Corporate Culture
“Corporate culture” is becoming an increasingly important theme in contemporary corporate governance, even though some commentators have described the expression as vague, “elusive” (Hsieh et al, 2018) and “inherently slippery” (Awrey et al, 2013). Recent attention given to culture arguably reflects a growing awareness that corporate governance is “a complex system, whose structure and functioning depend on more than law and economics” (Licht, 2014). Although the concept of organisational culture is relatively new to corporate governance, its roots go back many decades to literature in the fields of sociology, anthropology and psychology (Hsieh et al, 2018).
In recent times, numerous international regulators, including the Basel Committee on Banking Supervision, the UK’s Financial Reporting Council, the Central Bank of Ireland and the Australian Securities and Investments Commission (“ASIC”) have promoted the need for a positive corporate culture. Corporate culture also plays an important role in the United States, because it can operate as a mitigating factor under US Federal Sentencing Guidelines, where a corporation can show that it had an effective compliance and ethics program.
Numerous rationales have been offered to support the need for a good corporate culture – namely, that it is a vital component of effective risk management; that it contributes to compliance; that it supports professionalism, integrity and accountability; and that good corporate cultures promotes long-term financial and business success.
There is a connection between the social purpose of corporations and culture (Hsieh et al, 2018). Corporate culture and social purpose are both central aspects of The British Academy’s current research project on The Future of the Corporation (The British Academy, Future of the Corporation: Research Summaries, 2018). Some recent scandals involving corporations with defective corporate cultures highlight the way in which such cultures can harm various stakeholders and the community in general (Hill, 2019). A growing number of international codes, such as the 2018 UK Corporate Governance Code, stress that a corporation’s culture should promote “integrity and openness” and be aligned with the organisation’s “purpose, values and strategy” (see 2018 UK Corporate Governance Code, 1, Principles B and F). The UK Code also draws attention to the need to ensure that incentive remuneration schemes are similarly aligned (see 2018 UK Corporate Governance Code, [40]).
Corporate culture is a developing theme in modern corporate governance, and there are increasing efforts to measure the construct of culture, using either quantitative or qualitative measures (Hsieh et al, 2018). Recent literature in this field also examines how positive corporate cultures can be created and how they affect organisational behaviour (Akash et al, 2018); the role of stakeholder voice in corporate cultures (Davies and Hopt, 2018); the link between corporate culture and innovation (Fiordelisi et al, 2018); and liability for defective corporate cultures that result in organisational wrongdoing (Hill, 2019).
This page is intended as a resource for issues pertaining to corporate culture and corporate governance as examined through the disciplines of economics, business strategy, law and other areas.
