Shiva’s fascinating research has led him to analyse no less than 1,348 North American firms – finding that a staggering 92% of senior executives believe that improving their culture would lead to improving the firm’s value, but that only 16% believe their culture is where it needs to be. He discusses the importance of corporate culture and how companies can adopt and improve it within their organisations.
What’s your interest and background in corporate culture?
As you can probably tell from my resume, my day job is that of an accounting professional, so you might wonder, why did I get interested in culture?
The way our research is usually done in accounting is that we have lots of data – every company reports financial statements four times per year. Most of the work is pretty detached from the field in the sense that we are usually crunching statistics because we have so much data on companies like financial statements, stock prices, and so on.
But then I started doing field interviews and I would ask managers open questions like, “Why do you care about keeping debt off the balance sheet?” or “Why do you make voluntary disclosures?”. I’d been doing this for 10 years or so, and then unprompted, these numbers people would come back and say, “It’s not our culture to do x” or “It’s not our culture to do y.” I was curious to figure out what this culture thing was all about.
Why is corporate culture so important? Is it simply an HR buzz-concept?
It’s fascinating to me personally, because it highlighted the fact that businesses operate in silos – but at the end of the day, everything is a business problem. It’s not an accounting problem, or a marketing problem, or a finance problem, and the glue that holds everything together is culture. It is that unobservable but hard-to-deny force that drives these unspoken norms on how employees behave, how they’re expected to behave, and what is implicitly rewarded by senior management.
A big finding we got out of this whole process was that virtually every company has stated values, and these are undeniable ‘motherhood and apple pie’ sort of statements. People love these. It’s hard to quarrel with integrity, truth, honesty and so on; these little phrases that they associate themselves with. They have mission statements and they have aspirational values that are often pasted in gold letters in the lobbies of large companies. But, there’s a remarkable disconnect between the values and the so-called norms, meaning they don’t walk the talk.
Companies will say things like “We want to encourage team players”, and then they promote the jerk who is terrible to work with but hits targets, for instance.
What’s the trade-off between performance and culture, such as if a star performer is seen as detrimental to the company’s overall culture?
This was the biggest finding [of my research]: companies celebrate the wrong kind of people. You say x and you will do y; who you promote, who you celebrate and how you pay people matters. If you pay people off numbers and metrics, then you’re going to get numbers and metrics. So you’re effectively telling people that the end matters much more than the means of getting there, for instance. That came up over and over again – process is important, how you get to the end goal matters a lot relative to just getting to the goal.
Most companies that I know would rather keep the star programmer or the star trader and reward him or her with a lot of money. And they just say, “Oh, that’s how Geoff is”, “Oh, that’s how Jane is”. This is fine in the short-term, but that’s the easiest way to disenfranchise many lower-level workers.
What are some examples of negative company culture?
A great example of this was the Google walkout, when a bunch of employees walked out for a day because of sexual harassment claims.
This is an example of [a company] not walking the talk. You claim that you care about gender diversity and that you care about women’s rights, but when it’s inconvenient and you have a senior guy who was probably otherwise very productive, you look the other way or let them get away with a slap on the wrist.
First of all, you need a mission and you need values, otherwise your company has deeper problems, and assuming you do have a set of values, do you walk the talk? Is everything in your company in terms of hiring, firing, promotion, recruitment consistent with those values? Hard as it is to get these things done, the upside is huge.
What are some examples of great company culture?
3M is a good example. In the early days at Google they used to give employees 20% time off to go and do whatever they wanted; an idea they borrowed from 3M. I think it’s the only company I know of where the ratio of products to employees is more than one; they have 30,000 employees and 35,000-odd products.
They had this 20% time off if you’re an employee, downtime, a way to think creatively, to break silos and to work with people across the business. And they also had this cross-pollination idea, meaning you have to rotate groups every two to three years, so if you’re in plastics, you go and work in chemicals. And there are obvious borrow and transfer type ideas. To give an example, I think scotch tape came out of one of those, as well as the privacy screens that people use to cover their laptops.
There are many examples of this in the most innovative companies. If you look at these difficult intellectual engineering problems, typically they are solved by people who are not steeped in that particular area. What I mean by this is that, if there’s a chemical engineering problem, but if you happen to be a biologist who is kind of interested in chemistry, then chances are that person’s more likely to solve this issue than somebody steeped in only biology or only in chemistry.
Netflix also has a very interesting culture. It’s almost like Bridgewater associates, which is run by the well-known hedge fund manager called Ray Dalio. He’s an interesting guy. So that’s a company where they give you 360-degree interviews, meaning everything about you is documented: both your pluses and minuses and people’s perceptions of your strengths and weaknesses. It’s almost an excessively open environment and personalities that thrive there have bought into that notion.
There are many examples that show us that if you harness culture the right way, the pay-off is infinite.
How can you change corporate culture? Does this come from HR teams, from leadership, or both?
Sadly, it’s senior management as you can imagine. Unless there is buy-in from the top, it’s really hard to convince people about the credibility of what you’re trying to do. HR can be the eyes and the ears of the company and they can implement some of these processes, but unless there is commitment from the top, unless people understand that the CEO or the top two or three people in the company want this to happen, a lot of what HR does will be seen as smoke and mirrors: going through the motions without any real executive buy-in.
It’s a very topical issue. People in HR and people in management and strategy always knew that this is important and that it’s big, but it wasn’t as obvious to the money managers or the CFOs. And I think to me, that’s the new realization. This is a chance for HR to get a seat at the table of CXOs and lead the company’s initiatives.
So it’s up to HR to show that corporate culture isn’t just a support function, but that it’s central in driving productivity of the company – which in my view, is as important as finance.
Shiva Rajgopal is the Roy Bernard Kester and T.W. Byrnes Professor of Accounting and Auditing and the vice dean for Research at Columbia Business School. He is also the faculty director of the Corporate Governance Program at Columbia Business School Executive Education.