Internal Auditors, Corporate Culture and Risk . . .

JRC at WSS

This past week I had the pleasure of addressing the World Strategy Summit in Abu Dhabi, United Arab Emirates.  The conference title was “Strategists for a Better Tomorrow” and I shared the stage with Gary Hamel, Tom Peters and Rene Maurborgne and an audience of around 500 government ministers and business executives.  While the other speakers focused on strategy development and future strategies for a VUCA world, my remarks were on strategy execution, how to get a strategy implemented and the hidden barriers that cause 70% of companies to fail to deliver their strategic objectives.

My keynote address, as well as my 3-hour workshop, explored a key concept about strategy execution that I have been researching for the past 30 years:

corporate culture can be a significant risk factor in strategy execution.

The words risk and corporate culture are rarely seen together in the literature, mainly because most of those writing on corporate culture are either academics or HR consultants.  As a result the focus has for the most part been on the impact of culture on employees, employee engagement and morale.  In my book, LEVERAGE: The CEO’s Guide to Corporate Culture, I term this the “hijacking” of corporate culture with an unduly focus on vision, values and behaviours.

What most of these culture gurus tend to miss is the fact that corporate culture is not an HR issue as much as it is a business issue. Corporate culture is a balance sheet issue and should be listed as either an asset or a risk. And in most cases, culture is a business and strategy execution risk.

For example there are numerous cases of business implosions and meltdowns which have burning-oil-rig-explosion-fire-photo11corporate culture at their core.  When a culture is out of alignment with the strategy and the realities of the business, risk builds up.  Consider the current situation at Volkswagen where a culture of fear of failure and missing performance targets led to a massive cover up of compromised emissions software. Other cases of culture underpinning business meltdowns include the fraud and excessive risk taking at most of the global investment banks leading to over $250 Billion in fines, the explosion and deaths on the BP DeepWater Horizon Oil Rig in the Gulf of Mexico, the rapid decline of Blackberry and the near disappearance of once dominant Nokia, plus the nuclear accidents at Three Mile Island and Fukushima.  All have huge fingerprints of corporate culture all over them.

So I was very interested to read a recent article in CGMA (Chartered Global Management Accountants) Magazine with the title “Internal Auditors Turn Focus To Organizational Culture”.   Here’s are two quotes from the article:

the assessment of culture is coming into focus as a key responsibility for internal audit at many organisations. Culture was identified as a high risk to an organisation by more than half (56%) of respondents to a poll by the Institute of Internal Auditors Financial Services Audit Center.

Despite the recognition of culture as a risk, half the respondents said it is not audited at their organisations. A little more than one-third (37%) of respondents said culture assessment is embedded in their existing internal audit programmes, and 7% reported having specific audit programmes focused on organisational culture.

We are all familiar with the traditional risk factors which impact company performance, such as financial risk, operational risk, market risk, sovereign risk, and more recently environmental risk and social risk. Yet few understand corporate culture well enough to see where the cultural risks lie in their organisation. As a result, a powerful leadership lever for performance improvement and risk mitigation often goes ignored, until the potential risk becomes an unfortunate business catastrophe.

I would urge the accounting profession (and all business executives) to take corporate culture seriously and explore the various ways to expose and understand these hidden business risks.

Written and Posted by: John R. Childress

Senior Executive Advisor on Leadership, Culture and Strategy Execution Issues,
Business Author and Advisor to CEOs
Visiting Professor, IE Business School, Madrid

e: john@johnrchildress.com
Twitter @bizjrchildress

Read John’s blog,  Business Books Website

On Amazon: LEVERAGE: The CEO’s Guide to Corporate Culture

Read  The Economist review of LEVERAGE
Also on Amazon:   FASTBREAK: The CEO’s Guide to Strategy Execution

John also writes thriller novels!

About johnrchildress

John Childress is currently Visiting Professor in Strategy and Culture at IE Business School in Madrid and a pioneer in the field of strategy execution, culture change, executive leadership and organization effectiveness, author of several books and numerous articles on leadership, an effective public speaker and workshop facilitator for Boards and senior executive teams. In 1978 John co-founded The Senn-Delaney Leadership Consulting Group, the first international consulting firm to focus exclusively on culture change, leadership development and senior team alignment. Between 1978 and 2000 he served as its President and CEO and guided the international expansion of the company. His work with senior leadership teams has included companies in crisis (GPU Nuclear – owner of the Three Mile Island Nuclear Plants following the accident), deregulated industries (natural gas pipelines, telecommunications and the breakup of The Bell Telephone Companies), mergers and acquisitions and classic business turnaround scenarios with global organizations from the Fortune 500 and FTSE 250 ranks. He has designed and conducted consulting engagements in the US, UK, Europe, Middle East, Africa, China and Asia. Currently John is an independent advisor to CEO’s, Boards, management teams and organisations on strategy execution, corporate culture, leadership team effectiveness, business performance and executive development. John was born in the Cascade Mountains of Oregon and eventually moved to Carmel Highlands, California during most of his business career. John is a Phi Beta Kappa scholar with a BA degree (Magna cum Laude) from the University of California, a Masters Degree from Harvard University and was a PhD candidate at the University of Hawaii before deciding on a career as a business entrepreneur in the mid-70s. In 1968-69 he attended the American University of Beirut and it was there that his interest in cultures, leadership and group dynamics began to take shape. John Childress resides in London and the south of France with his family and is an avid flyfisherman, with recent trips to Alaska, the Amazon River, Tierra del Fuego, and Kamchatka in the far east of Russia. He is a trustee for Young Virtuosi, a foundation to support talented young musicians. You can reach John at john@johnrchildress.com or john.childress@theprincipiagroup.com
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One Response to Internal Auditors, Corporate Culture and Risk . . .

  1. Frank tempesta says:

    Excellent post with contemporary examples. Your talk and workshop must have been well received. F

    Sent from my iPad

    >

    Like

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