A Corporation’s Culture Will Dictate Its Fortunes

How direct is the link between corporate culture and a corporation’s fortunes?  A founder of five successful tech companies recently offered a clue when asked about what he would do differently as a founder and CEO:

“Many things, but I guess one thing that comes to mind is to realize earlier the importance of culture.  I discovered this through a spectacular hiring miss at my first company. The company was scaling up and getting its first real growth. I had previously been able to hire people informally. But for this hire, we did a nationwide search, and after interviewing 30 people, we found our person. We onboarded him.

“After spending three weeks at the organization, he came to me and said, ‘I convinced my old boss to give me my job back.’

“Of course, at this point our number two and three candidates had already taken other jobs, and so I had to start again at ground zero.  ‘What just happened?’ I asked myself.

“We had hired a good search firm and gone through what I thought was best hiring practices. As a scientist, I went to the data. I found the answer buried in social psychology and labor relations, in what was then called collaborative or group psychology.  It said, ‘The best indicator of an individual’s longevity with an organization is cultural alignment. The best indicator of the hyper-performance of an organization is cultural alignment. The best indicator of you-name-it is cultural alignment.’

“By culture, I don’t mean something squishy…I knew what the culture I meant in my head was, but I didn’t articulate it. Since then, we have articulated it; we’ve introduced people to it; we use it in hiring and evaluating and celebrating people.”

Our founder friend’s story underscores the power of culture and how quickly it can exact a cost when overlooked.  What can you do to lead your organization in a way that harnesses this power for the organization’s good?  That’s an essay question, to be sure, so here are three thoughts to start you on your way.

First, understand culture’s many dimensions.  Merriam-Webster defines culture as “the set of shared attitudes, values, goals, and practices that characterizes an institution or organization.”  Each category may have more layers and nuances than one expects.

An organization may always issue a press release blaming pilot error each time one of its new jets crashes.  A company may seek the industry’s award for most durable running shoe while donating hundreds of pairs annually to urban homeless shelters.  An institution may overlook evidence of abuse by one of its football coaches to avoid diminishing the reflected glory and revenue the team generates.  A management team may always deliver bad news to its board at the earliest possible time and always include a plan for fixing the problem.

Conscious, subconscious, shared by some, shared by all – every attitude, value, goal, or practice your organization shares and exhibits contributes to its culture.

Second, begin building and editing culture now, because the cost of letting it run unrestrained can accelerate quickly.  Consider Wells Fargo, which admitted creating 2.1 million accounts in customers’ names without their knowledge, then admitted charging 800,000 borrowers for car insurance they did not need, then admitted creating an additional 1.4 million accounts in customers’ names without their knowledge.

In response, regulators revoked the bank’s ability to acquire more banks until it submitted a plan for preventing further consumer abuses.  Today one senior executive vice president at the bank claims, “Things have changed a lot.”

Yet regulators have twice rejected the bank’s plan for preventing further consumer abuses.  The incentive compensation system recognized as the cause of the abuses, while tweaked, has not been  eliminated.  Current employees say the bank pushes them to steer customers to investments that generate high fees.  They also say the bank tells mistruths to keep customers from switching banks.

Wells Fargo’s proxy statement assures investors, “Restoring your trust and the trust of all key stakeholders is our top priority.”  Yet its lawyers defend investor lawsuits by claiming that statements about “working to ‘restore trust’” are “paradigmatic examples of non-actionable corporate puffery on which no reasonable investor could rely.”  Meanwhile, apparently no one wants to be the CEO to lead this organization.

Can a troubled culture ever be brought back to good health?  In fact, a culture may resemble a jump shot in this respect:  Building a good one can be a heady experience, and fixing a bad one can border on impossible.

Finally, build a culture that raises up everyone it touches.  Consider the success of our founder friend, who has led a team to a profitable start-up exit five times.  He says, “We use [culture] in … celebrating people.”  Or consider the success of basketball legend Bill Russell, the only athlete in professional sports history who has led a team to a championship 11 times in 13 years, including twice as player-coach.  He says, “I always thought the most important measure of how good a game I’d played was how much better I’d made my teammates play.”

Perhaps one key to harnessing culture’s power is to never let it stray from celebrating everyone’s dignity and cultivating everyone’s talent.  Perhaps in any moment you lead your organization well by reminding everyone that, to a significant extent, your culture will dictate your fortunes.

This post comes to us from Joseph Mandato, a managing director at DeNovo Ventures, senior advisor at Apercen Partners, lecturer at Stanford University, and co-chair of Harvard University’s Advanced Leadership Coalition; and from William Devine, leader of the Corporation in Society practice at William Devine Esquire, a Silicon Valley compliance and governance law firm, and an adjunct professor of law at Menlo College.

2 Comments

  1. James Rosenstein

    I could not agree more with this. Devoting time to the development of corporate social responsibility, I have seen that if the understanding of the commitment and the dedication to the goals of CSR policies and activities are not fully integrated within the culture of any given organization, with honesty, transparency and strong leadership, it will never work properly. Culture is indeed a powerful driver of motivation, results and success.

  2. David E. McClean

    My book, Wall Street – Reforming the Unreformable (Routledge, 2015) is all about corporate culture. The exclusive focus on regulation doesn’t work. The proper focus on corporate cultures, as collections of “internalized regulation” and expectations, is important to assuring that legal and ethical problems do not arise, and if they do arise are properly handled. The problem with addressing culture, for many, is that culture is not measurable in the same way cash flows and depreciation are. So knowing when your programs of cultural creation and maintenance are successful seems elusive. But this need not be so. There are ways to assess whether a firm has the right culture. It’s just that few take the time to explore the topic.

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