“What the board says, does and expects is absolutely critical in setting the tone of the organisation. This included appointing the Chief Executive Officer who has values that are aligned with the company’s desired culture.” Greg Medcraft, Chairman of the Australian Securities and Investment Commission.
It’s clear that boards can no longer claim to be ‘hands off’ and therefore not responsible for the major operational events of the organisation.
Take the Essendon Football Club issue. The board was ‘surprised’ that the football operations had undertaken a supplements program without the board’s knowledge. But ‘surprise’ is no defence.
More and more, courts and regulators are saying that the board must know what is occurring at the operational level. They must have systems and risk procedures in place to know what is taking place.
More importantly, the board is responsible for setting the culture of an organisation and allowing an operational environment in which wrong-doing can occur.
Corporate culture is essentially the mindset of an organisation. Culture and conduct within an organisation are strongly linked. Bad corporate culture condones, encourages and even rewards bad conduct, and on the other hand, good corporate culture seeks to punish bad conduct, and promotes and rewards good conduct. The board’s culture filters down to the team – the team needs great leadership and strategic planning. Everyone within the team needs to have the same understanding and work towards the same goals.
Many instances of misconduct have been attributed to bad corporate culture. The implications of not having good corporate governance culture can have a range of serious implications beyond needing to reprimand, (re)train or dismiss the employees concerned. These including public embarrassment and damage to the brand, reputation and stakeholder relations, and the prospect of fines and other penalties.
The Parramatta Leagues Club came under fire after the board was removed for allowing for circumstances in which salary caps were avoided. Officials were accused of using inflated invoices to make under-the-table payments to players. The sacking of the Parramatta Leagues Club Board serves as an example and a stark reminder of the importance of good corporate governance and culture – and of course what can happen when a board doesn’t fulfil their legal obligations.
But how can boards know everything that is happening within the operations, particularly when some directors only meet at the club premises once a month and have very vague connections to the operational side of the undertaking?
The answer is in three elements:
- The right culture
- The right CEO
- The right systems
Articulating and demonstrating a compliant culture by the board sends a clear message to senior executives – “this organisation doesn’t tolerate non-compliant activities.”
The right CEO should be a check point for compliance but by combining good culture with the right CEO, the prospects for non-compliance or malfeasance are limited.
Finally, having the right risk systems in place allows a director or board to ask the magic words “show me how we are compliant with …”
It sounds boring and non-productive, but ask any board who has overseen a major compliance disaster and they will tell you that they wish they had the risk systems in place to prevent the disaster.
To find out more, contact DWS on (07) 3878 9355 or at firstname.lastname@example.org.