The DNA of Corporate Culture - The Seventh strand !

Author's note: This is an updated version of an article I wrote a few years ago on LinkedIn. The original piece had six key elements; and while living through the first few months of the current COVID-19 crisis, I decided I should add a seventh one. Please read on.

"What is the smell of this place?". "How would you define the culture of this company?". "Do you enjoy working here?" Over the past two decades, these are some of the typical questions that most people have asked me about the corporations I have worked for. Those asking such questions always included the usual mix of prospective employees, current suppliers, ex-colleagues and certainly friends from other corporations. In this essay, I want to provide my perspective on the seven key elements that I believe, determine corporate culture. I agree that this list of seven might not be an exhaustive one. Moreover I am sure that either some of you or some brilliant consultant from a Big Five firm may even disagree with me completely. A caveat. This is a list that I have built after reflecting over my work across five separate companies in more than twenty different countries, a list mined from insights gleamed from conversations with hundreds of fellow employees, suppliers and often candidates that interviewed for roles under me. As mentioned above, I have also gathered some additional nuggets during the current crisis - which has been discussed as the seventh strand.

Culture meets strategy for breakfast. But the former is the last person standing after dinner. 

Why this piece? I believe that company culture is an interesting area of business management that is rarely given enough importance at business school curriculum. Many young managers that enter the workplace often overlook this critical aspect before signing their offer letters. But more often than not, it is company culture that determines long term performance of a corporation. It is the company culture that helps build deep relationships between the business entity and its employees, suppliers, shareholders and other stakeholders. It usually sets the boundaries for employee behavior & engagement and determines the level of risk taking at the work place. Needless to say, company culture greatly influences employee motivation. It is not surprising to note that individuals ideally like to align their personal values to the values and culture at their workplaces - hence understanding culture is important to job evaluation and selection. So the question is - what really determines company culture ? The essential seven are (in no particular order of importance) are: Ownership structure, Country of Origin, Industry, Reward structures, pedigree/employment history of senior leadership & Number of verticals/brands owned by the corporation. And the seventh - Commitment to Corporate Purpose. Allow me to elaborate further.

1.Ownership structure: Common ownership structures at large corporations tend to be private (individual or family) or public ownership, Private Equity, partnerships or even employee owned co-operatives. I have experienced extremely different cultures in companies depending on their 'parentage'. In general, family owned corporations tend to have extremely close networks of employees, high levels of trust among and between long standing employees, relatively lower levels of risk taking/ short termism and higher levels of care and nurturing by the employer. On the other hand, Private Equity held firms tend to generally prioritize business results over employees and suppliers (think job cuts and worse-off payment terms to suppliers at PE held firms), have far shorter time horizons for evaluating business performance/returns and as a result generate relatively lower levels of commitment and engagement from lower levels of the employee value chain. Similarly, publicly held firms with strict quarterly reporting requirements tend to sometimes focus short term results over longer term results and often generate high levels of stress and ad-hocism at the workplace.

2. Country of origin of parent company: We often forget this important factor - but the 'parent country' from where the corporation originates has a significant influence on the company culture. to illustrate this point, let us observe the culture at clubs that take part in the English Premier League. Look at what the Glazers or the Fenway Sports Group from America did to the Manchester United and Liverpool football clubs over the last decade - High levels of leverage to purchase the assets, American style sports marketing selling club sponsorship rights across the globe and significant levels of financial performance orientation (Manchester United even floated an IPO and is listed on the FTSE generating significant shareholder returns). Moreover, both these clubs brought in players and coaches that have started deliver better medium and long term performance on and off the pitch. Compare and contrast the above to the changes brought in by the Russian or the Qatari owners at Chelsea and PSG respectively. (At least perceivably) Unlimited and brashful spending - often funded by personal/corporate wealth, lower levels of financial performance and ad-hocism that sees players and coaches enter and leave without any significant reason. In general, I have also seen that companies from the Northern European zone (especially Nordic) tend to be more compliant to the laws of the land, relatively more inclusive to minorities and women and much more controlling of their executive boards & executive pay - which has a compliant effect on the culture of the firms from these countries. French firms, on an average and historically tended to favor more French nationals for senior and board room roles, but one could argue that trend is changing in recent years. Indian corporations pride themselves for being low cost providers. All these 'quirks of parentage' have a huge impact on the company cultures and employee behavior. However, there are always exceptions to everything that I have mentioned above and hence please do accept my apologies for the 'all in one bucket' generalization done here.

