The recent study conducted by AuditBoard highlights a significant issue in the corporate world: the lack of emphasis on assessing work culture within companies. This oversight is a missed opportunity to prevent corporate wrongdoing that often arises when there is a misalignment of values. The study’s findings, as presented in AuditBoard’s 2023 Organizational Culture and Ethics Report, indicate that executive behavior is a critical indicator of company culture. It revealed that 68% of internal auditors surveyed identified poor tone or executives not adhering to company values as a key risk indicator.
As researchers who have dedicated decades to studying organizational culture, Richard Chambers and Cynthia Cooper are not surprised by the pivotal role played by executive behavior in cultural risk. Cooper rightly points out that changing company culture from the middle of an organization is challenging. Culture is primarily established and driven from the top, requiring any transformative change to originate at that level.
AuditBoard, a cloud-based audit, risk, and compliance management platform, conducted this study. In addition to poor tone or values exhibited by executives, 51% of internal auditors identified a “profit at all cost” mentality as another key risk indicator. However, it is concerning that 37% of auditors stated that their companies do not conduct formal assessments or audits of culture. This negligence not only exacerbates these risks but also leads to poorer company performance.
The correlation between the health of a company’s culture and its long-term performance is undeniable. Gallup’s recent research reinforces this notion, indicating that employees who strongly align with their company’s culture are less likely to leave their employers or experience burnout, and they tend to perform at a higher level.
CFOs, who are primarily focused on the company’s bottom line and long-term value growth, should pay particular attention to the business impact of a healthy or toxic culture. Assessing culture should be a priority for finance leaders since a healthy organizational culture fosters growth.
For CFOs who have oversight of internal audit, it is crucial to champion and support them in conducting the necessary assessments. Chambers advises CFOs to empower internal audit to tackle challenging areas and risks. In companies where internal audit reports to the finance chief, the CFO can play a significant role in advocating for cultural assessments.
However, assessing culture can present challenges, as some executives may lack self-awareness regarding the culture that has developed under their watch. Even effective and responsible CEOs may struggle to acknowledge the presence of a negative culture. Fear of what may be discovered often hinders efforts to investigate further.
It is worth noting that companies with poor or toxic cultures are unlikely to voluntarily seek cultural assessments. In contrast, organizations with healthy cultures tend to be more transparent and open to assessment, facilitating the identification of areas for improvement.
Cooper adds that there can be a lack of understanding at the executive or board level regarding the driving forces and principles behind a healthy culture. The study revealed that 36% of internal auditors did not consider culture a high-risk area in their organizations, and 33% cited insufficient resources for assessing or auditing culture.
In light of these challenges, it becomes even more critical for executive leadership to prioritize culture as a regular agenda item. Regular assessments of cultural health should be requested and received by executives. In this regard, the CFO and internal audit can act as catalysts for change.
The study conducted by AuditBoard compiled responses from over 350 chief audit executives and internal audit directors. These findings should serve as a wake-up call for companies to reevaluate their approach to assessing and maintaining a healthy work culture. By prioritizing culture, companies can mitigate risks, enhance performance, and create an environment where employees thrive.