Before companies can achieve and sustain maximum shareholder value or market share, their corporate cultures must first be established. Even though this is a critical step, there are many competing definitions of the amorphous phrase “corporate culture,” thus bringing about various interpretations of the topic.
The definition of corporate culture from Investopedia, LLC, can be applied: “The beliefs and behaviors that determine how a company’s employees and management interact and handle outside business transactions. Often, corporate culture is implied, not expressly defined, and develops organically over time from the cumulative traits of the people the company hires. A company’s culture will be reflected in its dress code, business hours, office setup, employee benefits, turnover, hiring decisions, treatment of clients, client satisfaction, and every other aspect of operations.”
Amazon CEO Jeff Bezos recently released his annual letter to the firm’s shareholders, in which he spells out the impact of corporate culture on the online retail giant’s success. He claims, “For better or for worse, [corporate cultures] are enduring, stable, hard to change.”
Bezos highlights a critical component of Amazon’s culture that is a key contributor to its success, writing, “One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent, you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.”
He references three “bold bets” at Amazon that have worked: Amazon Web Services, the company’s cloud computing business; Marketplace, its business for third-party sellers; and Prime, its rapid delivery subscription service. Bezos writes that Marketplace began after two failed efforts. Meanwhile, Amazon Web Services was hesitatingly accepted, yet it has reached $10 billion in annual sales.
Of course, not all corporate CEOs will agree with Bezos.
A recent study by Professors Jillian Popadak, John Graham, and Campbell Harvey of Duke University’s Fuqua School of Business, plus Shiva Rajgopal of Columbia Business School, called “Corporate Culture: Evidence from the Field” attempts to clarify the murky underpinnings and meaning of corporate culture.
The authors surveyed more than 1,800 CEOs and CFOs around the world, focusing their primary analysis on more than 1,400 executives from the United States and Canada. Additionally, they interviewed executives at close to 20 large firms (with average sales of $50 billion) for the project.
Their study finds executives overwhelmingly responded that an effective corporate culture is essential for a company to thrive in the modern business world. Key findings include:
- Executives variously defined culture as a company’s tone, operating style, standard of behavior, and even the “invisible hand” that guides a firm.
- More than 90% of executives said culture was important at their firm.
- Just over three-quarters (78%) of respondents said culture is among the top five things that make their company valuable.
- Fifty-two percent of respondents identify the current CEO as the most important driver of the firm’s current culture.
- The primary role of leaders appears to be to instill a common belief system that pervades the whole company.
- More than 50% of executives said corporate culture influences productivity, creativity, profitability, firm value, and growth rates.
In tomorrow’s Advisor, more about the importance of harnessing corporate culture.