Auditing Your Credit Union’s Culture

Corporate culture has arguably always been important, but over the last decade has created much more buzz. As workplace demographics continue to evolve with millennials at the helm, more and more organizations, including credit unions, are having to shift their attention to creating a strong culture to help attract, retain and engage top talent.

Recent studies have indicated measurable increases in turnover for companies with poor or non-existing cultures. Gallup’s 2017 State of the American Workplace study reported company culture was among the five most common explanations employees offer when they voluntarily leave their jobs.

The reality is, employees want to feel like they are part of something bigger. When they are engaged in the company culture and believe in its mission, it not only reduces employee turnover, but it also improves the organization’s morale and economic health. Less turnover means reduced costs associated with hiring and training, while high employee engagement levels typically lead to increased productivity and financial performance.

On the other hand, employees who feel disengaged can adversely affect a credit union’s prosperity and growth. These employees are more likely to steal, negatively influence co-workers, miss workdays and drive members away.

Given the influence culture can have on a credit union’s success, and the inherent risks it bears, it stands to reason that culture audits should be an established part of any credit union’s risk management strategy. Yet, few have formalized processes for understanding their culture pitfalls or have allocated the proper internal audit resources to do it.

What Is Culture Anyways?

While there is a universal agreement that corporate culture exists and plays a crucial role in shaping the behavior of a credit union, there is little consensus on what culture really is, how it influences behavior and if it is something leaders can actually change.

Some may simply define it as an organization’s DNA – providing guidelines, boundaries and expectations for how employees and management behave. While that might be a good baseline understanding, culture is much more. It can be characterized in several ways, such as a social control system, a series of observable patterns of behavior or a process of “sense-making,” among other ways.

According to the Harvard Business Review, there are nine different types of culture styles that an organization may take on. Ranging from a lighter, caring style focused on relationships, mutual trust and collaboration; to a more authoritative style defined by strength, decisiveness and confidence. Over time these styles begin to define the culture of an organization.

Challenges to Evaluating Culture

There are several challenges that may stand in the way of effectively auditing your credit union’s culture. From your leadership team and employees, to unmeasurable standards, to even your own internal audit team. Each of these, along with other aspects, can make it difficult to evaluate where your culture currently stands.

Reality is, if your leadership team doesn’t support an audit of culture, it likely will not happen. They may believe it doesn’t add any value, or their perception of the culture could be skewed and, in their eyes, “everything is fine.”

Complicating matters could be the lack of clearly defined and communicated organizational expectations by the leadership team to employees. Auditing culture would require this type of framework exist first to evaluate against it.

Unfortunately, culture does not easily lend itself to hard proof that auditors normally gather through traditional control testing, taking auditors — who are process-oriented and seek objective measures — out of their comfort zone. It requires the auditing of soft controls, such as tone at the top, ethical values and desired behaviors, which can be can be difficult given the subjective nature. Some internal auditors may lack the experience or skill sets necessary to conduct this type of an assessment. Internal audit members conducting the audit may have also adopted the same cultural values and ethics as the rest of the credit union, making it difficult to complete an unbiased, objective audit.

Adding to the challenges sometimes is the untruthful participation of employees. It’s not uncommon for employees to withhold information during an audit or tell the auditor what they think they want to hear out of fear their responses will not be confidential and may face retaliation or job loss. Others may avoid sharing information because they don’t believe their concerns will be taken into consideration or want to avoid personal or emotional conversations in the office.

What to Audit and Measure?

Many aspects need to be considered when auditing culture. Testing for the mere existence of a code of ethics, mission statement or defined values is simply not enough. Consideration should be given to governance practices, leadership styles, training and communication practices, among many other elements.

The Institute of Internal Auditors recommends assessing elements, at a minimum, falling into five core areas.

• Satisfaction/Opinion: Explore employee and member perceptions, observations and beliefs about the credit union. Conduct interviews or surveys to help provide this feedback. Gain a better understand of employee and member complaints.
• Training: Determine if there is the existence of a comprehensive training program for new and existing employees based on their role in the credit union. Ensure there is a mechanism in place for tracking the frequency, attendance and effectiveness of the training.
• Compliance: Look at how frequently the credit union faces legal programs, if whistleblowers are protected, and the number of risk and control problems identified. Measure the timeliness and effectiveness of corrective actions.
• HR Practices, Incentives and Enforcement: Gain an understanding of how frequently the credit union receives negative media coverage, the appropriateness and consistency of penalties for violating polices or honest mistakes, reasoning for employee turnover and effectiveness of employee communications.
• Evidence of Soft Controls: Validate there is evidence of shared values, ethical standards, leadership guidance and trust in place that align with the credit union’s goals.

There is an array of different approaches a credit union can take to conduct a culture audit. However, the key to successfully measuring culture is to tailor the audit framework and elements to your credit union’s environment and structure.

Each organization may have sub-cultures created by management in certain functional areas or departments. When these sub-cultures stray too far from the overall organizational culture, it can cause confusion, resentment and agendas that do not support the overall organizational goals. If your credit union is not ready for an audit of the overall organizational culture, consider including steps in individual audits of functional areas to understand and evaluate the culture.

Keeping Your Culture in Check

A strong, positive culture is an important asset of any credit union – driving its workforce, growth and performance – which makes it so important to effectively manage it. Adding culture to your integrated risk management approach can help provide the right level of oversight that addresses strategy, performance and risks in a proactive and persistent manner.

Starting with a sound governance framework set by management and the Board of Directors should help drive a positive culture that makes compliance and ethical behavior a responsibility for every employee, at all levels. But, like anything else, it requires oversight to monitor culture-related risks and compliance. Measuring the framework’s true effectiveness will require the help of your internal audit team or the resources of an external auditor. Either can provide a valuable perspective on the adherence to expected standards and evaluate how the culture supports the credit union’s strategy and delivery of value to their members.

Think it is time to start auditing your credit union’s culture? Contact Doeren Mayhew’s credit union team to help you develop an approach and scope, or to perform an independent culture audit.