Organisational culture

A popular definition of organisational culture is "the way things are done around here"1 and a recent public inquiry described culture as an organisation's "personality – sometimes overt but often unstated – that guides the decision-making process at all levels of an organisation".2  

Underlying most definitions and descriptions of organisational culture is the idea that "Official policies specify what management wants to happen.  Corporate culture determines what actually happens, and which rules are obeyed, bent or ignored."3 An organisation might espouse particular stated values but its culture will show its true values.


How can organisational culture help to prevent corruption?

The importance of an organisation's culture to the prevention of workplace corruption lies in the effect it can have on the behaviour of employees. If an organisation has a strong culture employees can feel pressure to comply with the prevailing culture and behave in the same way as most other people in the organisation.

If that culture – or "the way things are done around here" – allows, or even rewards, improper or corrupt behaviour then corrupt conduct is more likely to occur.

Conversely, if the culture is one that encourages and rewards compliance with policies and the organisation's values then corruption will be less likely to occur. Senior management and line managers are in the best position to influence the ethical culture of an organisation by promoting and enforcing policies and accountability controls.

Case studies

Case study 1: Encouraging non-compliance
In the wake of the complete financial collapse of the NSW Grains Board the ICAC reported in 2003 that senior managers of the Grains Board had engaged in a cover-up of losses that included the falsification of financial reports and misleading the directors of the Board in order to ensure that the Board's bankers would continue to extend it a line-of-credit.

The ICAC found that the conduct was related to the organisational culture that had developed among senior ranks of the Board as a result of the actions and behaviour of the Managing Director, the Chief Financial Officer and inaction by the board of directors. The ICAC described the Board at the time as a "focussed, driven, growing" organisation whose culture valued commercial imperatives over public duty interests, outcomes over process, expediency over accountability and autocratic direction over participatory decision-making.

In one example the Board's senior financial accountant told the ICAC that he was instructed by the Managing Director and the Chief Financial Officer to adjust the accounts of the Grains Board to show particular profit figures. In the context of the prevailing organisational culture the accountant felt he had no choice but to follow the instruction as to do otherwise would have been seen as disloyalty which was intolerable, particularly as it had previously been made clear to him that him that he could easily be replaced.

The impact of the culture was also evident in the treatment of some senior managers who were stopped by the Managing Director from making legitimate inquiries into suspected misconduct.

 Case study 2: Discouraging reporting
 

An ICAC investigation in 2008 examined allegations of fraud, bribery, improper allocation of contracts, unauthorised secondary employment, failure to declare conflicts of interest, falsification of time sheets, and the cover-up of a safety breach in the state's rail infrastructure corporation. Employees were found to have improperly allocated almost $19 million to companies owned by themselves, their friends or their families, in return for corrupt payments totalling over $2.5 million.

When asked about the features of the organisation's culture that enabled employees to engage in corruption, the CEO gave evidence that a key defect was "an inability and unwillingness of supervisory management to exercise what I would regard as normal management controls".

Examples were managers not adequately monitoring their staff, overlooking poor record-keeping, and ignoring a culture of not "dobbing". Non-reporting of misconduct was well-known to management and was a behavioural norm. This made effective management almost impossible, because without accurate knowledge of staff activities managers were unable to exercise control. The workplace environment imbued staff who were inclined to report misconduct with a sense that if they did so they would be disloyal. As a result,  corruption was not reported and was covered up.

The norm in the organisation was for staff to withhold information relating to improprieties or noncompliance.  One witness described this attitude as "dobbing is no good". As a result employees inclined to engage in corruption were probably more confident that they would not be caught as a result of this behavioural norm.

The ICAC's recommendations to address the situation included enhancing the knowledge and skills of managers as well as their corruption risk management capabilities. 

 

Frequently asked questions

How does an organisation's culture develop?

