12

Creating a culture

What kind of manager are you?

• What culture is and why it matters
• How different kinds of culture influence success and failure
• How to set missions, visions and values
• The link between risk, reputation and culture
• How you can monitor and ‘fix’ culture

Many of the problems surrounding management today – lack of trust, lack of performance, increased stress, bad ethics, bullying, tax evasion and declining job security – can be traced back to poor organisational cultures. Equally, most of the leading lights, from corporate bellwethers WL Gore to new sensations like Zappos, have achieved their success and cult status on account of the consistency and greatness of their cultures. Culture matters hugely, yet too many managers still dismiss it as ‘soft stuff’. This chapter takes a look at what culture is – and why it matters.

What culture is, and why it matters

Culture is the personality and character of the organisation. It consists of the shared values, beliefs, behaviours and basic assumptions of the people who work there. It shapes how they think, defines their expectations, and guides how they interact within the boundaries of the company as well as externally. It shapes an organisation’s moral code. In the LIBOR (London Inter-Bank Offered Rate) scandal, everyone fiddling the interest rate did so because it was simply the way things were done. Similarly, in the UK’s NHS Mid-Staffordshire crises, a culture of ‘looking up’ at whether or not targets were being hit superseded a culture of ‘looking out’ to provide the best standards of patient care.

Organisational culture also plays a big part in determining employee morale, shaping strategy and enabling organisations to achieve goals and results. It also determines how they go about doing these things, and gives employees a sense of community and purpose. As a manager, it is really vital that you understand your organisation’s culture. If you embrace and share the values of your company you will have a much easier time. Famously, Wal-Mart requires all of its managers to hold pep rallies prior to the beginning of each sales day. That’s a really tiring daily ritual if you don’t get some sort of buzz and sense of belonging from it.

Generally speaking, ‘values-based’ cultures are regarded as more successful than ‘rule-based’ cultures. Sharing common values is a strong way of getting employees to do the right thing; plus, it’s nigh on impossible to have rules for every situation. Unfortunately, values-based cultures are in the minority, according to major reports. UK studies show that organisations that have trusting, collaborative, purposeful and positive cultures are much more likely to be growing and to have happier, healthier more productive employees.¹ Nonetheless, the top three organisational management styles are still bureaucratic, authoritarian and reactive. Similarly, a 2011 study of thousands of American employees found that 43 per cent of the firms surveyed had ‘blind obedience’ cultures. In these cultures, almost half of those surveyed had observed unethical behaviour. Only 3 per cent of organisations fell into the enlightened ‘self-governance’ category.²

Companies have launched programmes where they are trying to move towards more collaborative, trusting and ethical cultures. However, senior executives are far more likely to believe that their cultures are ethical and collaborative than middle and junior managers. So those at the top usually don’t recognise the scale of the problem.

What does good company culture look like?

One helpful tool has been created by Best Companies in conjunction with the London Sunday Times to come up with the 100 Best Companies to Work For. The rating systems look at eight different areas which help to drive a good organisational culture:

1. Leadership – how well the people at the top are performing.
2. My manager – the relationship with the immediate line manager.
3. My company – what their company stands for and whether it inspires pride; would they recommend others to work there?
4. My team – their relationship with peers.
5. Giving something back – does the company support and encourage charity participation?
6. Wellbeing – what, if any, health programmes, gym discounts, etc. are offered?
7. Fair deal – equitable pay and benefits and opportunities for promotion.
8. Personal growth – career development, training and qualifications.

They also take a look at what the companies offer in terms of holidays, pensions, health insurance, flexible working arrangements, as well as their overall female–male ratio, average age, and staff turnover.³ Similar surveys, such as ‘Great Places to Work’ exist in America and in many other places.

