Why Company Culture is the Most Overlooked Business Risk in 2025

Every organization talks about the importance of risk management, yet few acknowledge the silent threat embedded in their own operations: company culture. Culture isn’t just a set of values written on a corporate website—it’s the behavior that is rewarded, tolerated, or ignored every single day. And when misaligned with governance and risk management, it can be the root cause of some of the most damaging business failures.

Recent legal and regulatory shifts highlight the growing expectations for corporate boards to take an active role in risk oversight. From fiduciary duties to SEC risk disclosure rules, businesses are under increasing pressure to ensure they are not only monitoring financial and operational risks but also fostering a company culture that mitigates reputational, compliance, and ESG-related risks. The failure to do so has led to severe consequences for organizations around the world.

The Price of a Broken Culture

Consider Boeing. Once a company revered for its engineering prowess, Boeing’s shift toward prioritizing short-term financial gains over innovation and employee engagement has been linked to its recent challenges (Financial Times). A culture that deprioritizes long-term stability in favor of quarterly earnings reports inevitably makes risk oversight a reactive process rather than a proactive one.

Boeing’s struggles serve as a stark warning that when corporate culture drifts away from its foundational strengths, systemic risks emerge. These risks are often unknown knowns—issues that frontline employees see coming but that remain invisible to senior leadership due to organizational silos. This illustrates how risk ripples across an organization, both internally and externally, affecting interconnected processes and departments. When governance structures fail to connect these fragmented concerns, companies miss critical warning signs, and decision-makers remain blind to mounting threats. This is a preventable disaster waiting to happen, and one that regulators and shareholders are increasingly treating as negligence.

Similarly, Qantas Airways found itself in reputational freefall due to a corporate culture that tolerated unethical practices such as selling flights that never actually existed and engaging in illegal layoffs (Financial Times). These failures weren’t merely operational missteps; they were cultural failures. A company that neglects transparency and ethical leadership creates a governance vacuum where unchecked risk thrives.

Without a holistic, risk-based approach to risk management—where governance, culture, and compliance are interconnected—companies struggle to identify hidden vulnerabilities before they escalate into full-blown crises. This approach goes beyond traditional risk management by acknowledging how risks ripple through the organization, influencing various functions and stakeholders.

On the flip side, brands like Coach have demonstrated the power of deliberate cultural alignment with strategic goals. By restructuring internal teams to improve collaboration and adapting its strategy to resonate with Gen Z consumers, Coach saw an astounding 332% annual increase in demand (Vogue Business). This isn’t just a marketing success—it’s proof that when corporate culture is built intentionally, it fuels resilience and growth rather than risk and instability.

Culture as a Key Risk Indicator

The evidence is overwhelming: company culture is not a soft concept. It is a risk variable—one that, when left unmanaged, can introduce compliance failures, reputational damage, regulatory scrutiny, and even existential threats to an organization. Risk is not isolated—it’s interconnected across departments, geographies, and business functions. This is why a holistic, risk-based approach to risk management is essential. A company cannot truly mitigate risk without integrating culture, governance, and compliance into a unified strategy.

A key component of this strategy is maintaining a separation of duty, which is a governance best practice designed to prevent fraud, waste, and negligence. By ensuring that no single individual has complete control over all aspects of a process, organizations can minimize conflicts of interest and reduce the likelihood of unethical behavior. This structural safeguard not only protects the organization but also reinforces a culture of accountability and transparency.

Boards and executives must begin treating culture as a critical risk factor, just as they do financial performance, cybersecurity, and regulatory compliance. The right approach isn’t about micromanaging employee behavior; it’s about ensuring that corporate governance structures actively reinforce the right behaviors, decisions, and ethical guardrails.

For example:

• Are internal incentives encouraging ethical behavior or short-term wins at any cost?
• Does the company’s governance structure prioritize compliance, or is it seen as a burden?
• How quickly and effectively does leadership respond to ethical or operational failures?
• Is risk oversight embedded into the company’s DNA, or does it only emerge in response to crises?

Leaders must establish systems that capture early warning signs, break down silos, and ensure risk data flows freely across the organization. Without this, even the most sophisticated risk models will fail when they are needed most. 

The Role of the Board in Culture Oversight

Regulatory bodies and courts are making it clear: risk oversight is a board-level responsibility. Delaware’s Caremark rulings reinforce that boards must ensure that robust governance and compliance systems are in place—and that a failure to oversee mission-critical risks can expose directors to legal consequences  (Harvard Law School).

It’s no longer enough for boards to claim they weren’t aware of cultural or ethical failures. They are expected to ask the hard questions, document their oversight, and demand accountability. Risk, compliance, and governance professionals should have a direct line to leadership, ensuring that cultural warning signs don’t go unnoticed until it’s too late.

Culture is Key to Surviving Regulatory Shifts

The regulatory landscape is changing rapidly. In the U.S., 2025 marks a shift away from DEI initiatives and broader regulatory oversight. Some companies may see this as an opportunity to loosen internal governance standards, but history has shown that those who abandon risk management and ethical oversight during times of deregulation often pay the price later.

Company culture is more than a regulatory requirement—it is a long-term risk mitigation strategy. When external regulations loosen, internal governance and corporate culture become even more critical in maintaining trust, stability, and resilience. Businesses that fail to uphold strong cultural values during shifts in oversight may find themselves vulnerable to reputational damage, consumer backlash, and future regulatory crackdowns when the pendulum swings back.

Risk Management Without Culture Oversight is Just a Paper Exercise

A culture-first approach to risk management means embedding ethical leadership, proactive governance, and a commitment to transparency at every level of the organization. It means treating whistleblower reports, employee turnover patterns, and public perception as early warning indicators of potential risk failures.

By adopting a holistic, risk-based approach and maintaining a separation of duty, organizations can effectively prevent fraud, waste, and negligence. This strategy ensures that risk ripples are identified and managed before they escalate, safeguarding the company from internal and external threats.

Companies that fail to recognize this will continue to suffer the consequences—whether through regulatory fines, reputational damage, or outright loss of stakeholder trust. Those that embrace culture as a core pillar of their risk management strategy will not only mitigate risk but also unlock new opportunities for sustainable success.

The Unaddressed Risk Hiding in Plain Sight

So here’s the question every executive team and boardroom should be asking: Is our company culture a source of resilience, or is it our biggest unaddressed risk?

Let’s stop treating culture as an afterthought. It’s time to recognize it for what it is: the foundation of a truly effective, forward-thinking risk management strategy. Because in today’s business world, the biggest risks aren’t always external—they’re often the ones hiding in plain sight.