ASIC - the corporate, markets and financial services regulator - will continue to push for a better corporate culture for organisations under its remit, with new governance principles expected to be issued by July next year.
The revision comes amid a new strategic focus by the regulator on improving corporate culture - and restoring consumer trust in the system - in the wake of the royal commission into financial services.
ASIC specifically highlights the significance of culture in its proposed Corporate Governance Principles for all ASX entities, which were released early this year and are expected to be adopted by July 2019.
For example, an existing principle calls on organisations to "act ethically and responsibly", whereas the revised version calls on them to "instil the desired culture".
"A listed entity should instil and continually reinforce a culture across the organisation of acting lawfully, ethically and in a socially responsible manner," the proposed principle states.
That principle is backed by recommendations that all organisations should articulate and disclose core values; have and disclose a whistleblower policy; have and disclose an anti-bribery and corruption policy; and have and disclose a code of conduct for directors and staff.
That principle is backed by recommendations that all organisations should articulate and disclose core values; have and disclose policies on whistleblowing, bribery and corruption; and maintain a code of conduct for directors and staff.
The revised guidelines also expand the board's role in approving those core values and the code of conduct, and in overseeing management in instilling those values.
ASIC's proposed changes are currently being reviewed by the ASX Corporate Governance Council, before taking effect next year.
The principles are not enforceable, but entities are encouraged to adopt them and required to explain where they deviate from the recommended practices.
'What you walk past is what you accept'
John Price, Commissioner, Australian Securities & Investment Commission
You can't talk culture without talking "tone from the top." Together, the board and senior management are responsible for creating a culture where everyone has ownership and responsibility for "doing the right thing". The board should lead by example by demonstrating conduct that supports the firm's values, and take action where they see the wrong thing occurring - what you walk past is what you accept.
They should work to cascade these values throughout the entire organisation and take steps to ensure the firm's values are clearly articulated, communicated and understood, because very often the message gets lost in the middle and does not make it to the front line.
Some of the practical things that boards and directors can do to promote a more positive culture in their organisation include considering these questions:
- How they are modelling the firm's desired behaviours and values when interacting with management and staff? Are they living the values of the organisation?
- Do directors have interaction with staff across the organisation, and are there good relationships with key employees?
- Is there periodic engagement with all stakeholders to get a broad perspective on issues impacting customers, suppliers, regulators and the community?
- Is culture a regular feature on the board and audit committee agenda?
- Is there monitoring that captures data on key indicators - for example, gathered through employee feedback and surveys, customer complaints, progress on employee training on culture issues and using data analytics to gain insights on culture?
- Is the information in internal and external audits being fully utilised (since these generally touch many parts of the organisation and are exposed to a variety of cultural indicators)?
Last, but not least, a board should consider monitoring the composition and behaviour of the board on a regular basis to see how this is impacting on the culture of the organisation.
This is an edited version of an article first published in the journal Governance Directions in September 2016. Reproduced with permission.