Day: March 24, 2012

Corporate Culture – The Non-verbal Accelerator of Corporate Efficiency and Resilience
I was intrigued with the article (and the ensuing flap) over Greg Smith’s New York Times essay on why he left Goldman Sachs. In the middle of all that was written one thing stood out as a consistent theme – corporate culture is important.  What does corporate culture do?  How does it help an organization to be efficient?  When does it hurt profitability in the long run?  The questions are important to anyone at the helm of an organization.

Corporate Culture Defined

What is corporate culture?  A corporate culture is a shared (inculcated) way of seeing and making sense of the world internally and externally. Corporate culture is reflected in statements like, “That is how we do things around here.” The values and systems that grow around an organization can be one of the most powerful tools available for ensuring consistent decisions, seeing new possibilities, reinforcing quality actions and communicating a consistent brand. It is the corporate culture that support and leverage the discrete functions of the organization and that inhibit them from becoming silos of independent functions that undermine efficiency. I have adapted the idea of culture to the corporate setting.[1]  Organizational culture is:

• The total way of life inside the corporation;
• the social legacy individuals acquire from the corporation as typically modeled by the founder or chief executive(s);
• a way of thinking, feeling and believing;
• a theory on the part of management about the way in which employees as a group of people in fact behave;
• a storehouse of pooled learning and belief;
• a set of standardized orientations to recurrent problems;
• learned behavior;
• a mechanism for the normative regulation of behavior;
• a set of techniques for adjusting both to the external environment and to competitors;
• a precipitate (impulse) of the firm’s history.

Identifying corporate culture is sometimes like catching a slippery fish – it is more difficult to do when one is inside the culture.

Because corporate culture is a set of assumptions that define reality and response to reality it is important to make an effort to define how our organization behaves.  What if an organization’s cultural assumptions are inaccurate? Some argue that because business deals primarily with facts and numbers that such subjective things as “organizational culture” do not actually impact real business decisions.  The fallacy in this is that truly objective data does not exist.  The selection important data is an act of cultural filtering. When the interpretation of what the numbers mean is turned into actionable milestones the full force of the organization’s culture surfaces.

Corporate Culture Can Go Awry

Organizational culture is both formative and resilient.  It is not permanent. This point is critical for leaders to understand.  Organizational culture can withstand severe stresses and the occasional lapses of executive or managerial judgment. Organizational culture reinforced by the consistent behavior of its leaders serves as a check to lapses of executive or managerial judgment and as a guide and check for employee behavior.  The formative nature of organizational culture reinforces the discrete actions of the organization that create value.

On the other hand organizational culture is adaptive. The rather scary point is that organizational culture follows the behavior of leaders over time.  Culture reflects and structures the values that drive it.   This can result in a corporate culture that evolves to meet new market pressures effectively.  Or the adaptive nature of corporate culture may just as possible create a toxic environment that supports or masks its own toxicity.  Read Smith’s description again:

“It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.”[2]

Smith asserts that the organizational culture (the systems and values inculcated by the leadership over time as demonstrated in their behavior and decisions) became toxic internally and externally at Goldman Sachs and thus undermined employee engagement and loss of client focus.

Even the responses critical of Smith’s essay made the same observation of Goldman and Sach’s toxic culture.  Matt Levine’s critique of Smith’s motives and timing did not undo Smith’s thesis but confirmed it:

“One question on everyone’s mind is…why did it take him 12 years to figure out that Goldman’s culture was rotten? After all, Matt Taibbi and the SEC have been saying similar things for years.”[3]

Former Federal Reserve Chairman Paul Volcker also confirmed Smith’s observation about eroding organizational culture.[4] Great leaders pay attention to their organization’s reputation. This is not a Pollyannaish denial of the fact that successful organizations generate their share of envious critics’ hell bent on blackening the eye of success.  Every great leadership team and great organizational culture has its detractors. However, if an organization’s reputation differs substantially from the organization’s espoused values it is time to stop and assess the organization’s health.

I contend that the leader who fails to pay attention to the nuances of the culture he/she influences through their own behavior, decisions and reward structures are already well down the road of an organizational failure whether that failure be the loss of talent, an ethical/legal lapse, or financial collapse. Why?  What does organizational culture do in operational terms?

Three Operational Impacts of Organizational Culture                          

Organizational culture is critical to the support of the organization’s discrete actions. Discrete actions recognize the unique disciplines that make up the organization’s competitive advantage.  Organizational culture is the framework on which all support actions build.  As noted above organizational culture is the sum of its history, approach to implementing strategy and its understanding of the underlying economics of the activities themselves.  Organizational culture is most visible in support activities such as human resource management, firm infrastructure and technology development.

