As regular readers of my blog know, I'm fascinated by the role that culture and behaviours play in so many of the critical aspects of business activity which have been in the spotlight since the credit crunch. Whether it’s stewardship, governance, risk, selling (or mis-selling), reporting etc - when things go spectacularly wrong and jeopardise the existence of an organisation, it’s typically the result of unacceptable behaviour.

It's not because a process or control has failed, it’s because an individual has acted wrongly or a corporate culture is rotten to the core. Put simply "culture and behaviours trump process".

So it was with real interest that I read a recent speech given by Hector Sants, chief executive of the FSA. The speech was entitled - "Do regulators have a role to play in judging culture and ethics?" I'll let you read Hector’s speech for yourself; it is very interesting and thought provoking.

In particular a couple of comments caught my eye. Importantly he makes the point that whilst many organisations have a "set of values" to which they ascribe, there is typically a gap between what they claim to believe and do, and what they actually do. Put simply, employees are not aligned, they do not live the values - firms do not practice what they preach.

Hector goes on to suggest that regulators should not shy away from debating this culture issue. After all the right culture should facilitate the right behaviours and thus the right judgements being made in day-to-day business. Cutting to the chase, Hector poses two questions: firstly could regulators assess what an unacceptable culture looks like? And secondly are there interventions which a regulator could make to prevent such cultures?

As an auditor I believe this is a critical area that requires much more consideration. I also believe that we should be debating whether auditors should have role to play in this space. In my view they have a lot of experience and know the tell-tale signs of the culture and behaviours we should all worry about.

Currently there isn't an audit section devoted to this issue, perhaps there should be. So as we rethink the model, both of regulation and audit, let’s not ignore the elephant in the room. After all it’s humans who undermine the system, there's no one else to blame.

As always I am pleased to hear your views and comments on the postings and to take questions about corporate reporting. 

David

This article can also be read on David Phillips' blog