Corporate culture is now seen as a priority for many organisations. Multinational professional services network Deloitte recently reported that 82 per cent of companies believe that culture is a potential competitive advantage and over 50 per cent of them are currently attempting to change theirs. They clearly have work to do, with fewer than 12 per cent believing they truly understand what their culture actually is.
Where does this attention come from and what are the reasons behind it?
Firstly, what is corporate culture?
It is the collective beliefs, values and principles of an organisation. A framework through which behaviours are guided. It is defined by values and ideas and reflected in, and reinforced by, traditions, customs and behaviour. Culture combines both your value system and your approach.
If defining and creating a framework for your beliefs and actions is the link between what you stand for and what you do, it is a link between the intangible and tangible elements of an organisation. As such, it forms a critical part of an organisation’s brand.
Why is culture getting more focus?
There are a number of reasons why the topic of culture is climbing the corporate agenda. While they initially appear diverse, there is a clear common factor – value.
Companies face significant disruption and are having to respond to new forms of competition. Advances in technology continue to challenge traditional markets and business models. Start-ups are being created in multiple markets, bringing with them new ways of working. Established companies need to evolve in order to embrace new processes and approaches. Old beliefs and ways of working are no longer sufficient. It is not just their strategies that need to change but also the way they create value – their business models.
An organisation will often reject a new way of working that is incompatible with its existing culture. To be able to adapt how they create value, they will need to change what they value, and that is no easy task. Perhaps we now live in age where ‘culture eats business models for breakfast’.There is clear link between culture and the governance and ethics of an organisation, and it is getting serious institutional attention. Institutional investors understand that the intangible assets of an organisation increasingly play a dominant role in the value and long-term viability (read sustainability) of an organisation. As a result, they are demanding that it gets more board attention.
State Street Global Advisors have written to boards, expecting them to explain their corporate culture and its link to strategy. The 2018 UK Corporate Governance Code says “companies need a culture that is aligned to and supports their business model”. They think that the right culture is an essential ingredient of long-term success. The Financial Reporting Council is also looking at corporate culture and the role of boards. One reflection of this is the dramatic rise in ESG (environmental, social and governance) reporting from organisations
Similar requests have come from Vanguard and Black Rock, asking boards to explain their social purpose. This increased focus on purpose is challenging companies to incorporate new forms of value into their performance criteria, which increasingly includes social and environmental considerations.
"This increased focus on purpose is challenging companies to incorporate new forms of value into their performance criteria."
By doing so, it demands a broader demonstration of corporate culture and companies realise that a simple statement of social purpose is not enough. It needs to be properly reflected in the behaviours and actions of an organisation. This is one of the reasons we see companies aligning themselves with initiatives created with the express intent of solving specific social and/or environmental issues.
Companies appreciate the clear link between culture and talent, especially amongst an emerging workforce. Companies need to bring in new types of skills, reflecting changes in their business activities. This demand for new capabilities is coupled with an increased level of competition for high calibre candidates.
"Companies appreciate the clear link between culture and talent, especially amongst an emerging workforce."
In addition, potential employees are choosing different selection criteria and are increasingly wanting to work for an organisation where they feel a shared sense of values. Deloitte found that 88 per cent of millennials believe that businesses should play an active role in social issues. Eighty-six per cent say business success should be measured in more than profitability.
If our value system forms and reflects our culture, it guides our view of issues such as gender equality, diversity and inclusion, and social and environmental impact. Issues that are, correctly, getting increased attention. Companies realise that, if they are to appeal to the next generation of employees, they need to broaden their criteria of the value they create as well as what they value themselves.
As mentioned, these issues are connected. They are linked by a need to create and demonstrate value; to customers, investors, employees, regulators and society. Companies are being challenged, not only to find new ways to create value but also evolve their definition of value. They need to do this in a way that reflects a more holistic approach from their organisation in its interactions with stakeholders, internal and external. Finding solutions for this is increasingly requiring more creative approaches.
There is an argument that, if disruption is forcing business leaders to impose new cultures on an organisation, a developing demand for a sense of social purpose is imposing new culture requirements on business leaders. Whatever the cause and effect, culture is now getting the focus it deserves..