Our review of the literature for commonalities and central concepts revealed two primary dimensions that apply regardless of organization type, size, industry, or geography: people interactions and response to change. (source: HBR)

3. Industry: This should be a fairly easy point to comprehend. Companies within the same industry tend to move like 'birds of the same flock'. Take large investment banks for starters (I promise you I am not even commenting on what we have all seen in 'The Wolf of Wall Street' or 'Wall Street'). Big I-banks tend to hire the best and most competitive brains from the top universities and Business Schools from around the world. Their work hours tend to be longer than those of the average firm in other industries. Employees usually have high levels of rewards (read: bonuses) for the profits they bring to the bank. And above all, investment banks tend to 'exit' employees faster than in other companies, especially in economic downturns. All of the above generally tends to drive short-termism, higher levels of risk taking and potentially lack of trust and higher levels of competition for senior roles. In stark contrast to the culture at banking firms, the situation in big pharma tends to be quite the opposite. The industry is heavily regulated and given that R&D cycles tend to be longer than in other industries, employees tend to look at the medium and long term business performance. Deeper understanding and solid research tend to over ride risk taking. It is no wonder that you will see more long term career spans in the Pharma industry than at Investment banks. A little peek into the culture within the I-banking industry can be viewed in this short clip from the movie 'The Wolf of Wall Street'.

                                                    The Wolf of Wall Street

4. Reward Structures: There is an adage that goes 'Employee incentives drive the behaviors you want to foster'. Nothing could be far from this truth. Most corporations dole out a combination of fixed compensation, benefits and variable compensation to their employees. The kind of compensation structure has a significant impact on company culture and the resultant employee behavior. Let us take the simple example of companies that dole out stock options - like at listed companies or at start-ups. At listed firms that dole out significant stock options or share grants or restricted shares, it is not unusual for employees (including members of the Executive Board) to be continuously checking share prices on their computers or mobile phones. Employees at these firms are constantly calculating their net worth and are paranoid about the share price. As a consequence - I often observe two kinds of employee behavior. Rising or falling employee morale (and employee turnover) directly correlated with the gyrations of the share price. Lifetime employment as long as the share price is going up ! I would also examine the culture at firms that have a high level of bonus pools or end of year incentive payouts. Since many companies link short term bonus payouts to in-year performance, it is not unusual to see high levels of short-termism at companies those dole out large doses of employee stock options as part of total compensation (like share buybacks to improve Earnings Per Share). Steve Kerr's article on the same topic in the Harvard Business Review is a fantastic piece of literature to understand this point even further.      

                                  HBR article on company incentives & bad behavior 

(Note: this is a link to a HBR article that is available online. Kindly secure all access rights before you download this document).

5.Pedigree/employment history of senior leadership: This is an oft-forgotten characteristic of firms that can play a significant part in shaping the culture of a firm. We usually see leadership (here we refer to leadership at the Executive Board level) parentage that can broadly be classified into two types. Companies that either have Senior Leadership a) who have spent their entire (or most of their) careers at the same firm or b) companies that do not shy away from constantly bringing senior leadership from outside the firm. Companies that follow the former style tend to have very established processes and business practices that usually pass on from one leader to another. Culture at these firms tend to strengthen over time and employees at these firms tend to get 'brainwashed' that their culture is indeed the best that there is. One American company that I know of had everyone from the CEO down to the lowest levels of marketing thinking like robots when it came to new product introduction or communication development. Any external thought process was disliked. Risk taking is rarely encouraged at this firm and mavericks were usually shunted out. On the other hand, companies that frequently change leadership tend to get the best (and worst practices) of the new leaders injected into the existing culture usually enriching the overall DNA of the firm. If the right leaders were brought in, these companies tended to rejuvenate themselves and even flourish over time since employees were (sometimes) forced to embrace best practices from the outside.

