Creating Corporate Culture

November 4, 2016
Leadership, Management




Culture matters in business, and new research from Duke University's Fuqua School of Business establishes a framework for how firms can align mission statements and daily behavior to build a culture that fosters success.

"Companies have to spend time and money to instill and reinforce the culture they want," Professor Jillian Popadak said. "The CEO sets the tone but employees at all levels have to buy in, and live it day-to-day."

Popadak and fellow Fuqua professors Campbell Harvey and John Graham, plus Shiva Rajgopalof Columbia Business School, surveyed more than 1,800 CEOs and CFOs around the globe. They also interviewed executives at about 20 mostly large firms, with average sales of $50 billion, for the yearlong "Corporate Culture: Evidence from the Field" and "Corporate Culture: The Interview Evidence" projects.

"Culture gets a lot of credit and a lot of blame," Graham said. "We were able to obtain fantastic data on cultural values and cultural norms at nearly 2,000 companies, allowing us to quantify the effectiveness of culture at delivering the outcomes the firms want, such as innovation or compliance with rules and regulations."

In earlier findings, the team found more than 90 percent of executives said culture is important at their firms, and 78 percent said culture is among the top five things that make their company valuable. But only 15 percent said their own corporate culture is exactly where it needed to be, and 92 percent said they believe improving their firm's corporate culture would improve the value of the company.

The quarterly CFO Survey, cofounded by Harvey and directed by Graham, found this year that in the U.S., financial executives see culture as the most important driver of value at firms.

"Of all the things that can create value," Harvey said, "culture is number one."

Culture is a buzzword but a slippery concept, even for the most successful firms.

"It's really the unseen stuff - the virtual tendons holding the body together," Graham said.

Volkswagen, for example, has a concise, single-sentence statement of values. Well Fargo has a 21-page vision and values brochure. Neither document was enough for those companies to avoid catastrophic ethics scandals.

"What we find is that the values aren't worth that much in outcomes," Graham said. "It's the norms, the day-to-day living of the culture, that are important. We find little evidence that values contribute to effective culture without norms in place."

If integrity is a value, for example, then trust among employees and a willingness to report ethical violations are two associated norms companies must reinforce. If innovation is the value, the norms are employee comfort in offering critiques and organic development of ideas.

The team found the CEO defines the culture but that implementing it requires employees at every level to buy in and embody it. Bringing that about requires time and resources to instill and reinforce the culture through recognition and promotion of employees who exemplify it, as well as continuous and lasting commitment.

"It is clear culture matters," Popadak said. "It influences investment risk, ethics, short-term and long-term thinking and mergers and acquisitions - the things that matter most to a firm's bottom line."

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