‘What you walk past is what you accept’

Posted by John Price, Commissioner, Australian Securities and Investments Commission on 13/10/2016

As you will be aware, ASIC has been talking a lot about culture lately. Why? Because poor culture can be a driver of poor conduct and ASIC regulates poor conduct. But it’s not just regulators who should care about poor culture. It should be important to you too because studies have confirmed that good culture is good for business and for generating long-term shareholder value.

Poor culture, on the other hand, can lead to misconduct and result in significant financial costs including the cost of remediation, compensation and fines. According to research conducted by the London School of Economics and Political Science, the cost of poor conduct for the ten most-affected global banks was approximately US$250 billion between 2008 and 2012.The damage to a company’s brand from a poor culture and poor conduct can also be very significant.

At ASIC, we are particularly interested in the businesses we regulate striving for a culture of ‘doing the right thing’ by investors and consumers. When it comes to the financial services sector, this includes things like:

  • considering the long-term interests of customers, both when things are going well and when they are not
  • ensuring that products and services are designed, stress-tested and take into account the needs of the target market. In other words, ensuring the right products are sold to the right customers at the right time
  • having in place a recruitment, training and reward structure that is aligned to and reinforces a culture of doing the right thing.

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.

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.

When I speak at Governance Institute’s National Conference in November in Sydney, I will share with delegates the current thinking around practical things that boards and directors can do to promote a more positive culture in their organisation. For example, they may consider 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?

For directors not involved in the daily operations of a company, overseeing culture can be challenging but there are levers available to help with this. Some questions to consider include: whether culture is a regular feature on the board and audit committee agenda; do directors have interaction with staff across the organisation; are there good relationships with key employees; and is there periodic engagement with all stakeholders to get a broad perspective on issues impacting customers, suppliers, regulators and the community?

The bottom line is culture is all about people. Consumer and customer best interests, which build trust and confidence, go to the very core of a positive culture.


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