Organisational cultures develop over time by employees recognising what behaviour is acceptable and what is not. As a result, all of an agency's stakeholders, including the board, the minister, executive, employees, and its community have some role in creating its culture but "top management – starting with the Chief Executive Officer – plays a key role in determining corporate culture. The Chief Executive Officer usually is the dominant personality in an organisation, and individually often sets its ethical tone."4

Once established, the culture of an organisation is said to be perpetuated through the selection and recruitment of staff, the socialisation of new employees and the way that senior management behaves and rewards behaviour.5 

How can culture be changed? 

The culture of an organisation will not be changed with a single training course or a code of conduct. Cultures are created over time through habitual behaviour and long practice. Before an attempt can be made to change an organisation's culture it is essential to understand it and how it has been shaped.

Many instruments and resources are available to help organisations understand and change their cultures. They are usually survey-based and it may be necessary to use one of these to understand the way the agency's culture is now and identify what if any cultural attitudes or behaviours are undermining corruption prevention initiatives. Once these questions have been answered a cultural change program may be necessary, depending on the scope of the change needed.

Remember that in a large organisation each work area may is likely to have its own sub-culture which should be considered in any cultural change program.

Are there any workplace attitudes that could encourage an unethical workplace culture?

The sort of common cultural attitudes that might encourage or allow corrupt conduct include:

  • "receiving gifts, entertainment or favours is acceptable because it has always been done"
  • "there's no point reporting corruption because nothing will happen and you'll be labelled as a troublemaker"
  • "I would not do that, but it's not my place to report it if someone else does it"
  • "management have treated her really unfairly so you cannot blame her for what she's doing"
  • "you should never dob in your workmates"
  • "it's OK to rip off large government departments"
  • "passing on confidential information doesn't really hurt anyone"
  • "the managers take home their work cars so why shouldn't I take my truck home sometimes?"
  • "it's acceptable to employ delaying tactics or to withhold information".6

What can individual managers do to encourage an ethical organisational culture?

Managers may have limited opportunities to influence corporate reforms but they can often introduce initiatives in the areas that they can control such as:

  • including corruption prevention policy and awareness in inductions for staff such as conflicts of interest requirements, gifts and benefits rules, the need for secondary employment permission
  • making sure employees can recognise conflicts of interest and other corruption risks in their work
  • providing opportunities to discuss corruption risks and prevention measures in day-to-day communication 
  • making sure employees know how to report corrupt conduct – internally and externally, such as to the ICAC
  • having supervisors undertake leadership training
  • improving their own skills and knowledge about corruption prevention
  • demonstrating the importance of following proper process
  • making sure record-keeping in their operational area is complete and accurate
  • taking appropriate action in response to breaches of proper process
  • applying policy and procedures in a consistent and transparent way.

Are there corruption risks when organisations with different cultures are merged? 

Almost any situation that involves a major organisational change can create opportunities for corruption. When agencies, or even internal work units, are merged or restructured accountability overlaps or gaps can be created and staff can become confused about which corporate policies and systems should apply.

It's always a good idea to run a new corruption risk assessment and an ethical culture survey when a new organisation is created.  This allows the new management team to understand all of the organisational cultures involved, any corruption risks the new organisation faces and accountability gaps it may have.  

Resources

Relevant ICAC investigations

 

Related topics on the ICAC website

 

Endnotes

1. Marvin Bower, The Will to Manage, New York, McGraw-Hill, 1966.

2. The Hon Justice Owen, Commissioner, The Failure of HIH Insurance Volume 1: A corporate collapse and its lessons, Commonwealth of Australia, 2003 p. 13. 

3. Committee of Sponsoring Organisations for the Treadway Commission, Internal Control - Integrated Framework, AICPA, Jersey City, 1992, p. 19.

4. Committee of Sponsoring Organisations for the Treadway Commission, Internal Control - Integrated Framework, AICPA, Jersey City,  1992, p. 19.

5. Stephen Robbins & Neil Barnwell, Organisation theory: Concepts and Cases, Pearson Education Australia, 2002, pp. 385-6.

6. Practical Guide to Corruption Prevention, Independent Commission Against Corruption, Sydney, 1997, Module 4.