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Corporate Values improve Business Performance

19 June 2013

Peter Wollege of the Monitronic Safe Custody group was recently asked about the relationship between corporate values and business performance. He argues that his company’s commitment to strong cultural values has proved good for clients, employees and shareholders.

Many companies pay lip service to the practice of good corporate behaviour, just as people like to complain about regulation. Last year, we published an editorial called Why Are Regulations so Important to Monitronic?, which argued that high standards of regulatory compliance had actually contributed to the success of our business. Whilst it required heavy investment in systems and training to meet best practice in Anti-Money Laundering and Counter-Terrorism Financing standards, the reality is that any business that improves its Know Your Client standards MUST be a better business.

Equally, we would argue that the case for adopting a high standard of corporate values MUST make it a stronger and more sustainable business. Indeed, we believe that the financial costs and management time spent on improving corporate values are heavily outweighed by the commercial gains emanating from such a culture.

Corporate values can be defined as “operating philosophies” that serve as a guide for the conduct and relationship with clients, staff and shareholders. These philosophies contain notions of strong positive cultures. They are often verbalised as meaningless “mission statements” that are used simply as slogans for marketing purposes. They do not represent values unless they are real and implemented accordingly. People like to be employed by companies with a strong and positive corporate culture. Clients, employees and investors alike are attracted to businesses that are able to effectively communicate their corporate values and that are passionate about their culture. Ultimately that culture must come “from the top”.

Defining good corporate cultural values can be more difficult than putting them into practice. A good starting point is to set a vision that aligns everyone behind a common purpose. This is not the same as establishing corporate objectives, which are often stated in financial terms. Corporate values should be rooted in philosophical convictions that are ethical and moral. Fundamentally, these convictions should, in the true meaning of the word, be a strong and sincere belief. Corporate objectives are often short-term, with profits (and shareholders) in mind, whereas corporate values should be long-term, enduring and beneficial to all parties. They certainly do not need to be in conflict. Indeed, we would argue that a good corporate culture should lead to stronger commercial outcomes.

One example is Monitronic Safe Deposits’ recent decision to tighten its internal procedures with respect to business customers. Naturally, we have long required stringent KYC/AML compliance for all our customers. However, we are now introducing new procedures that require all new business customers that are not already authorised or regulated by a recognised authority to undergo enhanced due diligence checks. This enhanced compliance procedure will be carried out by the company’s lawyer at the customer’s own expense. This may have an adverse short-term impact on our revenues, but there is broad agreement that this is a sensible, long-term measure. This reflects our cultural values, just as much as being our response to the rising demands of regulatory compliance.

As we described in last month’s editorial Keep your Assets in Safe Havens not Tax Havens, there is an increasing lack of tolerance for criminal and unethical behaviour. All governments are under increasing pressure to back new global standards on tax, including the automatic exchange of tax information.

Transparency has become a “by word” for good corporate governance. At the heart of many corruption cases lies the concealment of stolen assets through opaque shell companies, foundations and trusts. The key issue is the need to break down corporate secrecy by requiring companies to disclose their beneficial ownership. There is even talk of some kind of ownership register for shell companies in order to reveal their true identity.

In the USA, when any customer signs a contract with a regulated safe deposit company, you must agree that your box contains nothing illegal. In the context of cash, that means it is unlawful to store the proceeds of crime. We are under a legal obligation to report to USA authorities any suspicions of money laundering, proceeds of crime and/or terrorist financing. Such regulatory requirements lead to good business practice. Regulations should not be seen as a costly obligation, but as a business opportunity that can provide a competitive advantage since bona fide customers do not wish to mix with criminals.

As USA banks continue to exit the physical safe custody business, the reputation of the independent safe deposit box industry is important. For those (many) customers being ejected from bank vaults, there are few options. The independent sector needs to earn the trust of customers who are storing their valuables in their vaults. Unfortunately a police raid in 2008 on one of our Rhode Island competitors resulted in much negative press coverage. As a result, simply meeting regulatory standards is not sufficient to restore that trust. Strong corporate values – reinforcing ethical behaviour, honesty, integrity and social care – must be embedded in our businesses and be demonstrated to the wider public. Those businesses that do possess such values will have built a valuable and competitive asset.