In today’s fast-paced, highly competitive environment, companies face a myriad of ‘make or break’ challenges. While strategy, leadership, and innovation are critical, culture is revealing itself to be the ultimate arbiter of long-term organisational success.
It’s well known that organisational culture–the collective values, beliefs, and behaviours shared within a company–is a powerful force that influences employee engagement, productivity, and overall business performance.
A strong and positive organisational culture creates an environment where employees feel motivated, committed to their work, and willing to invest their time, energy, and talents. It fosters a sense of belonging which enhances employee retention and reduces turnover.
Organisational culture can also play a pivotal role in attracting the best and brightest talent. When candidates perceive an organisation’s culture as supportive, inclusive, and aligned with their personal values, they are more likely to choose that organisation over competitors.
What is less known, or certainly less frequently discussed, is how significantly corporate culture influences corporate governance practices.
When corporate culture meets corporate governance
Since January 2023, PricewaterhouseCoopers has been embroiled in a corporate tax avoidance scandal which will have long-lasting ramifications for PwC, its multi-national clients, and the other ‘Big Four’ accounting firms.
Quoted in The Australian Financial Review on 26 May 2023, Deloitte Australia’s chief executive, Adam Powick, and chairman, Tom Imbesi, touched on the relationship between culture and governance. In an email to Deloitte partners, they wrote:
“What has transpired is deeply troubling and disappointing and is justifiably attracting significant scrutiny and reaction. Our response is focused on reaffirming we have the appropriate culture, controls and governance in place to prevent a similar situation ever occurring at Deloitte.”
The positive impacts of culture on governance
Culture exerts a profound influence on governance.
If rooted in ethical principles, a strong organisational culture provides a foundation for effective governance. When integrity, transparency, and accountability are embedded in the culture, governance mechanisms are more likely to be upheld, responsible decision-making promoted, unethical behaviour discouraged, and compliance and regulatory requirements satisfied.
A positive culture built on trust and collaboration also fosters effective governance. When employees trust their leaders and colleagues, they are more likely to share information and contribute to the organisation’s governance efforts. This collaborative atmosphere facilitates open dialogue, promotes collective decision-making, and again enhances the effectiveness of governance mechanisms.
Culture also influences an organisation’s approach to risk management – emphasising risk awareness, proactive risk mitigation, and adherence to legal and regulatory requirements. Employees in a risk-aware culture are more likely to identify potential risks, escalate concerns, and implement necessary controls.
The negative impacts of culture on governance
Conversely, an unhealthy culture–one which is characterised by a lack of accountability–undermines effective governance. When individuals do not take ownership of their actions, evade responsibility, or fail to acknowledge mistakes, governance mechanisms become ineffective. A culture that does not hold individuals accountable may result in poor decision-making, ethical lapses, and a lack of transparency, eroding trust in the governance framework.
Additionally, cultures that perpetuate siloed behaviour and internal rivalries can impede effective governance. When collaboration and communication are limited, governance mechanisms may become fragmented, hampering alignment of governance practices across the organisation and resulting in inconsistent decision-making and information gaps.
There’s no joy, but there are lessons
On its careers pages, PwC promotes it has built an “enviable culture of candour, respect and trust” – a culture that “trusts you to know where the boundaries are…”
Indeed, ‘transparent’ (promoting open communication, honesty, and accountability at all levels) is one of the adjectives organisations most commonly used to describe their culture.
As the Deloitte leadership noted, there’s no joy in watching PwC’s brand and reputation being tainted by the actions of a few.
There are, however, many, many lessons to be learned – relating to both why, when, and how the ‘tax leaks’ took place and PwC’s response.
The PwC crisis should serve as a warning to all professional services firms to check that they really do have the culture, controls, and governance in place to prevent a similar situation from occurring within their own organisation.
