By Stuart R. Levine
Published In, The Credit Union Times

Does your organization’s culture affect its success?  You bet it does.  Culture is the set of norms and values that are widely shared and strongly held throughout the organization.  Study after study shows that culture and values matter for an organization’s success.  The University of Chicago Booth School of Business published “The Value of Corporate Culture“ by Luigi Zingales et. al. (2013), which examined this question in depth.

The vast majority of organizations publicly promote their culture.  The Booth research noted that 85% of S&P 500 companies describe corporate culture or values on their websites. The most commonly listed values are innovation (80%), integrity (70%), respect (70%), quality (60%) and teamwork (50%).   Additionally, safety, communication and hard work were each listed by about 30% of the companies.  These principles and values should inform the behavior of all who work there, but do they?

The researchers found, however, that what was stated did not matter.  There was no correlation between publicly stated values and firm profitability.  All too often, organizational values are something to hang on the wall for all to see, but are not “lived”; they are not in the DNA of each person in the company.

The research did show, however, that the reality of the culture does matter.  It affects outcomes.  A healthy culture that is founded on core values – particularly the value of integrity – leads to better performance that can be measured. The Booth researchers examined how employees perceive their company’s values.  As a proxy for integrity, they analyzed data in the Great Place to Work® Institute database of over 1000 companies, investigating whether employees thought “management’s actions match their words” and whether “management is honest and ethical in its business practices.”

The research discovered that when employees worked in a healthy culture that valued integrity, the company did better.  High levels of perceived integrity were positively correlated with higher productivity and profitability, better industrial relations, increased attractiveness to prospective job applicants and even a decline in the percentage of workers who were unionized.  When top management keeps its word, it validates this behavior as the company norm.

Surprisingly, culture is even more important than a “star” CEO.  The research of Rakesh Khurana at Harvard Business School and others found NO direct link between the fame or compensation of a CEO and that firm’s performance.  Dr. Khurana said that internal culture “exerts a far greater longer-term influence on the company’s success”.  That being said, it is the CEO’s responsibility to lead by example in order to ensure a healthy culture.  Boards and investors often believe that a “star” CEO can make the difference, but the difference really occurs in the myriad everyday decisions of each employee.  The culture engendered by the CEO and senior management who follow, guides those decisions.

Culture exerts “social control” that complements compensation systems, including financial incentives.  Employees face choices that management cannot control in advance.  A culture of integrity commits everyone to take the longer view; they are empowered not to trade off customers’ satisfaction for immediate profits.  Impeccable customer service becomes a “value” that needs to be respected at all times, not something that is relaxed for immediate monetary gain.

A healthy culture guides internal and external hiring decisions, attracting candidates who share the organization’s values.  It affects how satisfied workers are with their jobs and improves retention.  Consistent with the Booth research, the recruiting website surveyed more than 600,000 employees at U.S. companies and found that they care most about having a family-like and team-oriented environment where they feel that colleagues “have your back”.  Importantly, employees care that the company operates with values which demonstrate that the company is “doing the right thing”.

Stock analysts are finally beginning to understand the importance of culture.  They want to understand how senior management teams are addressing employee satisfaction, retention and engagement as well they should.  The Booth research notes that companies with higher employee satisfaction rankings in surveys such as GPTW and enjoy measurable incremental long-term stock price appreciation compared to companies with lower rankings.

Every organization must be aware of the importance of culture and must understand that a healthy culture is clearly linked to long-term success.  Culture and values are not just the “warm and fuzzy stuff”.  Rather, culture and values imply that everyone in the organization is held accountable, that each person is productive and that customer service is elevated to an organizational value that is lived and not compromised.  Then the organization gets better because the climate for productivity is better.