It is the values and behaviours of individuals that determines the culture within an organisation. If individuals live up to their organisation’s published values this will engender trust among stakeholders.
In recent times there has been a decline in public trust and an increase in public scepticism, not just in business but in many of our institutions. Despite the corporate rhetoric about championing ethical goals, it is clear the reality of organisational culture can be quite different, with some companies failing to live up to their stated values. To rebuild trust, organisations need to be trustworthy.
Values are expressive of human traits, and corporate entities also purport to have values. However, just as an individual has to ‘walk the talk’, it is not good enough for organisations just to have words emblazoned on their advertising material. It is all too easy for an organisation to ‘tick the box’ and say it has a code of ethics (or conduct) with which all staff must comply; the challenge for each organisation is ensuring the people in such entities actually live these values.
Organisations are fundamentally a collection of individuals. For the leaders of organisations to be able to say that their organisation has successfully met its stated values, there is a need to ensure that those individuals collectively livethem. A key factor that assists individuals in living up to stated values is the mind-set of each person taking full responsibility for their own actions. This is highlighted in the ICAS The Power of One – Personal responsibility and ethical leadership publication.
However, whilst this is a major factor, there is little doubt that the culture in an organisation also plays a crucial role. There is a need to engender a culture where the integrity of the organisation, and that of its employees, is seen as key and where the values are used to influence and shape that culture appropriately, as well as minimising the risk of sub-cultures developing. Corporate values therefore need to be properly set, clearly stated and always lived.
Tone at the top – the fundamental building block
Although granted a legal persona in law, a company is not a living person and therefore cannot have integrity, or even an ethical mind-set. That is why it is essential for the leaders of an organisation to establish a set of clear unambiguous values. These values lead to behavioural traits and serve as the basis for the manner in which everyone in the organisation is expected to behave. The ‘tone at the top’, that is, at the boardroom table, is widely seen as the fundamental building block. And this is as true for SMEs as it is for major public companies. It is imperative that those in charge of organisations, regardless of size, not only set the appropriate tone but also lead by example and ‘walk the talk’.
All company directors, irrespective of their company’s size, have a duty under Section 172 of the Companies Act 2006 to promote the long-term success of their company. Acting for the benefit of shareholders is not the directors’ sole duty. Directors must also have regard to the interests of a range of stakeholders (including employees, suppliers, customers, the community and environment) as part of the board’s decision-making process, and directors of large UK companies now need to report on how they have fulfilled their Section 172 responsibilities.
In the past, sustainability and its three pillars – environmental, social and governance (ESG) – has been seen as a ‘nice to have’. However, the world is changing, and, with an ever-growing emphasis on sustainability and ESG at government and regulatory level, as well as increased societal expectations for organisations to behave responsibly, ESG is becoming an organisation’s licence to exist. Many organisations are now reporting sustainability related information, but currently this information is not always assured and even if it is assured, the assurance is not always provided by independent professional accountants. The focus of investors and regulators is increasingly now on the important role of assurance in ensuring the trustworthiness – the reliability and the robustness – of the sustainability information reported.
It is also recognised that the alignment of the objectives and remuneration of individuals with their organisation’s values, long-term purpose and strategy, is a key component to improving behaviour and helping rebuild public confidence. If individuals are incentivised only to reach a particular short-term financial target, there is a danger that they will work towards that, regardless of the long-term implications of their actions. Individuals therefore need to be motivated to help safeguard their organisation’s sustained growth over the long-term, and not be remunerated by schemes that only meet short-term goals. The Board of Directors are the custodians of their organisation and need to focus on this stewardship role to ensure the long-term success and reputation of their organisation.
Ultimately, the Chair of the Board has the key responsibility for the culture of the organisation; but so also do the shareholders to whom the Board of Directors are ultimately accountable. Initiatives to try to encourage institutional shareholders to get better engaged with the companies in which they invest include the FRC’s Stewardship Code. To become a signatory to the Code, organisations must submit a report to the FRC providing evidence to demonstrate how they have applied the Code’s Principles over the previous 12 months. In September 2021, the FRC announced that two thirds of applicants had successfully met the FRC’s reporting expectations and made the list of signatories.
Corporate culture – an organisation’s guiding force
Corporate culture is an organisation’s guiding force. However, how are the organisation’s values derived? Additionally, once set, how do you get a disparate collection of individual personal values to line up behind a desired set of corporate values?
Each person will come to an organisation with their own moral code. One objective of the organisation’s set of values should be to ensure that each person understands how to behave appropriately when representing the organisation. This is not an easy task. Should all employees be involved in seeking to determine an organisation’s values, or should these be determined by senior management and imposed on the organisation? A helpful approach is undoubtedly to get buy-in from an organisation’s employees by involving them in the process of establishing the organisation’s values. Such an approach is to be encouraged and indeed is essential to ensure that employees feel empowered and part of the process.
