Steven Schuit explains why culture is the biggest risk for a business

Boards should aim to improve that corporate culture, says Professor Steven Schuit.

The biggest threat to a company’s continuity? There is no doubt about this for Prof. Steven Schuit, Professor of Management and Responsibility at Nyenrode Business University. ‘It’s the culture, stupid.’

Schuit is again one of the speakers during the lecture series Risk & Compliance. ‘Culture determines strategy’, says Schuit in his explanation. “A sustainable strategy does little or nothing if the corporate culture does not match the circumstances in which the organization finds itself. By circumstances, I mean things that unfold over time.”

Think about long-term topics like CO2 and the climate discussion, inequality and short-term topics like the MeToo discussion and the yellow vests. This also includes views on compliance with laws and regulations. They write on the wall. You need to be able to understand the spirit of the times as an organization and connect with it as closely as possible, otherwise you are quickly out of order. They are essential for your risk management, but also for seizing opportunities as a business. The culture must be a reflection of the standards and values ​​that the company derives in part from the spirit of the time and the circumstances. In short, culture determines your strategy. ‘

Nyenrode Business University and Executive Finance present a unique series of lectures. In 6 lectures, the importance of risk and compliance for the development of organizations from different angles is discussed. Professor Steven Schuit will discuss risk, compliance and good governance. See the program for the Risk & Compliance lecture series here.

Too little attention to corporate culture

It therefore worries Schuit that there is so little attention to corporate culture among managers. ‘This is also evident from recent research from INSEAD. Incredible. Two-thirds of directors do not see culture as a factor in risk management. She misses it completely. I find that very strange, also because culture determines whether your employees hold each other accountable for behavior. ‘

‘Culture determines whether employees signal that behavior is contrary to company rules and standards. Culture therefore also has an influence on whether corruption or bribery takes place. I say this without hesitation, because research shows that a good corporate culture reduces fraud. In a good corporate culture, risk and compliance are not an externally imposed matrix of rules. No, it’s part of the work experience that determines the interrelationships. ‘

Improving corporate culture

Boards should aim to improve this corporate culture. ‘The updated Corporate Governance Code requires reporting on this from 2018 onwards. The corporate culture has thus become a formal item on the agenda for the Executive Board and the Board of Directors. The management must talk about it and can not ignore the topic. They even have to discuss it on a regular basis with an external expert; it could be the accountant. That it has been put on the agenda is a credit to the Code Committee chaired by Jaap van Manen.

For example, if there is a culture with only gross profit, then stakeholders can now approach the company’s board of directors with a reference to the code with the question of whether this culture is appropriate for a sustainable business model. It even has to be formally looked at by the auditor during the audit. What is the tone at the top that is referred to in the COSO principles? ‘

Boards should aim to improve that corporate culture, says Professor Steven Schuit

Dare drivers fight each other?

That tone at the top is an important element of corporate culture, Schuit says. Do you dare to talk to each other? Is there a serious dialogue in the Executive Board, but also with the Board of Directors? That the directors not only confirm each other but also dare to fight. I have experienced that the board has entered into a mutual agreement to have a proposal through the board. You deprive the board of insights into the arguments and angles that have been exchanged. An SB usually has much less knowledge about the market, technological development, financing opportunities, competition and working conditions and is already lagging behind EB. Then you only see half of the factors that come into play. It’s a shame, because you want to be able to have a substantive discussion. “

Look at the underlying factors

Schuit brings an example to Numico, where he was supervisory director. ‘We had a good management who knew a lot about the baby milk market. As SB and EB, we all had our own ideas about the growth of the business in China. And to be honest, none of the sites’ plans were particularly realistic at the time. We then jointly decided to spend two days looking at the underlying factors to understand them. Then your eyes are opened as supervisory director, but the members of the executive board also get feedback on things that they have come to find just a little too obvious. Then it turned out that we needed to study a lot more. We were simply not ready for a decision yet. ‘

To bring in factors from outside

‘The company does not operate in isolation’, Schuit assesses. “And then you have to bring in factors from outside. How does the environment affect the company? Then you make an overview of the factors in the world that in the long run determine your company’s values ​​and standards. You translate these standards and values ​​into your strategy and ultimately into its implementation. ‘ Schuit therefore believes that boards should begin to see risk management in the big picture. »Do not get caught up in short-term risks that the company probably already has a manual for. Create a culture where risks are recognized and addressed instead of being hidden away. ‘

Also read: Martin van Staveren: ‘This is especially true in complex cases: go back to the core’

Do not be so strict with the rules

‘I do not want to appear as a saint,’ the professor continues. ‘But I think too much is being thought about the chance of being caught. We pump up the results at the end of the year, because no one sees it anyway. Or: we take it less closely with the tax because we just visited FIOD. They do not carry out inspections twice in a row ‘.

Schuit also mentions ING in this light. ‘How is it possible that no one in a bank with more than 100 employees on compliance has raised his finger? And not the CFO? The ING case – the bank made it possible for criminals to launder money – makes it clear that there are also risks in things that are not immediately apparent. Risks lie precisely in things you have not written down. In the case of ING, the focus was too much on generating revenue and the tone at the top was enough that ‘we should not take it too close’ with rules. ‘

To hold responsible

The risk management building looked beautiful from the outside. ‘But where were the three lines of defense? But where was the audit committee? Where was the board? The CFO has resigned, but shouldn’t he have been fired much sooner? Should CEO Hamers also have been fired? I have a hard time saying that. Because then you immediately have a leadership question for the coming period. But ING would do well to hold more people accountable and set examples, even at the top. If the audit committee sleeps like that, you should fire the chairman. It did not happen. So in this culture one can get away with a serious violation of the rules even if the bank has a social function. It’s their license to operate. ‘

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