In recent months there has been increasing regulatory focus on corporate culture, with ASIC prominent in the debate.

We do not consider that it is the role of regulators to enforce corporate culture and there is no “one size fits all” model as to what constitutes a good corporate culture.

Nevertheless we consider that a focus on improvement in corporate culture can be a catalyst to positive business outcomes and therefore should be on the agenda for boardroom discussion. In that sense the ASIC initiative is to be welcomed.

The regulatory initiative

Promoting investor and financial trust and confidence has been a stated priority for ASIC since the release of its four-year Corporate Plan[1] in August 2015. ASIC considers that establishing greater consumer trust and confidence in the Australian market is essential to achieving one of its core mandates: allowing markets to fund the real economy and in turn economic growth. ASIC officers have given a series of speeches urging organisations to think about their organisation’s culture and to reflect on some of the changes they can make to foster a more positive culture of “doing the right thing”.

ASIC’s focus on corporate culture follows the Financial System Inquiry (FSI) which underlined that culture in the finance sector matters because it impacts directly on trust and confidence in the Australian financial system. ASIC agreed with the observations and recommendations of the FSI in so far as they relate to the links between poor financial services and the culture of firms.

The focus on culture is also something that is being seen overseas, in particular in the UK the Financial Conduct Authority has also recently[2] emphasised the importance of culture in developing its policies. This material is also useful to reference.

What is culture and why does it matter?

Culture is an attitude, policy, course of conduct or practice existing within a corporate entity. This definition is taken from section 12 of the Criminal Code 1995 (Cth). Under the Criminal Code culture can be used by a Court to establish fault for corporate criminal culpability. The difficulty with corporate culture is that the concept is an inherently slippery and subjective concept and is therefore legally imprecise and difficult to objectively measure. In addition applying the concept, for example, to a large diversified financial services institution is by its nature difficult having regard to the broad range of different types of business units that are involved.

For these reasons we do not consider that it is appropriate or realistic for regulators to seek to enforce the existence of corporate culture.

Further culture can properly vary between different types of organisation having regard to the nature of the businesses and the kinds of stakeholders having contact with the business enterprise- for example a business that interfaces with unsophisticated consumers highly reliant on the products offered by the business may have different cultural imperatives to a business engaged in transactions with highly sophisticated counterparties who have free choice in their engagement with the business. In this sense no “one size fits all” model should exist as to the identification of good corporate culture.

It is widely accepted that there are a number of ways that having good culture can benefit an organisation. For ASIC[3] this importantly includes:

  • increasing customer loyalty, brand and reputation;
  • reducing or avoiding the financial impact of fines or remediation; and
  • attracting and retaining staff.

Driving good culture

For a non-executive director sitting at the apex of a large diversified corporate group the ability to assess and monitor culture through the organisation might seem an unachievable goal. However, we consider that there are a number of strategies that can be employed by boards to improve their focus on culture. ASIC has identified 7 key drivers[4] of good culture, summarised below, which provides a useful starting point for boards to advance their thinking on culture:

Tone from the top

The board and senior management should:

  • create a culture where everyone has ownership and responsibility for ‘doing the right thing’;
  • set the values and principles of an organisation’s culture and ensure they are reflected in the organisation’s strategy, business model, risk appetite, and compliance and governance frameworks; and
  • The board and senior management should lead by example, by demonstrating the conduct that supports the organisation’s values.

One of the principal ways the board sets the tone is through the selection of a chief executive officer (CEO) who has values aligned with the company’s desired culture and by monitoring the composition and behaviour of the CEO and senior management team on a regular basis to see how this is impacting on the culture of the organisation.

Cascading values to the rest of the organisation

Senior management needs to ensure the organisation’s values are understood throughout the organisation.
Line managers should model the organisation’s values.

Translating values into business practice

Senior management should ensure the organisation’s values are incorporated into all of its business practices. For example, how problems and mistakes are identified internally, elevated and fixed.


Senior management should ensure the compliance and governance frameworks that are in place are monitored and enforced.

Effective communication and challenge

The board and senior management should promote a culture of open communication and should encourage a positive critical attitude among employees

Recruitment, training and rewards

Recruitment - As part of the selection of all staff, the board and senior management should seek out behaviours and attitudes that lead to good conduct and outcomes for customers.
Training - The board and senior management should ensure training is available to maintain staff knowledge about the organisation’s values and the attitudes and behaviours expected of staff.
Rewards - The board and senior management should also ensure that the company’s remuneration and incentives (including promotions) across the organisation are linked to good conduct and good outcomes for customers.

Governance and control

Under the board’s stewardship, the leadership team should promote, monitor and assess the impact of the organisation’s culture on conduct and make changes where necessary. It’s important that there is direct access to the board and leadership team. It’s also important that there is a process in place for periodic reporting to the board on culture, conduct and compliance issues.
Consistent with their role as non-executive directors board members should keep their “nose in” by considering things like independent assessments of culture and whether the firm’s stated values match the actual experiences of customers, employees and suppliers and to question whether there is monitoring that captures data on key indicators (eg. through employee feedback and surveys, customer complaints, progress on employee training on culture issues, etc).

Some conversation starters on culture

Has the company made a public commitment to its values?

Do we hold the chief executive to account when we see misalignment?

What percentage of board time is spent on behavioural performance management?

Do we see evidence of sub-cultures or pockets of autonomy in the business?

How embedded in HR processes are expected behaviours, from recruitment to exit interview?

Are behavioural objectives included in leadership and employee goals and formal employee assessments?

Have we considered if pay award methodologies could undermine culture?

How comfortable do employees report they are with challenging and reporting bad behaviour?

Do we consider our stated corporate values when addressing and resolving risk issues?

Are we clear about the company’s risk appetite and is it communicated effectively?