Culture essential in preventing corporate scandals, FRC and Airmic agree

Airmic has welcomed a study by the Financial Reporting Council (FRC) which found boards have a responsibility to understand behaviour throughout their company and should tune in to early warning signs of bad corporate culture that could lead to a corporate scandal.

The UK risk management association said these findings are in line with its own research into corporate failures, which found that company culture lay at the root of nearly all major corporate failures. Airmic’s report, Roads to Ruin, 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.

“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.”

She added: “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.”