ASIC looks to get tough on corporate culture misfits

When companies collapse and the extensive forensic investigations have been completed, there’s usually a common element lurking in all corporate collapses, in all countries, all over the world.

A toxic corporate culture that has been allowed to fester.

All of which makes the recent news out of Canberra that the corporate watchdog, the Australian Securities and Investments Commission – or ASIC – is pushing to make it easier to prosecute company executives and directors for overseeing poor corporate cultures that lead to poor outcomes for consumers.

That’s a seismic shift on the regulatory governance landscape.

And while it has taken time to arrive at the point where we now find ourselves, that’s perfectly understandable and should in no way detract from the enormity of the change.

After all, it’s very difficult to have power over what is essentially an “intangible” like corporate culture.

So what’s the ASIC position?

Well, chair Greg Medcraft told a senate estimates committee in June that it’s time individual company officers were penalised when poor business culture leads to poor business performance.

He went on to say that ASIC believes the current penalty should “now be not only available under criminal law; more importantly, it should be extended to non-criminal sanctions. Therefore, there should be civil penalties and administrative sanctions that can be applied to both companies and officers as accessories. We think the same offence should be able to be actioned by ASIC in the civil courts just like we are able to now do for other misconduct.”

He didn’t pull his punches either, saying that bad culture often leads to bad conduct and equally bad outcomes. This, he added, was “a polite way of saying people are getting fleeced.”

ASIC plans to incorporate culture into its risk-based surveillance reviews and use the findings to better understand how culture influences conduct and advise companies it believes have problems with their culture and conduct.

Ultimately, it hopes to be in a position to impose penalties and administrative sanctions if it can show that the culture encouraged or tolerated certain breaches of what’s generally regarded as acceptable and responsible behaviour by executives and directors.

Had this been the status quo a good few years ago, the implosions of Australian brands like HIH and OneTel could well have been nipped in the bud, while on the world stage, the word Enron might not enjoy the notoriety it does today.

The message is clear: the common ingredient that will ultimately protect you from collapse is not the many well-intentioned and doubtless valuable policies and procedures, but a healthy and dynamic corporate culture.

Until next time,
Kate.

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