Is Culture really a Soft Skill? Culture as a Defence Against Corruption

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Culture is the currency of delivery

The Royal Commission into Banking Misconduct revealed many instances of systematic corruption, from employees setting up fraudulent loans, to opening children’s accounts to meet targets for bonuses. Commissioner Hayne recommended that organisations assess their culture. Philosopher Amelie Rortywrote about corruption in a 1998 essay which started, ‘Nothing is more natural than sliding down the slippery slope to corruption and from there to the hardened heart that allows people to redescribe their wrongdoing so that they can accept it as reasonable and confirm it as justified.’

Is cultural merely a soft skill, or is an organisational culture aligned with good governance actually at the very heart of defense against corruption?

Cheryl Batagol, Chair of the Victorian Land Registry Services and CRCWSC, says culture is more than messages posted on office walls. ‘Culture is the system of doing things that creates norms within an organisation.’ She coined the phrase, ‘Culture is the currency delivery.’

Cheryl fundamentally believes that you need more than resources and assets and people to support success. You a need a good culture.

‘I do not believe that you can have a high-performing organisation without a high-performing culture. I imagine that in every one of the financial institutions that has been investigated by the Royal Commission there was a statement about values, behaviors and ethics. And yet what undermined that was the pressures to bring in certain financial performances.’

 But how does individual practices roll up to affect the culture of a whole organisation?

According to Amelie Rorty, it starts with attention to the present. The focus on immediate things. When faced with something overwhelming, what’s written on the walls gets replaced by a sort of a survival instinct. So corruption becomes normalised.

Imitate the leader

 It’s normal to imitate the leader. And the leader’s behaviour is emulated in ways that might not even be called fraud and corruption, but that set the stage for fraud and corruption. For example, you go out on a Friday night after work with the boss and get drunk. And this becomes a habit. If you want to fit in, you have to drink.

In this way mobilising poor behaviours can corrupt people who are fundamentally good. It’s about creating a norm. It’s not just putting value statements on the wall, but how the leaders behave.

How are bullies treated? Or whistleblowers?

Cheryl once witnessed someone pulling somebody’s hair in a clear effort to intimidate. But this was not tolerated by leadership and by the end of that day the bully was dismissed.

‘We have to live that kind of culture’, Cheryl insists. ‘Poor behaviours lead to fraud and corruption. And so I think we have to live and breathe a healthy culture that encourages people to effectively and constructively communicate so that they feel comfortable about saying no.’

Cheryl says that behavior starts with the CEO. But the board has a role to play as well. And then it has to cascade down. Sometimes in measuring culture  you see excellent culture at the executive level and the next level down, and even at the bottom of the organisation, but in the middle, among team leaders—the group responsible for day-to-day operations—you have a problem. ‘They see themselves as squeezed by the top and the bottom and their culture can be the most challenging to change because they need to get things done right now and they have their own way of doing them.’ 

Being creative and taking risks

‘For people to be the best they can be, they need not just do what they’re told. They need to be able to be creative in their environment. They need to feel empowered to take risks and make mistakes. Because everyone makes mistakes. And most often what goes wrong is not due to the individual, but to the system.’

Cheryl has seen people who have made what could have been catastrophic errors, but they reversed themselves in the middle of an operation. ‘That’s when you become a high-performing organisation, when you manage to dig through and find the flaws in the system and fix them.’

When analysing whether corruption is due to a small group of bad actors or to the broader culture, Cheryl thinks the system allows it to happen. In such cases behaviours aren’t examined in a systematic way. What are the implicit messages? The Hayne Commission revealed the message was profit at any cost. There would have been statements on the walls  about how these banks valued their customers. But that wasn’t true. They valued profits. 

Cheryl cautions that leaders should be wary of a super-shining star unit within their organisation. A unit that just seem to get things done without any problems, that continually delivers and everybody talks about how fantastic they are.

Cheryl also asks questions when she sees an individual or unit that doesn’t go on holidays, especially if they are in a position of influence. If they’re not prepared to have anybody sit in their position while they go on leave, they may have something to hide.

So is culture merely a soft skill?

Cheryl has been constantly told that culture is a soft skill. However she thinks it is anything but. And she sees this perception beginning to change after the Hayne Commission.

‘What I call culture as a currency deliverance is as important as any other tool you have to deliver.’

Regulating culture

Cheryl is not necessarily in favor of regulating culture, but as a regulator she thinks it’s really important to assess the culture of the organisation. And it doesn’t matter what kind of organisation that is.

She also wonders about regulators themselves. ‘You know, regulators are extraordinarily vulnerable to fraud and corruption. We’ve talked about it in police circles for as long as there have been police. But I think we should think of all regulators as being vulnerable to fraud and corruption. The culture of regulators needs to be monitored and measured. And if it’s not great, there needs to be a plan for improvement.

‘There is no question in my mind that regulators need to define a culture that they want. They need to measure it. They need to lead it. They need to debrief on it. It is as critical as measuring your finances or the amount of prosecutions that you have.’

Your top pocket, not your back pocket

‘A high-performance culture means senior leaders don’t dismiss an individual’s fears or observations. It doesn’t mean you totally believe them, but you don’t dismiss them. And that becomes something you put into your top pocket, not your back pocket.

‘That’s the role of leadership in creating the culture, an open organisation where people can feel free to talk about what went wrong, even when it is what you might call whistleblowing.

The pyramid of defence

Cheryl has found she gets more traction talking about culture when she does so as a part of a risk-management system.

There is a standard system in risk management called ‘the three lines of defence’.

The first line of defence is management ownership, where management owns the risk and the risk-control processes.

The second line is oversight, which is the governance system. The third line is internal audit and things like that.

If you saw them on a slide they would be represented separately and in two dimensions. But Cheryl describes them as triangles, which form a pyramid with a big gap in the middle. And that gap is culture.

‘It’s where the values, ethics and integrity sit’, she explains. ‘Without that, the risk-management system can fail quite substantially. So the thing that I’ve learned in my leadership journey around culture is that it’s not a soft skill. It’s a hard business skill.’

Culture is a defence against fraud and corruption and is at the heart of any risk-management system.

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