Organizational culture is essential to identifying and bridging the threat of isolated actions. Isolated actions indicate competition internally that add to costs and reduce value.  Isolated actions may either indicate a dissonance emerging in the organization’s culture or may be the cause of dissonance in the organization’s culture.  Where the organizational culture is working it becomes the informal mechanism for pulling attempts at isolated action back into the appropriate discrete actions of the company.

Organizational culture is the character and feel of the organization that draws and retains the firm’s top talent.  As noted in Levine’s critique of Smith’s commentary Goldman Sachs has hemorrhaged talent.  Levine contends the hemorrhaging talent is the result of an economy that has readjusted the financial rewards possible in the industry.  Levine’s parallel observations are interesting.  The correlation of toxic culture and loss of income potential or value creation seems to affirm the first two impacts of organizational culture.  The demise of corporate culture creates the kind of internal dissonance that clearly sends talent searching for something employees can take pride in.  Do your employees take pride in the work of your firm?  If they don’t then it is time to look at your organization’s culture and its mission carefully.

Assessing Organizational Culture

So where does a leader start in evaluating the culture of their organization?

Artifacts and creations – how do people dress, what art is in the building, how is the building structured and decorated?  These are clues not conclusions.  This is the constructed physical and social environment, written and spoken language and overt behavior of members.  Determine whether a change has occurred and how the change impacted the organization.

A friend of mine, the president of an organization, once redesigned the corporate office space by moving his office from the seventh floor to the third floor with all the divisional offices and consolidated the second and third floors to house the entire corporate structure so he could actually walk around and talk with his team.  He told that his initial move prior to the total remodel was to move his office from the seventh to the third floor.

The day after he completed his move he returned to find his office vacated.  He asked what happened to his office.  It was moved back over night to the seventh floor.  The board did not want to flatten the organization.  My friend created cultural dissonance by moving opposite the culture with the intention of changing the culture.  My friend succeeded in the remodel project. He won the approval of his senior management team.  However the board ultimately removed him. The board hired someone whose values mirrored a more hierarchical approach to organizational culture. Had my friend been more observant he would have paced the change he attempted differently.

Reevaluate the espoused values – what ought to be; the non-negotiable of the organization.  Determine whether the actual values imbedded in decisions reflect the espoused values.  Pay special attention to episodic events of inconsistency i.e., periods when espoused values are forgotten or ignored in decisions.  This usually occurs in crisis.  Pay attention to what triggers the abandonment of espoused values and ask two questions.  First what was the trigger and does this trigger represent a toxic starting point?  Will behavior that seems to be the exception actually become the rule and result in a toxic culture that may undermine the long-term support of the firm’s discrete activities thus eroding its value making potential?

Second, ask whether the espoused value is sufficient for the organization?  One organization I worked in espoused “family values” which was interpreted as willing to pay for health insurance, provide extended leave in extenuating circumstances and overlooking poor performance if a family problem could be identified as the cause.  The dissonance that occurred in this privately held organization was that poor performers were viewed recipients of financial reward at the expense of those top performers.  In a debate among the executive team this dissonance came to the surface. The dissonance was never really addressed.  The result, a new set of isolated activities emerged as managers worked around the dissonance at the cost of the firm’s profitability.  The solution would not be to cut the “family value” but to define it more clearly in light of the other driving values of the firm.  In this case the executive team failed to address an insufficient value and thus contributed to the emergence of a toxic reaction.

Review the firm’s basic assumptions. Assumptions are perceptions taken for granted and therefore happen all the time in the cultural unit.  These assumptions affect five areas:

1. Humanity’s relationship to nature – whether the perceived total environment can be controlled or must be harmonized or people are subjugate to nature.
2. Nature of Reality, Time and space – what is real and how one discovers what is real. Event or time oriented.
3. The nature of humanness – what it means to be human and inhuman in behavior.  Helps determine who fits and who does not
4. The nature of human activity – whether humans can be perfected or you can’t influence behavior at all – fate.
5. The nature of relationship – what is the proper way to relate to each other?

It may first appear that reviewing assumptions has no bearing on what the organization does to generate value.  However assumptions are the crux of managerial decisions from the line to the C Suite. If the organizational culture is in the throes of dissonance assessing the firm’s assumption’s can often bring the root of the problem to light.

Conclusion

The power of understanding and deliberately framing corporate culture rests in the fact that corporate culture can serve as the non-verbal accelerator of corporate efficiency and resilience.  The down side of a culture’s adaptability is that it can devolve into toxicity as it mirrors the behaviors of its executives and managers in the market place.

When corporate culture is effectively evaluated and monitored it provides one of the most power tools to maintaining the discrete actions of the firm and is essential is to identifying and bridging the threat of isolated actions.

Finally, by reviewing the firm’s artifacts and creations, espoused values and basic assumptions leaders can decide the health of the culture they manage relative to the firm’s value creation and talent retention activities.