ASIC focuses on culture
When ASIC first made it clear that it intends to focus on culture in companies, critics noted that in order to explain the cultural framework of a company, it would need to send ASIC all the policy manuals; all the standard operating procedures; a description of all the roles; charts of the organisational structure which show the limits of roles and relationships within the firm and a psychiatrist’s report on the CEO and executive team’s behaviour.
The corporate regulator has since commented that it is concentrating on financial institutions, stating that culture can provide a signal of behaviours, incentive frameworks and practices that do not support good governance or ethical conduct.
In an appearance before the Senate Economics Legislation Committee estimates hearing, ASIC chairman Greg Medcraft reiterated that ‘you cannot regulate culture, but you know bad culture when you see it’. He noted that ASIC meets the boards of banks and alerts them to where it sees poor behaviour in divisions, so that boards can ensure that the tone at the top they have set cascades throughout the organisation. During the hearing Mr Medcraft noted that boards are ‘often quite shocked’ at the information ASIC brings to their attention.
ASIC is interested in seeing that the governance framework includes mechanisms to alert companies about misconduct. These could include third-party assessments, such as stakeholder surveys, proper complaints and whistleblowing processes and monitoring of social media, which can highlight issues the company needs to address.
ASIC is not the only regulator interested in culture. The US Financial Industry Regulatory Authority uses five indicators to assess culture: whether control functions are valued within the organisation; whether policy or control breaches are tolerated; whether the organisation proactively seeks to identify risk and compliance events; whether immediate managers are effective role models of firm culture; and whether sub–cultures that may not conform to overall corporate culture are identified and addressed.