The business community generally, and auditing and corporate governance functions especially, are in the grip of a worldwide trust crisis. That’s a particularly perverse position to be in, given audit’s central role in fostering trust in markets, says Karthik Ramanna, an Oxford professor, author and authority on rebuilding stakeholder and shareholder trust in organizations.
But he believes bridging the trust gap is possible — and necessary, because “if we do not save auditing, we cannot save capitalism.”
This is why Ramanna, though known to be a fierce, outspoken critic of certain audit industry practices, was called on by one of the Big Four accounting firms for his independent, expert review of the industry’s “culture of challenge.” In his resulting report, now part of PwC UK’s action plan to improve audit quality, Ramanna describes the challenge culture as one that “empowers rank-and-file auditors to do their job without fear or favor.” He outlines five essential elements of that culture, each a critical component that builds on and reinforces the rest.
- People, with the technical judgement to challenge
- Shared beliefs that the organization will support people who challenge
- An alignment structure that rewards challenge
- Processes that normalize the practice of challenge
- Support from clients, without which a challenge culture is unlikely to be sustainable
Importantly, building a culture of challenge in audit firms requires action from many players, including investors, client boards and management, regulators, the media, civil society and above all, audit firms themselves. Through engaging, in-depth workshops with corporate boards and audit committees on how to empower a challenge culture amongst their audit and management teams, Ramanna offers several recommendations for each, concluding with this overarching and urgent call to action: the future of capitalism depends on corporate leaders doing right by their privilege. It’s time to step up and regain the public’s trust!
For more information on engaging Karthik Ramanna, contact us.