It is now widely accepted that culture was at the root of the Global Financial Crisis, and the ‘soft stuff’ can no longer be ignored. Some banking regulators have responded by incorporating culture considerations into their supervisory guidance. These developments are triggering a change in governance, risk management, and internal audit. Specifically risk management and conduct are now being considered not as separate to, but rather in the context of, the organization’s broader culture.
These are exciting times. The opportunity to deliver value and improve risk management through more focused attention on culture is significant. According to survey results published in “Corporate Culture: Evidence from the field”, over 90% of the executives believe culture is important and that improving culture would improve their organization’s values. However, only 15% believed their culture is where it should be.
An organization can espouse a set of values, but there is often a gap between ‘what is on the poster’ and reality. There are a lot of factors that will impact upon success in embedding your desired culture; realistically, changes in people, process and behavior will be necessary. Tackling culture can seem daunting, but the good news is that it is possible, and can be transformative. KPMG supports organizations with a roadmap to strengthen culture and soft controls: the framework starts with setting clear expectations, ensuring those expectations are tangible and known, and then helping what was once an aspirational approach to culture become a reality.
Here is the KPMG approach for managing culture change:
1. Make it clear: Culture expectations need to be translated from the ‘conceptual and theoretical’ to the ‘tangible and actionable’. It is important to engage your Senior Leadership and Board in a dialogue around culture: What is the organization’s desired culture? How are the values integrated into the organization’s mission, vision, strategic priorities and decision-making process? How does culture support business objectives?
KPMG can help by identifying and illuminating core assumptions and driving behaviors that make up the current culture. We can also assist in the definition of behaviors that will support business objectives and help you determine the gaps between the current state and the desired future state. One of the instruments that can be used in this context is KPMG’s Integrity Thermometer.
2. Make it known: You should understand the current state of behaviors, identify the gaps between current and desired future state and mobilize leadership to role model and signal the change that is expected. Conduct a culture diagnostic to understand the current state of culture: What are the current behaviors that contribute to or detract from the organizations culture ambitions? What role is leadership playing in fostering the right culture? What are the risks involved with changing culture?
KPMG can help leaders identify the cultural dilemmas that exist in the organization, understand how these dilemmas impact the current state culture, and explore how those dilemmas can be navigated in future.
3. Make it real: Focus on understanding the enterprise and culture dilemmas that exist which need to be addressed in order to evolve from your current state to the desired culture. Once steps are agreed upon, a roadmap with the appropriate actions and interventions can be put in place to drive desired changes in order to ‘Make it happen’ (see step 4 of the framework).
KPMG can support you in translating the culture change vision into reality. We assist with developing actionable plans that take into account roles and responsibilities for all three lines of defense (operational management; risk management, compliance and human resources; and internal audit), with focus on the role of the operational management, since they have the main responsibility in order to ‘make it real’. We also take a critical look at how to engage employees in building shaping and owning the culture change. A few KPMG enablers and accelerators are: change impact assessment, communication plans, and culture change metrics and governance.
4. Make it happen: Making it happen is about implementation of the roadmap. Measures of success should be defined to help the organization understand the level and pace of progress against the roadmap and the effectiveness of change interventions. It is essential to be realistic about how quickly change will occur, and maintain an open feedback loop to gauge process and adjust course as required.
KPMG can assist in defining culture metrics and supporting the execution of the culture change program and specific interventions with one of the following tools and techniques: business readiness evaluation, job impact assessment or culture program launch packaging.
5. Make it stick: You need a combination of lead and lag measures to gauge both the progress of your culture road map and assess culture across the enterprise over time. Caution should be exercised to avoid ‘check the box’ metrics that may be easy to measure, but lack substance and do not clearly indicate whether you are winning or losing. In order to ‘make it stick’, you should evaluate the role each line of defense can play in measuring culture over time.
KPMG can assist in defining culture metrics and roles and responsibilities across the lines of defense. One way of making it stick, is to include culture into the performance review and reward policy of your employees. Furthermore, it is crucial to permanently communicate on topics like values, conduct and culture to ensure that this becomes an inevitable aspect of the business. Lastly, KPMG can also support internal audit teams in establishing a Culture Audit program, determining the best resourcing model (in-source, co-source or out-source), and navigating the challenges associated with auditing the ‘soft stuff’. A trained internal audit team can enable a fully embedded culture.
Following the approach outlined, allows organizations to make the ‘soft stuff’ identifiable, initiatives to address it actionable and ways of measuring it practical. KPMG can make the soft stuff a lot more tangible and less ‘hard’.