Corporate culture: The interview evidence

Culture is given credit for some of the greatest business successes and blamed biggest failures. Policymakers often point to dysfunctional corporate culture in banking as a first-order contributor recent financial crisis.1 Several books identify key driver Google's success.2 What culture? How important mechanisms underlie creation effectiveness culture?4 do other formal institutions (e.g., governance or compensation) reinforce work against Do companies think their effective if not, what deters firms from having an Are upside benefits greater than downside costs ineffective aspects performance does affect? Does impact firm value, productivity, risk-taking, growth, M&A, tax reporting, whether employees take long-run view, and/or ethics? can be measured? We try answer these questions multiple ways. First, we surveyed 1348 chief executives officers (CEOs CFOs, referred interchangeably managers) across wide range North American public private firms. The details underlying survey evidence econometric investigation into effects on outcomes are reported accompanying paper5 by same four authors that supplement this paper; henceforth GGHR. Second, contained several open-ended questions. analyze text enhance our understanding respondents' views culture. Third, conducted in-depth interviews with representing over 20% US equity market capitalization. purpose paper discuss interview responses survey. summarize statistics provide context responses. Survey offers number insights Briefly, shows managers largely united believing one most forces behind value ultimate success failure firm. majority consider top three at companies. Almost every officer believes improving would increase firm's value. current CEO seen influential person responsible setting offer insight how policies practices may Boards affect not via active management but primarily choice. finance function influence culture, especially when it serves internal role acting steward integrity. Incentive compensation hiring, firing, promotion decisions also modify Some schemes rewarding living values while well aligned lead ignore cultural values. Additional reveals actions influenced Managers believe has substantial effect creativity firm, productivity employees, hence, profitability. Cultural fit so M&A deal walk away acquiring target whose misaligned bidder's require heavy discounts purchase price (between 10% 30%). More half very reason why either too much little risk investments. Effective plays large instilling long-term focus managers. Most poorly implemented, increases chances employee might act unethically even illegally. A reduce tendency engage value-destroying end-of-quarter such delaying valuable projects hit consensus earnings. help explain certain Executives caution time again company “walk talk” live espoused effective. Hence, researchers want careful before relying stated without validating reflected practice. suggest examining social norms within give better sense brazen example disconnect between lawsuit filed investor Goldman Sachs. suit accused bank contradicting its executives' frequent statements integrity bank. In judge's decision, he wrote words “honesty,” “integrity,” “fair dealing” apparently mean they say; set standards; mere shibboleths (values regarded no longer action). He concluded Goldman's claims honesty “simple puffery.”6 Very few exactly where should be. When asked prevents being be, respondents state leadership needs invest more develop Other significant factors determining strengthen: (1) coordination trust among employees; (2) agreement about goals, values, interests; (3) constructive criticism, learning, development new ideas; (4) urgency which worked; (5) predictability employees' willingness whistle-blow something awry. Finally, interviewed ways measure including conference call transcripts/analyst reports, age/tenure/turnover, studying company's external communication, press portrayal CEO, circumstances surrounding change, prior websites opinions Glassdoor.com, assessments sync business, evaluating communication patterns inside company, taken management. Before executives, began performing thorough literature review themes unanswered multidisciplinary literature. Based review, created series during interviews. Given interest investigating causes accounting, 18 were though top-level marketing officer). potentially sensitive nature encourage frank discussion, promised anonymity. first was October 22, 2014 final April 3, 2015. Interviews time-consuming involve conducting background research time, transcribing, coding However, ideal way begin project topic subjective Each as, “What, your culture?” “How you describe firm?” process allowed us initially capture broad narrow proceeded. use under-researched topics, input developing categorized responses, many answering posed introduction. All telephone. Many clarifying similar those appear instrument. contacted agreed interviewed, all done administered. varied length, lasting 40 90 min. forthcoming enthusiastic topic. With interviewee's permission, each recorded transcribed, ensuring accuracy presented quotations later paper. Untabulated results reveal companies, worked, economy make up capitalization NYSE plus NASDAQ. They larger typical Compustat average (median) sales $47 billion ($34 billion), levered, profitable, have lower growth higher ratings. While useful obtain data acknowledge there limitations. ours suffer problems potential response bias, limited observations, misinterpreted, interviewees really say, tell truth, recall vivid representative experience. An faces challenges related long enough cover dimensions term means thing respondents. possible statistical cause effect. Nonetheless, hope provides fresh issues study, perhaps uncovering otherwise underdeveloped research. started asking, “What Interviewed characterize “a beliefs system,” mechanism,” “an invisible hand,” “how interact another,” standard behavior,” “norms around people treat people,” “part ethic, part ambiance environment,” works, operating style,” “the tone type is.” Next, interviewees, Interviewees described day-to-day employees. made organization group dynamics. parallel academic definition According theorists Charles O'Reilly, Jennifer Chatman, David Caldwell, includes widely shared strongly held throughout understand behaviors appropriate.”7 standards strive fulfill, attempt out Economists Luigi Guiso, Paola Sapienza, Zingales impeccable customer service associated norm lived exhibiting positive attitude toward customers.8 Adaptability: classify cultures valuing “adaptability” participants used as: start-up aggressive, scrappy, dynamic, innovative, thinking outside box, reaching beyond obvious, bureaucracy hierarchy, creative, entrepreneurial, can-do, always looking way, flexibility, proactivity, agility, shape future, constantly innovation, fast-paced, disruptive. One executive stated, “[Company