Governance, Risk Management, and Compliance: It Can't Happen to Us—Avoiding Corporate Disaster While Driving Success

Tone at the Top

We've seen how ethical values drive a company's culture, and we understand the relevance of the tone coming from the top of the organization. What is the right tone? The answer to that question is similar to the often paraphrased 1964 indecency opinion provided by U.S. Supreme Court Justice Potter Stewart, who said that we can't define pornography, but we know it when we see it. Trying to define the right tone at the top presents a similar challenge. Nonetheless, in order to set a common base for this discussion, let's go out on a limb and say the right tone involves a shared set of attitudes where employees maintain high ethical values and act with integrity, thereby complying with laws and regulations and behaving in a principled manner.

The tone of an organization can be difficult to grasp. When you walk into a company's offices or its manufacturing, distribution, or other facilities and observe activities and talk with personnel, you quickly get a pretty good sense of what the organization is about. But to truly understand the tone at the top and how it influences behavior throughout the organization, you need to go deeper. One might think this concept is too abstract to recognize even when making an in-depth examination, but in fact it is doable. Indeed, managements of every U.S. public company need to consider this as part of the control environment when reporting on its system of internal control over financial reporting as required by the Sarbanes-Oxley ...