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Corporate culture: an overlooked lynchpin of financial system stability?


Corporate culture: an overlooked lynchpin of financial system stability?

June 6, 2014 1:54 PM | Posted by Pelling, Lysarne | Print this page
Structures, systems and rules – regulatory, fiscal, market, organisational, operational and technological – are all appropriately under consideration as part of the Financial System Inquiry (FSI). However, a quick glance at the headlines of any financial news publication over the past few years is enough to highlight another factor equally critical to financial stability, innovation and economic growth: corporate culture. Failures in risk culture are considered by many to be a primary cause of the 2008 GFC. Corporate culture is also at the crux of recent and ongoing misconduct within the global financial system (eg LIBOR and FOREX manipulations), as well as more domestic transgressions (eg bad financial planning advice given by 'rogue' Commonwealth Bank advisers to retail customers). It is not surprising then that FSI chair David Murray recently called attention to the importance of strong corporate cultures in promoting financial stability (The Australian Financial Review 8/5/14). The behaviours and attitudes of an organisation's directors, management and employees intermediate the effectiveness of the structures, systems and rules comprising our financial system. And so, while corporate culture is undoubtedly challenging to understand, assess and manage, it is vital that we do. To ensure that the role of corporate culture in stabilising the financial system and supporting Australia's economic growth is not overlooked, the FSI may wish to consider the following questions? What factors foster a sound corporate culture? What are companies doing to promote and assess a strong culture? What are the indicators of a weak, sound or strong corporate culture? How is risk culture assessed by the prudential regulator, and can its approach be improved upon? How can investors and analysts be encouraged to pay attention to corporate culture as well as the usual investment criteria?