Catastrophic governance failures are rooted in organisational culture

Even amidst a global pandemic, governance failures have dominated world headlines and impacted businesses across sectors.

Royal Commissions into aged care and financial services, major failures in governance by big business such as the devastation of the Indigenous cultural site at Juukan Gorge in the Pilbara by Rio Tinto last year, and whistle blowers exposing failings in governance in major institutions such as Gymnastics Australia demonstrate the far-reaching impacts of a lack of transparency and accountability.

Speakers at the Governance Institute Australia National Conference 2021 discussed the impacts of these failures and the lessons learnt.

“All governance failures have consequences for the organisation and whether catastrophic or not, those governance failures are often rooted in organisational culture,” said Sally Pitkin, chair at Super Retail Group.

When an event takes place that damages a business’ social license to operate, Pitkin advises organisations to take immediate responsibility.

“Responses such as acknowledging the conduct or the mistake, apologise, remediate, let people know that you will investigate and share what you find to stakeholders and make changes so it doesn’t happen again,” said Pitkin.

It is the transparency and accountability during the time of crisis that Pitkin believes is the most crucial aspect of dealing with the fallout, coming together as an organisation to face the adversity. This is particularly important not only for the executive leadership team, but for the board, whose responsibility is to monitor and advise the business.

“You can't abdicate your responsibility, because the board sits at the top of the organisational hierarchy, and is ultimately accountable for everything that happens in the organisation,” she said.

This is where purpose becomes crucial.

In the rebuilding phase, businesses must analyse their purpose, their governance framework and the organisational culture to address changes that need to be made, said Pitkin.

Lindsay Tanner, non-exec director Suncorp Group and Virgin Australia International, believes that the key to managing potential failures is corporate culture and business alignment.

Corporate culture

“What you need to do is ensure that right down to the micro, the roles that people are playing, what they’re doing, their understanding of the objectives of the organisation and how its achieving its goals are all aligned,” said Tanner.

“The critical thing that you have to do in those circumstances as an organisation is being forward looking and being united. Yes, you have to own up to your failings, you cannot afford to be defensive, you cannot afford to continue the argument if you feel that you'd been dealt with unjustly, you've just got to get on with it and focus on the future, not be frightened.”

It was the lack of clarity and accountability that Tanner believes led to increased public scrutiny in the case of Rio Tinto.

“The core problem was a lack of clarity about accountabilities that ended up with an outcome that was not so much a conscious malevolent choice by the organisation as a whole, but a classic governance failing.”

Agile decision making under extreme pressure has been the course of action for many leaders during times of crisis, and is a necessary skill in dealing with failures of governance. In addition, an ethical framework can prove extremely valuable in managing governance and transparency.

“Operating in an ethical framework for your decision making will help you,” said Pitkin.

“Being informed by some of those basic principles in ethics about respect for human life, preserving resources and enriching the community.”