XX] didn't processes, systems, bureaucracy, wanted responsibility turned wrong—fail quickly then move on. Become learning machine essentially, cycle data, feed back algorithm changes based see—as opposed trying get right spending year preparing instead week iterating data.” opposite adaptable descriptions “buttoned down, traditional, centralized authority, conventional, buttoned-up, remote command control.” anecdote CFO multinational brings idea life, “at [XX], I hierarchical. People behave acknowledges position hierarchy great deference. At analyst defer director just hierarchy.” Collaboration: “collaboration” teamwork, cooperative, friendly, supportive, family, participatory, universal recognition, superstars, sharing, politics, collegial, helpful, selfless behavior, cooperation, confrontation, extremely close-knit atmosphere. is, “certainly promoted within. team partners rather Our humility, collaboration, determination. It's together achieve things.” Another follows, “we don't show home runs, advance runner.” Community: “community” involvement partnership community, respectful diversity, community-oriented, empowering delivering sustainable outcomes, inviting fun environment, citizenship, servant leadership, caring, progressive, open-minded, inclusive, types talent, hire passion expect co-workers, commitment caring communities work, valued, giving dignity respect, passionate leader, optimism responsibility, what's best stakeholders whole. Customer-oriented: “customers” customer-centric, people-focused, market-driven, first, delight attention needs, right, behavior meet client demands, pride service, listen customers, strong bias issue view customer, creative meeting customers' mission satisfy meets promises exceeding expectations. As said, spend lot because that's going only differentiator have. To drive through it's engaging customers senior level reinforcing owning customer's problem fixing it. training them pointing simple opportunities time. thank send gifts who thanking us, way. Those things foster customer-service culture.” Detail-oriented: “details” paying detail, deep expertise, precise, emphasis quality, analytics, technology-focused, data-driven, providing reliable highest quality products, consistency engineering permeates, continuous improvement, functional experts solving problems, scientific leaders, evidence-based decision-making, adherence design. Integrity: “integrity” compliance driven, credibility focused, financials, honest, trustworthy, transparent, regulations laws, sincerity, honesty, ethical, moral, accountability. Results-oriented: “results” accountability, demand excellence, hard, results, high performance, focused #1, expectations, demanding, investor-driven, internally externally competitive, profit matter what, produce excuses, utilizing talent personal ownership results. question GGHR, 14% indicated transition explicitly parts needed change For example, transformation his explosive phase: “to start with, ridiculous degree individual authority. projects, become workgroups size, individual's job. There particular decision been feasible. And later, founder engineered largest shifts decentralized decision-making review-oriented conducive profitability “selfish, rudderless, confused, misguided, fragmented, unrealistic.” illustrated instability leads “when continuity helps deal. Whereas look perpetual reengineering go create associates unsure happen. negative press, self-reinforcing affects her performance.” Executives, however, quick unique times. quote summarizes sentiment: “Clearly, kind camaraderie [XX] enjoys appropriate sectors deeply humble collaboration necessarily approach.” also, handcuffs, limiting freedom thought, ability ground running asks following investigate importance culture: firm? terms valuable, place (choose Top 5, 10, 10); value? 91% “very important” “important” This result corroborated finding 54% rank “top 3” additional 25% 5” contributor. Thus, collectively, 79% five affecting reasons performance. relative 3 value-creating forces. No interviewee said 10. Moreover, various CFOs rated brand, health, position, plan, product, strategy, competitive advantage, vision company. states, “there relation good If two businesses, had manufacturing process, raw materials, distribution, everything same,” outperform bad working mutual success, striving whereas, themselves, ladder, divisive environment. Ultimately, succeed.” pointed creates advantage raising barrier imitation: “our competitors cannot copy force multiplier.” believed GGHR report overwhelming 92% yes. But acknowledged changing least short run, hard: “culture code/behavior Until deliberate effort it, persists.” relationship strategy mediocre will superior strategy. provided rich detail align paper9 supplements interaction manager mentioned could muddle weak around: see doing particularly strategic communicate plan well. Then, almost doesn't plan. Because frontline, actually selling that, work. you're communicating tremendously sure continuing run.” compelling examples stages development. Consider previous did ascribe important. [One sayings was] ‘if friends, buy dog.’ warm fuzzy approach; him uncomfortable. brilliant, person, bring compassion workplace [as CEO] basically filled huge void. dying thirsty. Honestly, void, felt people, adopted quickly. it.” emphasized find common goals face inherent diverse geographies, ages, attitudes. diverse. San Francisco young, likes space flexible hours. tend entitled my older Boston. groups On 1,000 people. Creative like structure. freewheeling ideas, operate somewhat autonomously. Yet divisions, different, towards focus. involved goal.” goal imply differences. discussed of: “integration targeting ultimately speed done, assimilate.” argues failed acquisitions attributable lack integration: “you deals [M&A transactions] deliver return. overpay others aren't successful integrating getting synergies usually main fit, close adapt, bet transactions less expected.” quantify context, hypothetical firms, B, targeted. Target B both operational benefits. particular, “discount” any applied B. remarkable misalignment. 32% discount 22% offering steep color acquisition fit: test fit. gap price. won't forward. That disqualify acquisition.” put “as guy, definitely pay closer. Less friction assimilation cost, easier, faster cost.” Commenting risk, “I premium. disasters purchases end. You never-ending compatibility.” comes down explained “had attractive valuation strategically, known difficult. knew fire lots uncertainty leader that.” tested target, responded, checklist ask elements compare levels integrity, open door … (among) list 10–12[things looked target].” These comments remains transactions. told cultures, approach integrate: “I'm integrate touch anything. I'm protect Keep connect We'll brand.” highlighted, different co-exist effective, respect actions. subsection, explore promote execute order driving 55% total owner, 30% i