Kevin Hills explains why employers need to really understand their organisation’s culture before expecting staff to be compliant

From the classroom to the corporate boardroom, misdemeanours and wrongdoings are often discussed in the context of ‘rules’. Either the existing rules were broken or the right rules were never in place. In their wake, particularly in terms of some of the high-profile scandals that have hit the business world over recent years, regulation is often enhanced while companies layer on additional levels of compliance. But do stronger rules always create better decisions, and reduce business risk? 

Few people would deny that rules and regulations are critical to influencing behaviour and maintaining order. Through operating models, policies and reporting structures, targets become tangible and performance and adherence appear measurable. But rules only address a part of how each of us behaves and makes decisions. After all, rules alone don’t create safe drivers. To be a safe driver, one must also exercise sound judgement when applying those rules.

New understanding around organisational culture has highlighted often overlooked factors that create business risk. Unacceptably high levels of stress, constraints to knowledge sharing and fear of speaking up are just a few of the negative side effects of undesirable cultural influences. Robotic compliance is another example, where targets and rules are narrowly followed without exercising due judgement.

Business leaders play an important role in shaping an organisation’s culture by driving the tone from the top, but it is often an individual’s actual experience of an organisation’s culture – rather than what an organisation intends its people to experience – that drives how decisions are made. 

This is particularly challenging when you consider that, in every team that is formed, a culture is created. This means there are usually numerous local sub-cultures existing within a single organisation, each of which influences how employees make decisions. So, to successfully influence their people’s behaviours, organisations need a tangible understanding of the culture within which people are working.

Innovations in psychometric and data analytics tools are helping to make real strides in this field, giving companies the ability to identify potential ‘hot spots’ in their organisation. One approach is to examine workers’ decision-making styles. The ways people make decisions around their kitchen tables on a Sunday night often differs from how they make decisions when at their desks on a Monday morning. Another approach considers the alignment between employees’ personal values and those of the organisation. We are also seeing greater use of ‘sentiment analysis’ to help identify areas where decisions are made under high amounts of pressure and stress.

The key is ultimately to strike the right balance, to create a space where rules and culture reinforce each other. Rules are immensely important in defining the parameters within which teams and individuals should operate, but even the most well-intentioned rules can be overwhelmed by culture when it is ignored.

Read EY’s integrity and compliance team report, The route to risk reduction: better rules or better decisions

Kevin Hills is a partner and head of integrity and compliance in the UK at EY