The power of diversity

Diverse cultures, especially in terms of gender diversity, outperform those that aren’t in terms of growth, return on sales and other performance metrics. A myriad of evidence supports this.⁴ Diverse cultures are also more likely to outperform on ‘softer’ measures such as customer satisfaction, and be more ethical, with higher employee engagement. Yet progress is still too slow. Women, on average, are paid up to £500,000 less than men over the course of their careers.⁵ And despite the majority of junior managers being female, only 40 per cent are department heads and less than one in four are directors or CEOs, whilst in America only 45 of the S&P 500 are female. The good news is that measures to encourage diversity benefit everyone, both female and male. More flexible working, more inclusive and meritocratic cultures, and greater access to sponsorship and mentoring programmes, benefit all employees. These measures also boost brand reputation, revenues per employee, and engagement.⁶

Here are five simple things to create a more diverse workplace:

1. Set a target for the number of women. Publish your statistics in your department on the ratio of women to men and what they are paid (anonymously).
2. Set up sponsoring and mentoring networks and encourage talented women to apply for promotions. Make sure they are included in important networking events.
3. Be a sponsor or a mentor yourself.
4. Encourage flexible working, making sure you are focused primarily on outcomes and outputs not face time.
5. Train leaders and managers early – go into your local school to build their exposure to business, and send your female managers to talk to the girls to encourage role models.

Missions, visions and values: the backbone of culture

Culture is fundamentally shaped by an organisation’s missions, visions and values – but unless these are truly brought to life they aren’t meaningful. And many organisations don’t do a good job of ‘walking the talk’; which means that many cultures can actually contradict and undermine the missions, visions and values. This leads to cynicism at best and poor morale, reputation and results at worst.

The vision statement should outline how the organisation will know when it is delivering its mission. It should be positive and inspiring. It might be about providing the best product or service for your customers, but it will need to say who they are and what your product or service is. If possible you should involve your employees in creating the mission and vision statements or refining them, as then they will feel more engaged with them.

Many mission statements are vague and unhelpful. Lucy Kellaway, the FT columnist and author, lambasts most as cringe-inducing guff.⁷ However, one that she did like – and I agree with her – has been around for many years. It is from J&J and an excerpt follows:

We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens. Our final responsibility is to our stockholders. Business must make a sound profit.

Core values

Core values or principles are arguably the most important aspect of creating a culture. Equally, when values go awry and are not practised is when companies and organisations get into trouble. My favourite illustration of good values comes from Tony Hsieh, the CEO of Zappos.com, the company that put customer service at the heart of its success and grew to $1 billion in revenues via repeat business and word of mouth. He wrote about his experience on the importance of core values in a blog.

Even though our core values guide us in everything we do today, we didn’t actually have any formal core values for the first six or seven years of the company’s history. It’s my fault that we didn’t do it in the early years, because it was something I’d always thought of as a very ‘corporate’ thing to do. I resisted doing it for as long as possible.

I’m just glad that an employee finally convinced me that it was necessary . . . I only wish we had done it sooner . . . .

I thought about all the employees I wanted to clone because they represented the Zappos culture well, and tried to figure out what values they personified. I also thought about all the employees and ex-employees who were not culture fits, and tried to figure out where there was values disconnect . . . .

We eventually came up with our final list of 10 core values, which we still use today:

1. Deliver WOW through Service
2. Embrace and Drive Change
3. Create Fun and A Little Weirdness
4. Be Adventurous, Creative, and Open-Minded
5. Pursue Growth and Learning
6. Build Open and Honest Relationships with Communication
7. Build a Positive Team and Family Spirit
8. Do More With Less
9. Be Passionate and Determined
10. Be Humble

... Be Humble is probably the core value that ends up affecting our hiring decisions the most.

Source: Hsieh, Tony, HBR Blog Network, ‘How Zappos infuses culture using core values’, 24 May 2010.

The link between risk, reputation and culture: the Road to Ruin

In 2011 the Institute of Risk Management Airmic commissioned a study by CASS Business School that examined twenty major corporate crises after 2000 involving over $6 trillion of assets. Their report, with the catchy title Roads to Ruin, revealed the link between culture and corporate downfall. Once they went beyond the initial triggers, they uncovered many factors that they described as deep-set, underlying risks. These were often the most dangerous, as they posed threats to the organisation’s business model, caused serious uninsurable losses to the business, and destroyed reputations, careers and shareholder value. Many of these risks are cultural.

