Speech by Stephen Haddrill, CEO, FRC, Chartered IIA Annual Dinner 2016
News types: Speeches
Published: 22 June 2016
Stephen Haddrill
CEO
Financial Reporting Council
Chartered IIA Annual Dinner
21 June 2016
A Culture to be proud of
Good evening everyone,
Well I am doing the graveyard shift for giving this speech, so I will do my best to not keep you too long, away from the bar’s facilities!
Firstly I want to say what a great evening it has been and congratulations to the prizewinners tonight, a tremendous achievement to you all.
Awarding people for their achievements is a great way to incentivise employees to do their best, and to create a positive culture in the workplace. And that – culture – is what I am here to talk about tonight.
The UK has a good reputation for corporate governance but, as you are all aware, corporate scandals continue to damage the public standing of business. Regulation has addressed some of the problems. But regulation will not be wholly successful unless combined with a healthy corporate culture. This is why the Financial Reporting Council has established a Culture Coalition. This is a group of organisations, including the Chartered IIA, specifically focused on culture. I will comment on this a little later.
There have been many examples over the years of what a good company culture can do and what a poor culture can lead to. Recently we have seen even highly respected brands acknowledge behaviours which have damaged their public reputation.
The aim of the Culture Coalition is to highlight good practice and to promote the importance of a healthy corporate culture in sustaining growth and protecting value. We have had a very pleasing response from many individuals and organisations, encouragingly not all saying the same thing! Our aim next month is to bring forward practical, market-led propositions for companies to consider.
We will not be changing the Code itself. We have committed to focus on embedding recent Code changes not introducing new ones. We will however, look at the guidance on Board Effectiveness in the light of the way the debate develops.
Let me give you a brief preview of three key points.
First the Board must define the behaviours it wants, in a way consistent with is business model.
Second the Board needs to promote the behaviours throughout the company. To ensure this its decisions must be aligned with the culture it seeks – in hiring the CEO; in its remuneration policies; in its consideration of acquisitions.
Third, it needs to determine how it will assess progress throughout the company and listen to the feedback it receives.
First, the Board’s role. You may have noticed that I referred to the Board establishing the behaviours it wants to see. I use that word advisedly.
For many companies, with an international workforce, with a deep history or with a strong sectoral culture, the Board does not have a free hand in establishing an ideal culture. But it can set about defining and setting expectations of behaviour.
In doing so it needs to be driven by the nature of its business and its business model. People say culture eats strategy for breakfast. Maybe but the two have to be compatible and surely the board must start with how it intends to make a profit.
Second, the Board needs to embed the behaviours it seeks by consistently reinforcing it through its key decisions. The appointment of the CEO is of particular significance. The executive leadership drive and embed behaviours. The role of the Board is therefore crucial in selecting and holding CEOs to account cannot be over-emphasied. This is a key element of setting the right tone from the top.
Third the Board needs to know whether it is succeeding. I must mention specifically the IIA here and applaud it for the great contribution it is making in looking into how companies embed a desired culture, including at how internal audit can contribute to improving culture through the assurance, advice and insight it provides to audit committees and boards. It poses questions about whether internal audit can inspect culture and what cultural indicators internal auditors can use, to steer its work, and when reporting the existing culture in an organisation to the board.
The work also goes beyond this to look at the key interactions between internal audit and other functions, such as external audit, risk and compliance, and HR and organisational development. This reflects the growing profile and influence that the internal audit function has within the company.
Finally no discussion of culture, values and behaviour would be complete without considering the role of shareholders. Investors support the culture a company needs but they can also promote short-termist decisions that undermine it. It is therefore essential that they understand what the company is trying to achieve.
The annual report still stands out as a key measure for companies to communicate with shareholders and the other stakeholders on culture. Black Sun recently reviewed the annual reports of the FTSE100 and found that only 14% discuss their corporate culture and its impact on strategy and performance. There is clearly room for improvement here.
In the next few weeks, we will publish our Report based on all the findings of the Coalition. We will be sharing case studies of different approaches that have worked for companies. We intend to explore the findings further at our annual FRC conference in London on 20th September.
Internal audit is in an excellent position to assess the culture of an organisation. It is vital that you are able to draw the attention of the Chairman and the Board, the CEO, of shortcomings and potential failures as you become aware of them. This is not a duty specifically prescribed in any auditing manual, but is a responsibility you have towards investors. Perhaps even towards the broader public interest.
The case for your voice to be heard more clearly in the boardroom has been made. Companies are increasingly looking towards this profession to guide them in this area.
