What do you need to do to introduce and nurture a cultural change? Angus Young identifies some key steps

Nurturing a culture of compliance is not just a matter of having company policies and procedures in place, tweaking them with the organisational structure and hiring compliance professionals.

Culture is a learned, complex value system stemming from the conscious creation of human rationality. It consists of beliefs, knowledge, morals and customs. Culture is also a dynamic and one shaped by institutions, communities and society at large, which over time embeds into an individual’s mind knowingly and subconsciously.

So to create or change culture one has to look beyond policies and procedures, or having compliance professionals hassling certain company employees on their obligations and reporting those activities to senior management. These actions might be sufficient to meet basic legal obligations, but are not sufficient to foster a culture of compliance beyond procedural conformance.

To develop a culture of compliance, companies have to consider the following issues. First, companies in Australia usually have to comply with numerous state and federal legal obligations. These legal responsibilities could range from company laws, to financial sector licensee obligations, competition and consumer protection laws, labour laws, tax laws, and a whole host of other laws.

While the perception that federal and state laws covering common business activities and transactions should have the same compliance obligations, this is not always true.

These compounding obligations not only increase the cost of compliance – the risk of contravention is also high. Companies therefore need to adopt an integrated approach.

Another neglected issue is that many business laws and regulations are a result of past litigation and corporate failure. Thus, many of the laws are drafted to serve as default standards, protect the rights of various stakeholders, as well as introducing greater accountability over decisions and actions affecting other parties in response to litigation outcomes, corporate scandals, or public uproar.

Therefore, a robust culture of compliance has to go beyond a minimalist approach of procedural conformity to anticipate changes in law.

Given what we now know, in order to develop a robust and sustainable compliance culture, it has to be consistent and integrated with the corporate culture of the organisation. This has to start from the top. Senior managers and the board of directors must have the vision to adopt a regime that goes beyond meeting minimum legal requirements.

The board of directors has to make clear what those goals are and incorporate compliance obligations with ethical codes of conduct and embrace corporate social responsibilities.

Next is incorporating those values and objectives into the business strategy and branding of the company. This sends a strong signal to everyone in the organisation, as well as conveying the commitment to delivering high standards to all stakeholders.

Sceptics might view this as an overambitious programme, but international discussions about corporate sustainability have already highlighted that this strategy would ensure long-term corporate profitability.

To begin with, the board has to build the culture starting from the company’s mission statement. Then, decisions have to be made on resource allocation towards programs such as training, coaching and rewards. Articulation and reinforcement mechanisms then have to be put in place.

This includes organisational design, structure, systems and procedures, all of which has to be communicated throughout the organisation via workshops and discussions.

The process is interactive and feedback has to be encouraged. From the feedback, adjustments and modifications have to be incorporated. Even though in the initial phase senior management and directors have to lead by example, over time the frontline or affected staff members would put forward ways of improving and modifying the programmes.

Fostering a culture of compliance is not always a smooth path and mistakes will be made. Changing or building an organisational culture is an incremental journey. There is a learning process.

Conversely, the price for not doing so is the risk of infringing mounting regulatory requirements. If organisations have a robust culture of compliance, additional regulatory obligations will be easily accommodated in the existing structure and procedures.

Angus Young is a research associate at the centre for international corporate governance research at VictoriaUniversity