In today’s world, it also needs to be recognised that there is wider stakeholder interest in the impact of business on the environment, the economy, communities and society. Organisations need to behave in an ethical and responsible manner. If they abuse the environment, or treat staff poorly, they will not be able to operate in the long run. Organisational leaders should be listening to all those whom they lead. In particular, there is some evidence that the younger generation has a stronger interest than previous generations in organisations pursuing long-term, sustainable goals. The younger generation therefore may have a key role to play in helping organisations realise long-term success.
There are therefore both ‘top-down’ and ‘bottom up’ influences at play in the process of determining values, which can make it a difficult process, and certainly not easily achieved in the shorter term. Nevertheless, in order for values to be properly set and embedded, everyone within the organisation must take ownership of them.
Successful corporate values – properly set, clearly stated and always lived
For many organisations, it appears that values are merely a PR tool to be placed on the entity’s website and delivered through the annual report. It has also been acknowledged that there is an information gap. One of the difficulties faced by organisations is proving to investors, the general public and indeed themselves that they are actually ‘doing what they say on the tin’. Organisational culture can be very difficult to measure; however, organisations will have to overcome this difficulty in order to provide the information which is much sought after by stakeholders.
It is therefore essential that organisations not only have a clear and succinct statement of values and ethical principles but also clearly articulate to stakeholders how these values and principles relate to the current organisational culture and leadership.
A culture of ‘doing the right thing’ needs to exist at all levels within the organisation. Therefore, just as there is a need to establish an appropriate ‘tone at the top’, it is equally important for this tone to be cascaded down through the rest of the organisation and embraced by all those who work in it.
It is the values and behaviours of individuals that will determine the culture within an organisation. It is important that the desired culture becomes embedded as part of an individual’s daily habits – not just signposted at induction and forgotten about. There needs to be ‘grassroots’ support encouraged through regular communications – confidential ‘speak up’ channels and open forums. Communication encourages employee engagement.
A code of ethics and values can be helpful as part of a framework for embedding the importance of trust and integrity across an organisation. A code can assist in communicating expectations on standards of behaviour – individuals can refer to it for guidance and can also be held accountable against it. The transparency of a published code can also be an effective means of informing an organisation’s internal and external stakeholders of its ethics and values, as well as being a useful catalyst for change.
Organisations must also value their employees. The adoption, promotion and embedding of a culture of fairness, including respect for values of equality, diversity and inclusion, is an important element of an effective ethical culture within an organisation. Furthermore, many organisations will highlight their health and safety, wellbeing and training – but it is essential that organisations adhere to these policies in practice. How an organisation treats its employees, and how employees feel towards their organisation, can highlight the truth about the organisation’s culture.
As discussed in the ICAS research Speak up? Listen Up? Whistleblow?, whistleblowing and ‘speak up’ mechanisms within organisations are vitally important – empowering and supporting individuals to have the confidence to promote good behaviour, influence others and ‘speak up’ if they encounter ethical issues, without fear of retaliation. Speaking up allows issues to be dealt with at the earliest opportunity before they escalate. However, if someone speaks up but nobody listens, then the speaking up will not be effective. There is therefore a need for managers to ‘listen up’ to concerns and then take action to investigate the issue. Where possible, there should also be transparency to all employees about the outcomes of investigations, providing evidence where appropriate, so that people will have confidence that concerns are taken seriously and valued – providing real examples, on a no names basis, can allow people to see the culture in action.
An organisation’s values provide an image of the organisation and what it stands for to the outside world. If individuals within organisations live up to the organisation’s published values then this will engender trust among their stakeholders. Organisations which are trusted are likely to see more repeat business, have the potential to charge a premium for their products or services, and will be seen as a good place to work by existing and prospective employees. The importance of trust in business must not be understated. Properly set and embedded values ‘add value, not just protect value’.
Organisational culture and values is one of the main themes of The Power of One – ICAS’ business ethics initiative. The Power of One calls on all Chartered Accountants (CAs) to place ethical leadership at the heart of their professional responsibilities, to shape the culture and values of their organisations, to help re-establish ethics at the core of business practices and to rebuild public trust in business. Since 2015, ICAS has published a series of publications, guidance and resources as part of The Power of One initiative. In 2020, to mark the fifth anniversary since the launch of The Power of One, ICAS issued second editions of The Power of One series of publications.
To read more of ICAS’ series of contributions on ethical leadership – The Power of One – visit the ICAS website.