Tone at the top is a concept that was first introduced in an article written by John Kotter and James Heskett, which appeared in the journal “Harvard Business Review” back in 1990. The paper argued that successful organizations are usually led by people who have a shared commitment to honesty and ethics.
The authors observed that where there were shared values, employees felt more committed to their work and were less likely to engage in unethical behavior because they knew it would be unacceptable. They also found evidence of this practice among companies such as General Electric and Procter & Gamble, both of which had successfully adopted the philosophy of tone at the top. This article will help you put “Tone at the Top” in perspective and illustrate why is it imperative to internal control to make your company sustainable.
What is the connection between the tone at the top and internal controls?
Tone at the top in internal controls is a level of commitment among the leadership to ethical conduct. It is an embodiment of a company’s values and set of ethics. If there is no respect for honesty, employees will succumb to temptation when given too much freedom with their actions.
Integrity in businesses starts from top management; it can be remembered that senior managers may add to or reduce the pressure all the way down. What happens at the top will eventually trickle down.
Why is Tone at the Top in Internal Controls Important?
Having a set of ethics and values creates an atmosphere that is free of dishonesty, theft, fraud, and corruption.
Tone at the Top advances leading to internal control helps to ensure ethical behavior among employees; it also reduces the risk of unethical behavior. If your employees are committed to ethical behavior, it is more likely that they will speak up when they suspect unethical behavior by colleagues or superiors. It also makes them more tolerant of others’ mistakes.
The employee’s belief in honesty also results in better decision-making at all levels within the organization. Honesty among employees promotes trust, which is one of the core features of internal controls.
What is the main purpose of Tone at the Top in Internal Control?
The main purpose of tone at the top is to make sure that the culture of an organization is set up correctly, and that there are clearly stated values that all employees follow, from the top down and the bottom up. If these values were not followed or mismanaged by one person in particular, it could cause problems throughout the entire company.
Training is also very important for tone at the top. When everyone knows what to do and how they should do it, even if it is not specified in the policies and procedures of the organization, they know how to act appropriately.
What is internal control?
Internal controls are plans and procedures established for a company to achieve its goals according to the top down method as well as manage assets, finances, operations and other important aspects of an organization. Internal controls can also be used to assess risk management effectiveness as well as help an organization meet legal requirements. Some ways to measure an internal control are whether it protects assets, has purpose and will achieve its goal under all circumstances.
What is an example of Tone at the Top in Internal Control?
An simple but effective example of tone at the top for internal control would be how employees handle cash and checks when they are out on the floor of the store. They have to count their money, handle customer transactions with cash or checks, and put any change they get in a register drawer. When they give back change, they have to separate the coins appropriately so that it goes into different containers. This way everyone can find everything at the end of the day if there is a problem with the change. If this were not handled correctly, they could accidentally put their customer’s money in the wrong place for later transactions. Also, there would be no way of knowing if someone took some of the loose coins during their shift to use for themselves.
What makes that example of tone at the top is the fact that it comes from the top-down. Cash handling procedures are covered in training and put into an employee handbook, which is reviewed by everyone when they get their job. Additionally, managers look over all cash transactions at the end of each shift to ensure that everything was correctly handled. If there was a problem with money being left out of a cash drawer or not segregated properly, it would be noticed and the proper procedures would quickly be put into place to resolve it.
Who is responsible for setting the tone at the top?
The responsibility for setting the tone is not something we can delegate. It falls upon each and every one of us to take the initiative by providing a positive example for everyone to follow. If we don’t, we will all be collectively responsible for any mistakes that may occur.
What is the difference between tone and mood?
Did you know… There’s a difference between tone and mood? Tone at the top is thoughtfulness, good judgment and maturity so there is no sense of panic or fear within the organization. Mood at the top stems from irrational feelings such as anger, sadness, joy and confusion which can spread to all who are involved in the organization, regardless of their role.
This is an individual’s behavior that radiates into the environment around them influencing others to act in a similar manner. The tone at the top will affect everyone within an organization whether they are aware of it or not. It affects how you feel about yourself and your work, and it affects how others feel about their work when they come to the office. It will determine the mindset of everyone and affect how customers and clients are treated.
What is tone at top in auditing?
Tone at the top in auditing is referring to the auditors job to verify whether the auditee is following its own tone at the top. If something does not match, that is an audit issue. For example, if a company has a policy that they are going to go over their financial statements every night before leaving the office, but the auditor sees that this does not happen on a consistent basis, then it is an audit issue. This is tone at top in auditing.
Audit approach and methods: the auditor, based on information provided by the management, can identify internal controls which will help to make sure that the management’s policies and expectations achieve their goals. Auditors may also use other auditing unrelated approaches such as analytical procedures or statistical sampling to help them identify areas of potential fraud.
What are the negative effects of a poor tone at the top?
Negative consequences of a poor tone at the top include employees who feel unvalued, unmotivated and resentful toward management as well as an inability to get things done efficiently. When it infects the entire organization it can lead to low employee morale, a bad reputation within the industry and eventually a lack of profits leading to bankruptcy.
What are some ways that an organization can implement effective internal controls?
In order for an organization to have positive tone at the top as well as utilize effective internal controls some initial steps need to be taken. First, a leader must be selected who has good organizational skills as well as the ability to communicate. Then a vision should be developed that is both realistic and attainable. As an organization works towards achieving their goals, it is important for them to have open communication so everyone knows the direction they are going in and what success looks like.
Caveats, disclaimers &
At ESG | The Report, we believe that we can help make the world a more sustainable place through the power of education. We have covered many topics in this article and want to be clear that any reference to, or mention of proper social tone in accounts , ability to describe, several ways to report, communicating, career, executives, regulations, sales or decades in the context of this article is purely for informational purposes and not to be misconstrued as investment or any other legal advice or an endorsement of any particular company or service. Neither ESG | The Report, it’s contributors or their respective companies or any of its members gives any warranty with respect to the information herein, and shall have no responsibility for any decisions made, or action taken or not taken which relates to matters covered by ESG | The Report. Thank you for reading, and we hope that you found this article useful in your quest to understand ESG and sustainable business practices. We look forward to living in a sustainable world.