Corporate Culture and Performance: What CEOs Need to Know

The Merriam-Webster dictionary defines culture as “the set of shared attitudes, values, goals, and practices that characterizes an institution or organization.” It defines team as “a number of persons associated together in work or activity.”

 

Most executives would read these definitions and think they sound straightforward and fairly basic. However, the human psychological and emotional elements associated with establishing, fostering, and maintaining a winning culture, organization, and team can prove challenging for even skilled executives.

 

Every company, organization, and team has a unique culture, characterized by a specific set of norms, behaviors, and performance expectations. While a few are defined and documented, many are “tribal rules” established and reinforced through informal channels.

 

Leadership has a responsibility to proactively establish, manage to, and reinforce their desired culture at multiple levels. While this is not new “news” to CEOs and CHROs, their ability to quickly and effectively build a winning culture is being directly challenged. They’re facing intense external competition for their workforce, employee expectations regarding the workplace and hybrid/remote flexibility, and a marketplace rich with growth opportunities for organizations that adjust and respond swiftly.

 

Velocity is a friend for the CEOs and CHROs who are quickly making adjustments to win their employees’ hearts and minds. Strategic winners will transcend employee compliance to reach real commitment, create their own cadre of internal brand evangelists, and experience a corresponding speed in positive revenue, retention, and market value growth.

 

Strategic winners will follow the advice of Irene B. Rosenfeld, former CEO of global food products company,  Mondelēz International, who said, “Our emerging workforce is not interested in command and control leadership. They don’t want to do things because I said so, they want to do things because they want to do them.”

 

Over the years, much has been written about the benefit of having a workforce that views their organization’s culture in a positive light. More than once during my career in corporate HR departments, and as an HR/Diversity Executive Search practice leader, I have read articles referencing a landmark study conducted by Harvard researchers, John P. Kotter and James L. Hescott, demonstrating corporate culture can have a significant impact on a firm’s long-term economic performance.

 

The study is the basis of the book Corporate Culture and Performance. Using scientific methods, Kotter and Hescott analyzed over 200 firms over 11 years. They found companies with strong positive corporate cultures, which emphasized all the key managerial constituencies (customers, shareholders. holders, and employees) outperformed firms without these cultural traits by large margins, as seen in the chart.

 

Measure Strong, Positive Culture (Average)  Others
Increased Revenues 682% 166%
Expanded Work Force 282% 36%
Grew Stock Prices 901% 74%
Improved Net Incomes 756% 1%

(The information is from Chapter 1, “The Power of Culture,” Corporate Culture and Performance by John P. Kotter and James L. Hescott, published by Simon & Shuster, 1992)

 

Kotter and Hescott theorized that “performance-degrading cultures,” as they called them, faced more struggles when the pace of change intensified, such as the period we are now in when long-established workplace norms are being challenged at multiple levels.

 

Creating Company Culture

A company’s culture is a complex combination of stated values and behaviors. It influences what tasks and initiatives get done, how they are done, and how people are recognized and rewarded, and it starts at the top with the CEO.

 

Cultures form because a group of employees interact and solve problems together over an extended timeframe. Successful outcomes validate how situations were handled. When something works well over a long period, actions lead to values and beliefs.

 

Often, successful solutions link directly and can be attributed to the CEO’s vision or business strategy, and leadership continuity contributes to culture development. Other factors include:

  • Screening and hiring candidates who are perceived to fit within an organization’s established values and behaviors (NOTE: This can lead to systems promoting bias. For more on that topic, read “Your DE&I Journey – HR’s Role in Eliminating Bias in the Hiring Process.”)
  • Training that embeds cultural norms
  • Story sharing on the part of top executives, to explain company belief and purpose
  • Managers who try to make decisions based on a company’s ideals
  • Rewarding those who support a culture with promotions and recognition – and penalizing those who don’t stay in the lane representing cultural norms

 

Companies with strong positive cultures tend to perform well because their employees’ goals align with the enterprise’s goals. When this happens, personal commitment motivates people to strive harder and perform better, and groups become more than the sum of their parts. Employees who view the culture in their workplace as positive tend to view their work as more intrinsically rewarding.

 

Strong positive cultures also provide another benefit, as employees align with the organization’s mission and commit their willingness to find opportunities for improvement and more importantly, INNOVATE! Innovation drives long-term success, no matter what the industry.

 

Cultures At-Risk in the YOLO Economy

Many news outlets have reported on “The Great Resignation.” According to NPR, “As pandemic life recedes in the U.S., people are leaving their jobs in search of more money, more flexibility and more happiness. Many are rethinking what work means to them, how they are valued, and how they spend their time. It’s leading to a dramatic increase in resignations — a record 4 million people quit their jobs in April alone, according to the Labor Department.”

 

This article struck me because it aligned with the conversations I and others on the Blue Rock Search team have with candidates. Events in 2020 and 2021 have caused many executives to take stock of both life and work. A significant percentage are dissatisfied with issues directly related to corporate culture and believe it is outside of their control to fix the situation. They have adopted a “YOLO – You only live once” mindset and are open to new opportunities.

