The Value of Auditing Corporate Culture
Many successful organizations attribute their superior performance and accomplishments to their organization’s culture. In a 2015 study by Duke University of 1,900 executives around the globe, 79 percent said culture is among the top five things that make their company valuable. But only 15 percent said their own corporate culture is where it should be, and 92 percent said improving their culture would enhance company value.
Many recent high-profile scandals, such as those at Toshiba, Volkswagen, FIFA and Baylor University, have shown the adverse effect of having toxic culture. Toshiba’s $1.2 billion profit inflation scandal, which occurred over seven years and came to light last summer, was called “the most damaging event for the brand in the company’s 140-year history” by the outgoing CEO. The Independent Investigation Committee concluded that “there existed a corporate culture at Toshiba where it was impossible to go against the boss’ will.” This led to the dismissal of the CEO, two former CEOs and multiple board members.
Within a few months of the announcement of the scandal, Toshiba’s stock value had decreased 24 percent and sales fell to their lowest point in several years. Regulators have fined the company $62 million, the largest ever such fine in Japan. The company has cut 14,000 jobs since the announcement of the scandal in mid-2015. Earlier this year, the company began seeking additional lines of credit to pay fines and overhaul certain business segments. Within six months after the announcement, the scandal had wiped roughly $8 billion off Toshiba’s market value.
A message from the current president is now on Toshiba’s website in effort to “revitalize the company and regain public trust.” It states that Toshiba has “initiated wide-ranging reforms of internal controls and corporate governance, including establishing an Internal Audit Division.” It appears that Toshiba has finally recognized the value internal audit can bring to its organization.
The profession of internal audit is evolving. Its role within organizations across the globe is expanding to address the changing risks companies are now facing and to provide assurance regarding board members’ biggest concerns. By definition, internal audit is “designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.”
The profession still has some work to do to tackle the issue of corporate culture, however. According to a 2016 study by the Institute of Internal Auditors, 58 percent of internal audit departments do not audit culture. If the lessons at Toshiba and other organizations have taught us anything, it’s that the existence of an inappropriate culture can be dangerous to an organization and its employees.
The mere existence of a code of ethics, mission statements or defined values is simply not enough. Company leadership needs to lead by example and should not take corporate culture or governance for granted. Boards should seek assurance that the appropriate culture is being displayed throughout the organization.
Due to the nature of its activities and detailed insight of operations across the entire organization, the internal audit team is often uniquely positioned to assess corporate culture and governance. The value that assessment can provide is immeasurable.
