Managers urged to audit their organisational cultures

07 July 2014 -

Institute calls for bosses to conduct thorough reviews of how their companies work, with the aim of avoiding risks posed by inappropriate behaviour

Jermaine Haughton

British companies have been urged to carry out detailed audits of their workplace cultures in a new report released today by the Chartered Institute of Internal Auditors. The specialist risk-management body says it is incumbent on firms to identify and eradicate the “wrong” organisational culture, which has shown itself to be a precursor for a series of scandals from LIBOR rigging to PPI mis-selling.

Launched at the risk-management profession’s global conference in London, the report aims to spur thousands of internal auditors from around the world to address a range of issues that influence the culture and ethics of organisations – such as whistleblowing and preventing fraud.

The Institute’s report stresses that company boards must first clearly outline and communicate the culture they wish to attach to their firm as they strive to meet their core goals. Then, policies to measure the effectiveness of that framework should be put in place, while bosses must be prepared to forge closer working relationships with their internal auditors to monitor and report on the relevant measures.

Chartered Institute of Internal Auditors chief executive Dr Ian Peters said: “As organisations come under increasing pressure to demonstrate their commitment to improving standards of behaviour they must focus more closely on getting the underlying culture which dictates those behaviours right. But on the basis that what gets measured gets done, they must take seriously the need to audit their progress in addressing the need for change.”

The report urges internal auditors to:

Go beyond a focus on processes and controls and undertake root-cause analysis to identify cultural weaknesses

Audit cultural indicators to determine how far culture and values are at the heart of every business decision

Include indicators such as recruitment policies, training, performance management and rewards

Audit not just tone at the top but throughout the organisation

Trust their judgement even if at times it means taking a subjective approach

The conference will also feature the appearance of former Olympus Chief Executive Michael Woodford, who will share his experiences as the whistleblower who exposed the biggest fraud in Japanese corporate history. Woodford is set to tell internal auditors how organisations instinctively protect themselves rather than considering the rights and wrongs around issues such as loyalty and betrayal.

Since the turn of the millennium, there have been occasional examples of firms successfully enhancing their reputations by auditing their cultures. In the early 2000s, American telecoms firm WorldCom filed one of the largest bankruptcies ever following the aftermath of its inflated reported revenues fraud. The company took urgent steps to change its image, behaviour and status for the better, including moving its headquarters from Clinton, Mississippi to Dulles, Virginia and by changing its name to MCI, a company it acquired in 1997.

Download the Institute’s report.