Monday, October 3, 2016

The Culture Ate Our Corporate Reputation

CEOs must do more than establish corporate values. Look at what your actions tell employees.


By Lou Gerstner 
The Wall Street Journal
October 3, 2016

In describing what caused a recent retail-banking debacle, the CEO said that employees failed to honor the bank’s culture. They did not do the thing we asked, namely to “put the customer first.”

This is not the first time I have seen corporate leaders blame a flaw in the “culture” for major shortfalls in their company’s performance. I believe this represents a serious misunderstanding of how institutional culture is created and the role it plays in defining corporate behavior.

Culture is often described by a statement of values that all employees are expected to follow. Pick 10 companies. Go to their websites or annual reports and look at the value statements listed there. You will most likely find:

• “We work for our customers.”

• “We respect diversity.”

• “We are dedicated to our employees’ success.”

• “We believe in supporting the communities in which we operate.”

• Etc.

These statements are for the most part extraordinarily similar. But look inside these companies and you will learn that a common vocabulary does not lead to common behavior.

What is critical to understand here is that people do not do what you expect but what you inspect. Culture is not a prime mover. Rather it is a derivative. It forms as a result of signals employees get from the corporate processes that structure their work priorities.

Compensation is one of the most important of these processes. If the reward system pays a premium for one kind of behavior, that’s what will determine employee behavior—regardless of the words enshrined in the value statement.

If the financial-reporting system focuses entirely on short-term operating results, that’s what will get priority from employees. If you want employees to care a lot about customers, then customer-satisfaction data should get as prominent a place in the reporting system as sales and profit.

Look at who gets the atta-boy and atta-girl treatment at corporate meetings. Is it the leaders in meeting financial targets—or is it those who raise concerns regarding marketing programs that give priority to corporate goals at the expense of true customer needs?

And those sincere expressions of commitment to diversity by the CEO? Obviously helpful. But what really matters is which programs suggested by the HR department—such as executive coaches, neutral-gender parental leave and others—actually get through the budgeting process. Believe me, the budget process is almost as powerful as the compensation process in shaping corporate culture.

Communication is another important process. All too often, the CEO in his or her state-of-the-union address in January will proclaim a commitment to investing in the future, seizing new growth opportunities and accelerating R&D expenditures. And then six weeks later in the middle of February comes a memo from the chief financial officer stating that first-quarter budgets are running behind and all discretionary expenditures are to be put on hold and all new hiring is to be suspended. Now which of those communications do you believe shapes employees’ view of what really matters and, therefore, what they see as the true cultural priorities of their company?

It is the cumulative effect of all of these processes: compensation, performance measurement, recognition, etc. that shape what we describe as corporate culture.

So for any CEO who wants to understand the real culture in his or her company: Do not look at the value statement in the new employee handbook. Go deep and understand what each process in the company is telling employees is important. Again, people do not do what you expect but what you inspect.

Don’t misconstrue my message: Creating expectations and communicating goals is a worthy and important responsibility of corporate leaders. But if these are not followed up on by a comprehensive and continual assessment of the alignment of all major corporate processes with those goals, the leaders will be listening to the sound of one hand clapping.


Article Link To The Wall Street Journal: