Time to challenge corporate culture

Corporate cultures that prevent employees from raising questions about perceived risks and threats to an organisation can only be changed if board members lead by example and become more sceptical and challenging.

That’s the conclusion of a new report commissioned by the Association of Chartered Certified Accountants (ACCA) and the the Institute of Management Accountants (IMA).

The report titled A Risk Challenge Culture and authored by Paul L. Walker, William G. Shenkir and Thomas L. Barton, looks at the need for organisations

to develop and implement effective risk oversight in the wake of the 2008 financial crisis, which exposed serious weaknesses in risk management.

The report said: “Even some organisations that claim to have a robust risk governance structure have one in name only; the directors are not as actively engaged in risk oversight as they need to be. They oftentimes lack adequate training in risk issues and may receive unduly optimistic risk reporting. In the wake of a risk debacle, a typical question is, “Where was the board while this was happening?”’

It called for the development of a risk challenge culture which encourages, requires, and rewards inquiries that challenge existing conditions.

The report also found that “when a subordinate is afraid to ask senior management about perceived risks, that is not a challenge culture”.

“When a board member is satisfied with the CEO’s facile answer to a serious risk issue, that is not a challenge culture. When board members ‘rubber stamp’ management’s critical actions without serious debate, they have not enhanced a challenge culture,” it added.

Reacting to the findings, ACCA director of policy Ewan Willars, said: “It is critical that the board and executive set the tone for the rest of the organisation, which includes encouraging and rewarding those who raise concerns about behaviour and priorities – rather than those who take unnecessary risks or who act only in the short term interests of the organisation.

“All too often decision-makers talk about wishing they had the benefit of hindsight – but scepticism and a culture in which people are actively encouraged and rewarded for challenging decisions can be highly effective in ensuring that organisations take the right course, and must be actively promoted.” (SC/PR)