Rules alone won’t eliminate risk where human behavior is involved, but a focus on culture can help.
Over the past several years, a seemingly endless series of scandals has rocked the business world. From banking to manufacturing to energy and beyond – during cycles of both growth and recession – numerous sectors have been impacted.
Reputable organizations have made mistakes, and a range of fallouts have followed: revenues have dipped, share prices have fallen, established brands have been tarnished, customer loyalty has diminished, litigation has increased, regulators have investigated, large sums have been paid in fines and remediation and on some occasions executives have even been criminally charged and convicted.
Consider momentarily a business scandal that really caught your attention. Broken down to its most fundamental level, what caused it to happen? Were there warning signs? Could it have been prevented? And if so, how?
Amidst the maze of complicated facts surrounding most business scandals lies a significant commonality: they occurred despite the existence of leading edge compliance frameworks. In most cases, the transgressions were based on poor decision-making.
Rules are critical to influencing behaviors. However, they address only a part of how we behave and make decisions. Behaviors and decision-making are also influenced by culture, and the relationships and power structures that shape our work environments.
Yet as regulators increase scrutiny and expand requirements, many organizations respond by modifying existing rules, and layering on additional ones, without adjusting for the role that culture plays in influencing human behaviors and decision-making. This singularly-focused, rules-dominant approach is intended to reduce risk. But in neglecting to focus on how people apply those rules, it opens the door to unintentionally driving the opposite result.