London, 19 March 2015 – Corporations should ‘develop a culture that protects them from risk, secures their franchise and enables them to deliver sustainable benefits for their customers, shareholders and other shareholders’, Peter Montagnon, Associate Director of the Institute of Business Ethics, told the audience at the Worshipful Company of Chartered Secretaries and Administrators’ annual Rivers Lecture yesterday.
Speaking on the theme of “Governance beyond codes and regulation”, Mr Montagnon discussed the usefulness of regulation, stressing the fact that formal compliance alone does not deliver a healthy culture. He believes that regulation and codes are primarily about process and do little to address the question of culture, and also feels that we are at the limit, if not past it, of what regulation and codes can achieve in delivering healthy corporations.
According to Mr Montagnon, regulation to force good decisions has two drawbacks:
- Risk averse regulators narrow choice and ultimately risk stifling entrepreneurial risk taking
- Dictating precisely what senior executives and boards are supposed to do ends up infantilising them; it stops them thinking for themselves and their world becomes purely one of compliance.
He does suggest, however, that regulators could help shift the emphasis of board thinking by requiring certain disclosures, such as listed companies being made to disclose if they have an internal code of conduct and ethical behaviour and the number of employees disciplined for serious breaches in a year.
“What we need is for businesses to instil a culture which encourages people at all levels to make sound decisions that support the maintenance of a solid enterprise,” says Mr Montagnon.
Simon Osborne, Chief Executive of ICSA, who moderated the Q&A session which followed the lecture agrees: “What really matters is how businesses and their employees make choices at every level and what drives those choices. Poor values will lead to a poor business model which, at the end of the day, is not sustainable. Companies that are at odds with society will ultimately find their franchise at risk.”
Mr Montagnon’s recommendations are as follows:
- Boards must define and embed culture as this is a core board responsibility
- Sanctions against individuals must act as a real deterrent. Fining institutions is not an answer
- Boards must look at things like rapidly rising customer complaints and high staff turnover which are good indicators of an oppressive culture
- A genuinely independent third party should manage a company’s whistleblowing policy
- Internal audit should focus more on culture.
- Ends -
For further information, please contact Sue Richards, Strategy Director:
srichards@icsa.org.uk
+44 (0)20 7612 7086
+44 (0)7595 779 035
Notes to Editors:
- ICSA (Institute of Chartered Secretaries and Administrators) is the chartered membership and qualifying body for professionals working in governance, risk and compliance, including company secretaries. Our members work in all sectors and at every level of seniority. With over 120 years of experience, we champion high governance standards by providing qualifications, training, high-quality guidance and support (including technical resources, publications and software), and through our work with regulators and policy makers.
Website: www.icsa.org.uk - The Worshipful Company of Chartered Secretaries and Administrators is a livery company of the City of London.
- The Institute of Business Ethics is a registered charity which promotes high standards of business practice based on ethical values. We help organisations to strengthen their ethics culture through the sharing of knowledge and good practice. www.ibe.org.uk
