Investor perspectives from the International Corporate Governance Network’s Regional Conference in Frankfurt.
During our roundtable discussion between investors and auditors at the ICGN Frankfurt Conference, investors highlighted a significant issue: their desire for more insight around culture.
Several investors mentioned that culture is a critically important factor to them. They want to understand what is going on within a company – the organizational and risk culture underpinning corporate decision making.
But does culture fit within the focus of an audit? Investors and auditors were mixed in their opinions. On the one side, one investor argued that, “Culture is so internal to the entity that only an external party can form an objective view about it.”
This is why some investors see culture at the forefront of the next evolution of reporting. For them, looking at rules around disclosures is more about fighting previous battles, while culture and instilling principles and credibility within companies is ‘next gen.’
Speakers in this video: Amra Balic (Managing Director, Head of EMEA Corporate Governance and Responsible Investment at BlackRock), Erik Breen (Chair, ICGN Board of Governors of ICGN and Manager SRI at Triodos Investment Management), and Mark Summerfield (Audit partner and Head of the UK’s Assurance practice at KPMG in the UK).
The challenge with evaluating culture is that the role of auditors has typically been binary in nature. When you’re assessing data, you can say whether it is right or wrong. Culture, on the other hand, is not binary. There is no straightforward way to assess the internal culture of different companies; what works for one, may not hold true for another.
At the same time, investors are right to be concerned. There’s little doubt that culture is a significant influencer on a company’s actions and outcomes. It’s why the IIA, IOSCO, and the FRC are focusing more and more on the issue.
One investor said it might be too much to expect auditors to report on culture. Investors need to form their own opinions and ask their own questions. Of course, investor participation is also affected by culture. An audit partner at KPMG in the Netherlands, Mark Hogeboom, mentioned that in the Netherlands, auditors are obliged to present during shareholder meetings. While some board members are not comfortable with this, it does create opportunities for investors to directly challenge the auditors.
Such an approach might let investors gather more insights regarding culture than might otherwise be apparent. But if investors don’t have opportunities to address auditors, or do not feel comfortable raising questions, there isn’t another viable option to gain these insights.
There’s no doubt that culture is a complex issue in terms of reporting. However, our discussions at the ICGN conference showed how important it is to investors, so we must continue to look for options. We look forward to delving into the culture issue further with investors at the ICGN’s San Francisco Annual Conference in June.
See how the social media conversation unfolded at the ICGN conference in Frankfurt. To keep on top of the conversation as it evolves, following me on Twitter @KPMG #ValueofAudit, #ICGN16, LinkedIn, or by visiting us on kpmg.com/ValueofAudit.