 

The loss of key players – mainly when they are long-time employees in highly visible roles – can impact cultural stability and financial performance. It also highlights the need for the CEO to promote the development of a strong, positive culture actively. With the CEO’s involvement, companies benefit two ways:

  • Lower turnover because people that feel good about a company are less inclined to leave
  • An in-sync team that is better prepared to take rapid, coordinated action, to respond to competitive threats, or grab hold of new opportunities

 

Culture also impacts a company’s ability to hire talent. When a job, career path, compensation,  and location are equal, a candidate’s perceptions of culture will cast the deciding vote.  

 

Strategically Rethinking the Status Quo

Recently, I read an interesting article published in Strategy + Business, questioning the concept. It was written by Adam Bryant, an expert in senior leadership development and managing director at The ExCo Group.

 

In the article titled “Does culture really eat strategy for breakfast?” he makes a case that elevating culture above strategy is a fallacy. The article makes many excellent points, as Bryant concludes that if you don’t get your strategy right, even the best culture won’t make much of a difference.

 

I can’t think of a single CEO or CHRO who would disagree with this statement. But during my years in corporate America, I have sat in a meeting more than once and heard a brilliant idea or innovative approach to a problem get shot down, even though it directly supports the strategic initiative being discussed.

 

In Bryant’s article, he quotes Christy Lake, Chief People Officer at Twilio, who uses the metaphor of an operating system to describe culture. “We refer to our values and principles as our ‘operating system,’” Lake said. “It’s like your phone’s operating system — it works invisibly in the background to connect your apps and help you get things done. You also expect it to be regularly updated with enhancements, performance improvements, and new features. The same is true for company culture. The operating system needs to be updated to ensure that it’s staying current to where the company is and where it’s going.”

 

This is a brilliant metaphor, but it prompts this question for the CEO. Do you think your cultural operating system fits with the strategies you are putting into effect now?

 

The Formation of Culture

 While there is a wealth of research about how human connections form, most of that research focuses on face-to-face interactions. MIT professor Dr. Thomas Allen studied engineers and concluded communication is more likely to happen when team members are in close physical proximity.

 

Another MIT researcher, Alex “Sandy” Pentland, ran studies to determine why some teams outperform others. The teams he studies were in the same location. Two of his conclusions were: 1) Members face one another, and their conversations and gestures are energetic. 2)Members connect directly with one another—not just with the team leader.

 

The problem is that very few companies will find it is possible to return to work as it existed in January 2020. As supporting suppositions crumble, so will cultures built on those foundations, even when they were positive in nature.

 

There is no one answer, but there are questions to examine:

  • Have you defined your organization’s WHY? Do your people know this? How are you communicating this critical information?
  • Do your people know, embrace, and own the established values, behaviors, and performance expectations? What systems/tools are in place to enable ongoing alignment?
  • How do you design a culture that supports belonging and being a part of something bigger than yourself when you are not sharing space with co-workers?
  • How do you build inclusivity and cooperation in a hybrid workplace?
  • How do you bring people together when they are no longer physically together when they work?
  • Do your people have the resources, tools, and capabilities to WIN?

 

I would contend that winning at culture is synonymous with winning at strategy. This is particularly important in services businesses as well as industries like TECH & Life Sciences that are critically dependent upon innovation and fully freeing the intellectual ability of their people.

 

While many will play their part, the role of the CHRO is perfectly situated to be the developer, driver, enabler, and at times custodian, of the corporate culture. Said differently, they are the Chief Culture Officer. In fact, in 2021 we have seen several trends arise in the titling, scoping, and candidate backgrounds for the Head of HR role. The title “Chief People & Culture Officer” is gaining momentum. We are often seeing responsibility for Corporate Communications responsibilities bolted onto the position, and we’re recently seeing individuals with deep Corporate Communications backgrounds being selected for the Top HR role. Corporate communication expertise is a logical extension of HR skills because employee communications are critical to spreading ideas internally—particularly as we make the shift to a world where hybrid and virtual work are common.

 

Great days and great things lie ahead for companies that make deliberate choices on the path leading toward a better future, supported by a strong, positive culture.

 

By Ruben Moreno

 

About the Author

After a 25-year career in Corporate Human Resources and HR Executive Search, Ruben Moreno and his two partners co-founded Blue Rock Search based on a simple but ambitious vision of creating a firm that would “Change Lives and Organizations One Relationship at a Time.”  Ruben leads the Blue Rock HR Executive Search practice specializing in the identification, assessment, recruitment, and onboarding of Chief HR Officers and Chief Diversity Officers and their respective teams — inclusive of leaders in Talent Acquisition, Total Rewards, HRBP’s, Learning & OD, HR Technology, HR Operations, and HR Analytics. Ruben has helped place hundreds of HR Executives and built deep relationships within the CHRO community across multiple industry verticals. His clients consider him a trusted partner who takes the time to understand their business and add value beyond executive search.

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