Tone at the top – a powerful tool and double-edged sword in the hands of corporate governance
Tone at the top – a powerful tool and double-edged sword in the hands of corporate governance

Summary/Abstract: Tone at the top is a metaphor for business environment built on values affecting the activities and behavior of whole organization. A number of researches, conducted by academics and professional institutions, has shown that tone at the top, because of its pervasive influence, may have significant positive, but also negative, implications on the quality of total corporate governance including: systems of internal control, risk management, financial reporting integrity and the overall business effectiveness and success. The aim of this paper is to highlight the significance and ‘double-edged’ nature of tone at the top, and to explain what is its power built on, which implies the understanding of motivational drivers of individual and group human behavior. The comprehension of behavioral mechanisms is the prerequisite for the effective management of the tone at the top encompassing: taking the responsibility at all organizational levels, defining core values and establishing value-based practices, regular audits of the tone at the top and related risks, and finally, empowering and promoting ‘tone at the top’ until it becomes ‘mood in the middle’. This would enable tone at the top to became the ‘unseen hand’ available, even though formal policies and procedures may not be, and consequently enable employees to make decisions and act in a totally novel situations. However, the risks that these actions would deviate from the organizational values, in this case, would be minimal.

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