Airmic has welcomed a report by the Financial Reporting Council urging bosses to get out beyond the boardroom to understand how their firms are behaving. The FRC says directors and other stakeholders should tune in to early warning signs within their company culture to help avoid scandals and failures of the sort that have damaged public trust.
The recommendation is very much in line with a lengthy submission that Airmic made to the FRC, and confirms the findings of the association's own report Roads to Ruin, which found that company culture lay at the root of nearly all major corporate failures. In particular, it identified how a 'risk glass ceiling' can prevent important information known within companies from reaching board level. This, in turn, causes 'risk blindness' and leads to poor decision making.
“Julia Graham - “enabling companies to become more resilient and profitable”
"The FRC's comments about corporate culture go to the heart of good risk management and enabling companies to become more resilient and profitable," said Airmic deputy CEO Julia Graham. "Boards need to leave their ivory towers more and find out what is really going on in their firms and to establish a culture that enables risk information to flow freely."
Published in 2011, Roads to Ruin looked at the factors behind 21 corporate failures and found common themes running through them all, regardless of business sector. A follow-up report Roads to Resilience, also published by Airmic, investigated successful companies.
Roads to Resilience found that the key to achieving resilience is to focus on behaviour and culture. This led to re-thinking and challenging prevailing attitudes towards risk. Traditional risk management techniques, whilst important, do not in themselves create a culture of resilience.
It found that resilience - and ultimately profitability - reflects the people and culture, the business structure, the strategy, tactics and operations and the leadership and governance of any organisation.
"The qualities embedded in resilient organisations help them succeed in other respects and, as demonstrated in our research, provide the foundations to achieve better results for shareholders. Resilience enables organisations to deal more effectively with both the expected risks and the unexpected ones. Resilience consequently should be at the heart of strategy and business model in every organisation," said Ms Graham.
Airmic has already produced a guide for members to the FRC, emphasising the fact that boards are responsible for the organisation's culture and the way risk is considered and addressed. It can be downloaded from www.airmic.com
The association is also planning to produce a third publication in the series started by Roads to Ruin and Roads to Resilience.