While leaders communicate the company’s vision, mission, core values and commitment to ethical behavior, what really drives the culture and resonates with employees is what they see and hear every day from their supervisors. If the behavior of middle managers contradicts the messaging and values conveyed from the top, it won’t take long for lower-level employees to notice. Because the top-down emphasis on responsible business behavior in an organization is only as strong as its weakest link, it is vital that the tone at the top be translated into an effective “tone in the middle” before it can reach the rest of the organization.
Three dynamics drive this collective culture, or the “tone of the organization”:
1. Don’t assume that both tone in the middle and tone at the bottom are aligned with tone at the top. Alignment is the name of the game. The greater the number of layers of management in the organization, the greater the risk of incongruities in the respective tones at the top, middle and bottom. Likewise, there’s a greater risk of executive management being unaware of serious financial, operational and compliance risks that may be common knowledge to middle managers and rank and file employees. Information is often distorted as it moves up the management chain, creating disconnected leaders.
2. Don’t assume everyone is engaged. The extent of engagement is vital to building a strong, ethical culture. A lack of engagement drives absenteeism, turnover, fraud, misappropriation of assets, safety incidents, quality defects and loss of customer focus.
3. Recognize the stakes: Many financial, operational and compliance risks are embedded in the organization’s processes. Many decisions are made and many actions are undertaken on the front lines by middle managers and their teams, not by executive management. The decisions to act or not to act present opportunities for excellence, as well as the potential to undermine the organization. To the extent these actions result in policy violations and significant omissions, they present risks in a wide variety of areas, such as product or environmental liability, health and safety, trading, employee retention, or security and privacy concerns. Risks can fester and smolder when repeated errors and omissions occur within processes, creating the potential for significant surprises later.
To address these “tone of the organization” dynamics, executive management and directors should:
Questions for Directors
Following are some suggested questions that boards of directors may consider, in the context of the nature of the entity’s risks inherent in its operations:
· Is the board alert for warning signs that the tone at the top may not be optimal (e.g., turnover of key executives, tolerance of significant control issues, a warrior culture, a shortsighted focus on profitability and evidence of an overly dominant chief executive)?
· Does executive management work closely with middle, line and functional managers to ensure everyone is effectively aligned in terms of the organization’s vision, mission, core values and strategy, so the right messaging and behavior are stressed across the organization?
· Are there effective escalation processes to ensure significant problems are recognized and addressed at the appropriate level of the organization?
Jim DeLoach is a member of Protiviti’s Executive Council to the CEO and assists companies with integrating risk management with strategy setting and performance management.
Read: www.ethics.org
Read: https://www.protiviti.com/en-US/Documents/Newsletters/Bulletin/Bulletin-V4-I4-Protiviti.pdf
Read: https://www.poole.ncsu.edu/erm/index.php/articles/entry/board-risk-oversight/
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