A new paper published by the Financial Conduct Authority suggests measuring your culture might not be the silver bullet many firms hope for.
Measuring culture – opposing views
The paper published last year reported that researchers at the London School of Economics had developed a method of measuring corporate culture that would put it ‘under the same empirical scrutiny as profit and loss’.
In the response, University of Amsterdam experts counter the drive to measure culture by outlining some of the limitations.
While measurement has become the norm in business, the paper points out that this focus on measurement ‘is highly challenging when it comes to culture’, because of the difficulty in capturing culture in ‘simple observable or quantifiable metrics’.
Traditionally, culture has been measured qualitatively by anthropologists and sociologists. Today, this contrasts with the drive for tangible measures.
An understandable focus on measurement
The paper cites reputational issues such as the Volkswagen emissions scandals cheating, and account fraud at Wells Fargo as evidence that ‘culture matters as structural rule breaking and wrongdoing was rooted in culture’.
This is something we’ve explored before in the context of regulated businesses, looking, for instance, at the ways that the wrong behaviours can be unconsciously incentivised.
The trend towards a desire for ‘harder’ measures of culture is understandable; the paper notes that ‘corporate management, shareholders, regulators, all demand a clear and measurable concept of corporate culture’.
But – as with the examples above, compliance failings have been shown to occur in businesses where profits and shareholders’ interests have been prioritised over those of other stakeholders.
Can you measure culture unobtrusively?
The original paper proposed an approach where culture could be measured unobtrusively, without actually entering the company. Although this may sound like the ideal – cost-effective and low-profile – it too has its limitations.
Corporate cultures operate on a number of levels, as the paper points out. Firstly, there are ‘observable elements’ – including the firm’s architecture, rules and logo. This links to something we have explored before; the close ties between brand and compliance.
These – sometimes apparently superficial – elements of culture link to deeper layers that influence corporate behaviour and ethics. Organisational values, for instance, which can be impossible to understand fully from outside the business. At its deepest, ‘stickiest’ level, these elements comprise an organisation’s ‘hidden assumptions’ – the unconscious values that employees probably don’t even realise shape their behaviour.
Given the central role these deeply-entrenched yet almost invisible elements play in creating corporate culture, the paper’s authors argue that ‘we can seriously wonder what the measurement of culture using publicly available data…actually measures’.
So, what should firms do?
Identifying when a culture is healthy and ethical – and conversely, when it’s ‘toxic, unethical and unsafe’ – is vital. Predicting this sort of wrongdoing, though, is very difficult.
The paper suggests two different approaches to tackle an unhealthy culture:
- After the event, when a culture has become toxic and the fall-out is public, authorities and regulators should force the organisation to undergo what the authors call a ‘forensic ethnography’, a “who done it” in the culture’.
This – although a costly and significant undertaking – should identify the cultural elements and practices that led to the scandal and need to be changed.
- Pre-emptive actions that aim to prevent toxic cultures from developing. Identifying the red flags that indicate potential problems with corporate culture – the firm suggests using a validated risk assessment tool to do this.
The paper concludes by noting that while ‘toxic culture defies easy measurement and diagnosis’, going ‘more deeply into organisations and [analysing] the values and practices as they have become embedded’ can allow us to truly address corporate ethics and behaviours.
Advice for firms wanting to make cultural improvements
As we have noted many times before, regulatory compliance is rooted in a good corporate culture. Firms wanting to develop a positive corporate culture – a culture of compliance – can read our 5 steps to creating a compliant culture.
These include ensuring your marketing compliance is up to scratch, with the right review and approvals process for financial promotions, documented accurately to create the requisite FCA-standard audit trail.
Making compliance part of ‘business as usual’ vastly increases your chances of developing and maintaining an ethical, compliant culture.
If you’re interested in reading more about creating this type of firm culture, you can download a copy of our whitepaper, How to embed a compliance culture into your business. You can get a free copy from our online resource library.
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