“Culture is in fact the basis of an organization and it absolutely influences people’s day to day behavior,” comments Veronica Melian in an article originally published in Deloitte’s “Directors’ Alert 2017: Courage Under Fire: Embracing Disruption.”
She says, “Organizations have traditionally devoted considerable time and effort to developing sophisticated strategies to capitalize on market opportunities and mitigate market risk, but many have tended to pay less attention to the organization’s culture… Today, there is a renewed recognition of the importance of culture in driving strategy and the board’s role in aligning strategy with an organization’s culture.”
A recent study published by the U.K. Financial Reporting Council concluded that, “The strategy to achieve a company’s purpose should reflect the values and culture of the company and should not be developed in isolation. Boards should oversee both.”
I applaud her view. If an organization’s culture does not permeate the entire organization at every level from the C- Suite to the front line – well, we only have to look at all of the companies recently and not so recently – from Enron to Wells Fargo, Volkswagen to Fox News, not to mention many of the TBTF – to see the results.
So what’s the problem that in so many organizations culture doesn’t work and is only paid lip service to? Ms. Melian says companies ”pay less attention to the organization’s culture, which can be difficult to measure and manage and was often left to evolve on its own.”
Yet culture must be managed for the good of the company, its customers and its employees. In fact, culture is the number one determinant of future shareholder value. The article notes “misaligned incentives were a primary factor behind the unethical behavior demonstrated during the 2008 financial crisis and are often cited for influencing corporate failure.”
I can attest to that. While culture has to be set and led from the top, as we have seen too often performance incentives influence and, many times, drive the culture, witness Wells Fargo’s addiction to performance incentives. And I have seen this influence with my personal witnessing of the “making your numbers” manifesto which drove Citigroup’s behavior.
Warning signs about risks related to a company’s growing and profitable business model will likely be ignored by senior managers because any actions taken to curtail the risks may also curtail the profits and thus, the managers’ incentive compensation driven by the business model, so culture goes by the wayside and greed takes over.
So how do you measure and define culture when it’s just part of the ethos and how things are done around here, regardless of codes of ethics and corporate guidelines? The article informs us that just “19% of CEOs and human resource leaders who responded to Deloitte’s 2016 Human Capital Trends survey indicated their organizations had the “right culture,” and more than half noted that their companies were attempting to change the culture in response to shifting talent markets and increased competition. Only 28% of respondents indicated they truly understood their culture, although 87% believed that “culture is a potential competitive advantage.”
So it follows that very few companies talk about culture in their annual reports, nor do they get the Board of Directors involved in the company’s actual culture guidelines and measurements. I predict that would change if the Board knew how culture impacts future shareholder value.
Ms. Melian says, “Boards can ask a number of questions to understand and help address an organization’s culture issues, from… Is culture considered in how the organization evaluates and rewards the CEO? Do leadership succession strategies include culture and ethics as criteria when selecting a CEO? It starts at the top.”
In short, everything that is said on social media about the company, turnover, brand, customer service, profits – in every area of a company, culture counts. Are employees encouraged to give feedback and is that feedback valued? Are transparency and disclosure welcomed? Does the company have a periodic culture diagnostic and are the results shared?
Ms. Melian suggests that periodically the company assess what people will do in real life situations, such as meeting performance measures, awareness of unethical behaviors, and pressure to do what is not above board.
What do the World’s Most Admired Companies share in common?
4. Berkshire Hathaway
7. General Electric
8. Southwest Airlines
Culture… that values the employee, the customer and shareholders profit.
A company’s culture today is public. Culture counts!