THE ROLE OF CULTURE IN MANAGING MISCONDUCT RISK
Culture has become an increasingly frequent topic of discussion within and outside of organisations over the last few years. There are many interested stakeholders, from external parties such as regulators, prosecutors and shareholders, to internal parties like boards of directors and the wider workforce. Anyone who thought that the focus on culture might be a flash in the pan has been proven wrong. If anything, momentum is building and the movement that started in the financial services sector in the wake of the last financial crisis has moved across to the wider corporate arena. The revised Corporate Governance Code, for example, places responsibility on the boards of UK listed companies for promoting their company’s culture.
In a sense, there is nothing new in placing responsibility for setting culture at the top of an organisation. ‘Tone from the top’ is a phrase with which we are all now familiar. However, simply setting the tone is no longer enough. The latest iteration of the Corporate Governance Code, which took effect for financial years starting on or after 1 January 2019, sets out the expectation that boards will assess and measure culture, seek assurances as to whether appropriate corrective action has been taken where practices or behaviour diverge from the desired culture and report to shareholders on their activities. The Financial Reporting Council has already fired a warning shot as to its expectations, commenting in its Annual Review in January 2020 that it was disappointed by the apparently low level of engagement and reporting on this topic to date, notwithstanding that any reporting in 2019 would have been entirely voluntary.
Apr-Jun 2020 Issue
Freshfields Bruckhaus Deringer LLP