ASIC continues to highlight “culture” risk

For some time, ASIC has expressed concerns with company culture (see, for example HERE and, one of our favourites, HERE).

That it has this focus may be a reflection of its multifaceted remit in enforcing securities law, corporate behaviour and consumer law, and the conundrum this presents. Some critics suggest that each of these would be better enforced if the regulator’s focus was less diluted, i.e. a specific regulator separately focuses on each of these. For the moment, however, it is ASIC that is the designated enforcer. So, in a way, it follows that is has identified “culture” as the common binding agent that connects the diversity of its remit.

This was emphasised in a recent presentation by John price, an ASIC Commissioner, on 7 June. He said that:

“ASIC’s role is not to dictate a company’s culture nor how a business is run, but we do want companies to shine a light on their own culture and see if it is sufficiently fit for purpose. Culture is at the heart of how an organisation and its staff think and behave. ……. Specifically, some issues we consider in doing our work are:

  • how standards of behaviour are set within firms
  • whether values are being translated into business practices, especially when these may affect customer outcomes.”

“This requires non-executive directors to be active in their oversight – to constructively challenge and question management. Boards need to ask themselves whether their company has a ‘good news’ culture, where problems are buried rather than dealt with appropriately. Boards should be vigilant in their oversight of budgets to ensure that functions supporting the risk governance framework are adequately resourced.”

The conundrum for ASIC, and other regulators, is that culture cannot be regulated (see HERE). In fact, most have difficulty defining what culture is, much less regulating or enforcing it. Many commentators say that they know it when they see it.

Perhaps rather than focus on culture, there is an opportunity to focus on outcomes. As Mr Price said:

 “….companies need to think longer term and consider whether their culture supports more than simply a short-term financial focus.

In fact, many studies have found that good culture is good for business and for generating long-term shareholder value. Good culture enhances brand loyalty and bolsters reputation, which has a very real financialimpact.”

As guidance, Mr Price referred to the recent APRA report on CBA, summarising recommendations as:

  • more rigorous board and executive governance of non-financial risks
  • exacting accountability standards reinforced by remuneration practices
  • substantial operational risk management and compliance functions
  • asking the question ‘Should we?’ in relation to all decisions and dealings with customers
  • cultural change to support enhanced risk identification and remediation.

An alternative checklist for boards based on the APRA report can be found HERE.

Mr Price’s speech can be found HERE.



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