of the CEO and senior executives. Behaviours that are rewarded and recognised will be emulated and repeated and will eventually coalesce into ‘the way things get done round here’ or the basic culture of the organisation. Different departments will have slight variations on the basic culture but these must never stray so far from the norm that they become alien to the rest of the organisation.
A good indicator for boards is the relationship between the support and control functions and the line management within the core operations. If risk management, internal audit and human resources are generally welcomed as ‘people who help us get our jobs done’ then the culture is likely to be reasonably compliance focused. If there are strong tensions or a dramatic divide between “us” and “them” then the culture is probably not right. The board can find this out by seeking opportunities to meet staff from the support functions and asking these staff how they feel they are viewed by their colleagues in the line functions. This can happen in the boardroom.
First hand experience is better than any indicator. Boards should get out and about within the organisation as much as they can. Talking to staff about the control system and why it is important will reinforce the value of compliant behaviour and demonstrate that the board is genuinely interested in compliance.
There is a good reason that sayings such as “whatever interests my boss fascinates me” and “what gets measured gets done”; they are true! Boards need to show they are interested and measure compliant behaviour so that the staff are aware that their compliance is monitored.
Boards also need to pay attention to the mythology within the organisation. What are the things that make an employee a hero or heroine in the eyes of their colleagues? If gung ho risk taking and non-compliant behaviour are stuff that heroic reputations are built upon the board is not going to get much compliance from the best and brightest members of staff. Boards should be careful that they reward compliance as well as performance. Whilst many boards are wary of introducing complex reward systems if a company has a good controls system and monitors compliance it will be easy to pick an objective quantifiable indicator of good compliance and to build that in to the reward system.
Rewarding a manager, for example, on the reduction in non compliances by his or her direct reports will soon have managers focused on reinforcing the control system or changing it when it needs to be changed to support a better performance outcome. When the control system is viewed as something that prevents performance good managers will naturally try to find a way to operate outside the fetters the system imposes. When the system is designed to support performance and when rewards are attached to supporting and working within the system then the board can rest assured that the culture will have an adequate focus on compliance.
Julie Garland McLellan has over 20 years experience in strategic business development in resources, utilities and energy industries. She is currently a corporate governance consultant with Blackrock ITS, a leading Australian IT services and solutions firm. Previously, she served as associate director with McLennan Magasanik Associates, and a board member of the Victorian Minerals and Energy Council, the Victorian Energy Networks Corporation (VENCorp), the Melbourne University Engineering Foundation and City West Water. Julie has an honours degree in civil engineering from City University in London, an MBA from the leading Spanish Business School (Instituto de Empresa in Madrid) and is qualified in finance and corporate governance.
Tags: corporate governance, compliance