Enjoy the rest of your evening.
CEO
Financial Reporting Council
Chartered IIA Annual Dinner
21 June 2016
A Culture to be proud of
Good evening everyone,
Well I am doing the graveyard shift for giving this speech, so I will do my best to not keep you too long, away from the bar’s facilities!
Firstly I want to say what a great evening it has been and congratulations to the prizewinners tonight, a tremendous achievement to you all.
Awarding people for their achievements is a great way to incentivise employees to do their best, and to create a positive culture in the workplace. And that – culture – is what I am here to talk about tonight.
The UK has a good reputation for corporate governance but, as you are all aware, corporate scandals continue to damage the public standing of business. Regulation has addressed some of the problems. But regulation will not be wholly successful unless combined with a healthy corporate culture. This is why the Financial Reporting Council has established a Culture Coalition. This is a group of organisations, including the Chartered IIA, specifically focused on culture. I will comment on this a little later.
There have been many examples over the years of what a good company culture can do and what a poor culture can lead to. Recently we have seen even highly respected brands acknowledge behaviours which have damaged their public reputation.
The aim of the Culture Coalition is to highlight good practice and to promote the importance of a healthy corporate culture in sustaining growth and protecting value. We have had a very pleasing response from many individuals and organisations, encouragingly not all saying the same thing! Our aim next month is to bring forward practical, market-led propositions for companies to consider.
We will not be changing the Code itself. We have committed to focus on embedding recent Code changes not introducing new ones. We will however, look at the guidance on Board Effectiveness in the light of the way the debate develops.
Let me give you a brief preview of three key points.
First the Board must define the behaviours it wants, in a way consistent with is business model.
Second the Board needs to promote the behaviours throughout the company. To ensure this its decisions must be aligned with the culture it seeks – in hiring the CEO; in its remuneration policies; in its consideration of acquisitions.
Third, it needs to determine how it will assess progress throughout the company and listen to the feedback it receives.
First, the Board’s role. You may have noticed that I referred to the Board establishing the behaviours it wants to see. I use that word advisedly.
For many companies, with an international workforce, with a deep history or with a strong sectoral culture, the Board does not have a free hand in establishing an ideal culture. But it can set about defining and setting expectations of behaviour.
In doing so it needs to be driven by the nature of its business and its business model. People say culture eats strategy for breakfast. Maybe but the two have to be compatible and surely the board must start with how it intends to make a profit.
Second, the Board needs to embed the behaviours it seeks by consistently reinforcing it through its key decisions. The appointment of the CEO is of particular significance. The executive leadership drive and embed behaviours. The role of the Board is therefore crucial in selecting and holding CEOs to account cannot be over-emphasied. This is a key element of setting the right tone from the top.
Third the Board needs to know whether it is succeeding. I must mention specifically the IIA here and applaud it for the great contribution it is making in looking into how companies embed a desired culture, including at how internal audit can contribute to improving culture through the assurance, advice and insight it provides to audit committees and boards. It poses questions about whether internal audit can inspect culture and what cultural indicators internal auditors can use, to steer its work, and when reporting the existing culture in an organisation to the board.
The work also goes beyond this to look at the key interactions between internal audit and other functions, such as external audit, risk and compliance, and HR and organisational development. This reflects the growing profile and influence that the internal audit function has within the company.
Finally no discussion of culture, values and behaviour would be complete without considering the role of shareholders. Investors support the culture a company needs but they can also promote short-termist decisions that undermine it. It is therefore essential that they understand what the company is trying to achieve.
The annual report still stands out as a key measure for companies to communicate with shareholders and the other stakeholders on culture. Black Sun recently reviewed the annual reports of the FTSE100 and found that only 14% discuss their corporate culture and its impact on strategy and performance. There is clearly room for improvement here.
In the next few weeks, we will publish our Report based on all the findings of the Coalition. We will be sharing case studies of different approaches that have worked for companies. We intend to explore the findings further at our annual FRC conference in London on 20th September.
Internal audit is in an excellent position to assess the culture of an organisation. It is vital that you are able to draw the attention of the Chairman and the Board, the CEO, of shortcomings and potential failures as you become aware of them. This is not a duty specifically prescribed in any auditing manual, but is a responsibility you have towards investors. Perhaps even towards the broader public interest.
The case for your voice to be heard more clearly in the boardroom has been made. Companies are increasingly looking towards this profession to guide them in this area.
Enjoy the rest of your evening.