Keeping an eye on employee behaviour sounds more like a task for HR than corporate treasury. But think of a toxic corporate culture that doesn't prevent bad behaviour such as bullying or various forms of harassment, then think of the damage this can do to the bottom line. A rapid staff turnover is costly but toxic company culture can also lead to bad decision-making, mis-management, bad communication, fraud or even a full-blown public relations disaster. According to David Curran, a risk and compliance expert at Thomson Reuters, the clues are often hiding in plain site. Companies just need to recognise the financial impact of corporate culture and be able to analyse it quantitatively.
Measuring corporate culture
Since the 2008 financial crisis, a growing number of organisations, from governments to central banks to corporates, are becoming more aware of how they can use behavioural science to manage corporate culture and mitigate the associated risks. So how can this translate into a useful financial risk management strategy for corporate treasurers and CFOs?
The first steps to improving corporate culture – and thereby limiting the potential for damage – are to recognise the financial impact and then to understand how corporate culture can be measured. The following two quotes from senior executives at the Federal Reserve Bank of New York illustrate these points.
Kevin Stiroh, head of supervision at the Federal Reserve Bank of New York wrote earlier this year about the financial impact of misconduct risk:
“As with other forms of tangible and intangible capital, a firm must invest in cultural capital or it will deteriorate over time and adversely impact the firm’s productive capacity.
When viewed through this economic lens, the question becomes: If misconduct risk is bad for firms, why don’t they invest in cultural capital and reduce the risk themselves? Why do regulators and supervisors need to get involved?”
And in a speech in June, New York Federal Reserve Bank president and CEO John C. Williams said:
“The well-known challenge with culture is that, in contrast with things like capital and liquidity, culture feels “softer” and, therefore, more difficult to measure. And often in finance there’s a tendency to disregard what can’t be quantified. But just because it’s hard to measure doesn’t mean we should ignore it or downplay its importance.”
The increased interest in studying corporate culture has also grown in step with the advent of artificial intelligence and big data analytics. The development of powerful tools that can analyse behavioural data makes behavioural science an increasingly useful way to gain insights into the cultural and financial health of large institutions and organisations.
Thomson Reuters's Curran says that the quantitative measurement and analysis of varied data sources should be encouraged as a means to predict and pre-empt damaging behaviours. He also believes that treasury professionals have the required analytical skills to incorporate such measurements into the corporate risk management strategy. These alternative data sources could include:
- reports from human resources;
- logs from a company's help or support line;
- analysis of email recipients and email content;
- monitoring the use of private email and email attachments;
- audio technology to monitor phone calls for red-flag or unusual words and phrases;
- meta-data of online and systems behaviour, including the number of times employees log in to or open company systems and files.
Curran argues that treasurers have some of the most analytical minds within an organisation. If they are able to accumulate and aggregate data from a range of sources, the data can be analysed much in the same way as other financial indicators. Patterns in the data can flag up problem areas, giving the organisation the chance to tackle the issue before it becomes a disaster. Data therefore needs to flow to the treasury department. And financial performance strategies should include the risks that can be flagged up by using behavioural science analytics. Curran adds: “An organisation's more strategic decision-makers may not be good at looking at data and connecting the data points. This is where treasurers excel; they are good at analytical projects and they should be encouraged to partner with colleagues from outside the financial function to exchange ideas and data.”
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