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PKF Australia

Accountants and Business Advisers

Interrogating Integrity

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Ken Weldin

Partner

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Interrogating Integrity

Governance, culture and ethics have never been more relevant across Australian business. We have seen a growing lack of trust in institutions, in traditional structures and even in some cases in people’s success. Noting that the full title of the Hayne Royal Commission featured the word ‘misconduct’, ethical business practices and corporate governance really do matter for today’s Boards and management teams. These expectations mean that governance, risk and compliance efforts need to move beyond the traditional ‘tick the box’ approach.

Against this context, Boards and management, are racing to understand how they can ensure their corporate culture is one that inspires greater governance, risk and compliance efforts, across all levels of the business. In other words, Interrogating Integrity is a feature of strong contemporary governance, for all sectors, not just those operating in financial services.

Have the conversation sooner rather than later

It is quite rare that an organisation’s ethical compass is called into question as to the result of a one-off catastrophic event. More often than not, it is a number of small issues that build up over time that lead a company into trouble.

From this, our experience from working with companies stresses the importance of taking a proactive approach towards the matter of establishing and then improving governance.

When having these conversations, it can be tempting to take a light touch approach. But, in order to truly understand your business’ risk you need be honest (brutally so) and interrogate your operations from the ground up, to ensure you are creating a culture and environment that promotes the highest levels of integrity.

Why things go wrong

  1. Lacking behavioural integrity by creating a culture that does not encourage open transparency and accountability.
  2. Too big a focus on fiscal performance which can lead to increased pressure to achieve results at the detriment of all else.
  3. Ignorance created from a lack of communication within an organisation or an aversion to dealing with difficult situations.
  4. Inadequate controls in place to identify and respond to issues when they arise.
  5. The fraud triangle – a term coined by Donald Cressey, a prominent criminologist, that theorises that most fraud cases are made up of three factors: pressure on individuals (personal or workplace), the opportunity to commit fraud and the ability to rationalise the crime.

The importance of culture

A strong culture is one that listens and learns. When reviewing your corporate culture ask:

  • Do we encourage transparency and accountability?
  • Do we have a common set of clearly communicated goals and objectives?
  • Do we know who all of our stakeholders are?

  • Are our communication practices relevant and effective?
  • Do we have clear decision making structures in place?
  • Do we have a consistent and fair approach to performance management?
  • Are we overcomplicating or overthinking our culture measurement processes?
  • Do we have appropriate escalation, investigation and disciplinary processes in place?
  • Do our hiring processes consider our social license to operate?
  • Do we provide the right level of training?

Reviewing your culture is not a set and forget exercise. Culture is a fluid concept and will naturally evolve and change over time with staff turnover, changing work pressures, new legislative requirements and changing technology. It is therefore imperative that regular checkpoints are scheduled in which to revisit the above questions and respond to any new red flags or capitalise on opportunities.

The most important thing is to have integrity related conversations focused on identifying how culture, value and ethics impact your organisation. And have these conversations regularly.


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