6. Number of verticals or brands owned by the corporation: I have had the good fortune of having worked at companies that had limited number of verticals or that owned multiple billion dollar brands/sub-categories. Based on my own experiences with these companies and also observing the cultures at other companies, I have observed the impact on three cultural aspects of the firm.

• The level of risk taking: In general, companies with fewer product lines or brands tended to be protective of their existing business and as a result, these firms tended to take fewer risks - especially around developing breakthrough innovation, toying with newer business models or simply put - investing significantly into areas that 'actively' cannibalized the current business. Image management of current business was more important than making risky deviations to 'what has worked in the past'. On the other hand, companies with multiple sub-units or brands tended to take more calculated risks on their business units especially the weaker/smaller ones.
• The depth of knowledge resident at the firm - especially with individuals: At Companies with fewer product lines, I observed that a larger number of employees across the company had much better and deeper understanding of the industry dynamics and category specifics. This meant that the organization acted in unison across the globe to tackle specific challenges or capitalize on large trends or opportunities - faster and better. This was partly because information sharing was not only common practice but also rapid and part of the company's DNA. Employees (in these mono vertical companies) working on the fringes (i.e. away from headquarters or from where knowledge was generated) tended to have significantly better and deeper understanding of the company's products, their strengths and weaknesses and could rapidly act to deploy these strengths across the globe. This is contrast to what I experienced at multi vertical/brand companies - where deep understanding of the entire business was weaker. There could be interesting reason for this difference. New employees would typically join a company to work (and hence build their capabilities and knowledge) on Brand X or Vertical A and would eventually work their way up the organization to manage bigger portfolios - usually ending up having limited knowledge of product categories outside of their original comfort zone. I once worked with a Marketing Director of a large British firm with a portfolio of more than 15 brands but she could not deepen her understanding or knowledge of the various brands outside of the top five or six brands in her portfolio.       
• The intra unit cultural differences: This cultural aspect is also easy to understand. Employees working in the same vertical or sub-unit of a corporation tend to create a sub-culture within their unit that is often different from the pervasive culture of the firm in other sub-units. There are accepted behaviors, formal/informal networks and even self regulatory mechanisms within these units. It is important for leaders to understand the impact of such sub-cultures on the overall company culture - especially on inter company employee mobility and long term health of the firm. Companies with single units, on general tend to have a much more cohesive and shared culture and values.

Which brings me to the seventh strand.

7. Commitment to Corporate Purpose (even during crises): During the current COVID-19 crisis that is sweeping the industry, I witnessed some amazing behaviors by employees, teams and sometimes entire organizations. i.e. despite the significant health risks, falling revenues and profits, tough work from home conditions and lack of face to face interactions with colleagues/bosses - individuals and teams have found newfound energy to fight harder, dig deeper and work longer hours. It is truly surprising to note that employees did this very well knowing that they were up against the toughest of odds. During conversations with these teams and employees - one motivational factor stood out - commitment to the keeping the corporate flag high. Or simply put - ensuring that they live and breathe what the Corporation stood for in terms of Purpose and Vision. The best teams during this crisis had leaders and team members who continued to be messengers of the company's purpose, values and vision. And as one of my bosses always reminds me - 'there are only things that can come out of a crisis' - and in this instance - it is about entire teams standing shoulder to shoulder day and night to live the corporate purpose. 

In summary, I believe that these seven aspects mentioned above have a significant impact on and hence determine company culture. I hope you enjoyed reading the article above and will provide your feedback so we can collectively improve our understanding of this very important aspect of business management.

Disclaimer: The views expressed in this article are personal. They DO NOT represent the views or expressions of my current or former employers.