In particular, the ‘Underlying Risks’ they identified included:

• Board risk blindness – failure of the board to recognise and engage with risks inherent in the business.
• Inadequate leadership on ethos and culture – failure of board leadership and implementation on ethos and culture.
• Risk ‘glass ceiling’ – arising from the inability of auditors and risk managers to sufficiently challenge the C-suite leaders regarding risks emanating from this level – including risks from ethics and behaviour.

Predisposition to ‘groupthink’

To quote the report:

A number of the risks we identified concern the so-called ‘soft skills’ (staff, style and shared values) as opposed to the ‘hard skills’ (technical know-how strategy, structures and systems). A valuable question for further investigation in this area is whether there is a causal link between the weaknesses in leaders and board composition with respect to the so-called ‘soft skills’ and the propensity to suffer major reputational crises. More controversially, there is the question of whether there is a statistical or causal link with the much-discussed gender balance on boards.⁸

The report serves as a stark reminder that not getting culture right has far more sinister implications than ‘merely’ missing out on growth and employee engagement.

A separate initiative, the Well Managed Organisation Index, developed by Mettle Consulting together with CMI, has identified six predictors of strong cultures:

1. Corporate Culture
2. Internal Controls
3. Critical Self Analysis
4. Organisational Agility
5. Disclosure and Transparency
6. Quality of Management

In almost every case where a company meltdown occurs, one or more of these areas is ‘broken’. For example, bad news is not escalated quickly enough, or is ignored. Critical self analysis is absent, as managers are arrogant, as in the LIBOR scandal. Or, people don’t accept responsibility for things, and don’t communicate.

Business continuity

Business continuity is all about having a contingency for when things go wrong, and is very important, given that eight out of ten companies will experience an unplanned disruption in any given year.⁹ Business continuity plans help companies to recover faster, understand business exposure and aid the overall preparedness of the organisation to respond to crises.

The reason I’ve included this under culture is that it is remarkable how ill-prepared some companies can be when cultural and reputational risk explode – often with disastrous consequences. Recall the ill-judged remark of former BP CEO Tony Hayward that he ‘wanted his life back’ just after the Horizon explosion and Gulf of Mexico oil spill. Thinking about how to handle crises, and in particular the media, gracefully under pressure is very important to bear in mind.

Whistle blowing

Many of the recent examples of business and reputational meltdowns occurred because no one communicated bad news clearly and truthfully up the line. Any good company should enable employees to blow the whistle on unethical conduct. A good organisation will have a whistle-blowing service to enable employees to register concerns anony-mously outside of their line management. Recently, the NHS was heavily criticised for penalising those who spoke out that targets and a bullying culture were getting in the way of proper care. Whistle blowing is becoming more and more important as a means to expose systematic corporate or organisational bad behaviour. If your organisation doesn’t have a whistle-blowing service, you should ask why not.

Equally, if you are leaving and asked to sign that you will never speak negatively about the organisation, then you should question whether you accept that. Take legal advice as to whether or not you should sign away any rights. See also the section on settlement agreements (in Chapter 3).

Monitoring and fixing culture

There are no widely accepted and applied tools for measuring and predicting good culture, though some professional bodies are trying to develop indices of the good outcomes of investing in people.

So, if your culture is broken, can it be fixed? Usually, fixing the culture will require lots of change at the top – as in the cases of Toyota, the BBC, BP and Barclays. It also takes a lot of time and some fairly decisive action. You also need to be quite specific about what you are changing from to what you are changing to.

Barclays Bank is an interesting case study. In 2012 the bank fired its Chairman, CEO and CFO in the wake of the LIBOR scandal. The new CEO Antony Jenkins has resolved to fix the culture. Here is what he has done so far:

• Refused a bonus of £2.75m for 2012.
• Appointed the former head of the Financial Regulator as his Head of Compliance.
• Dressed deliberately conservatively – off-the-peg suits, no brash ties or belts.
• Reviewed 75 business units and shut down the ones that ran tax avoidance schemes.
• Launched a change programme which specifies cultural change as the key part of the agenda.
• Created a new mission: helping people to achieve their ambitions – in the right way.
• Introduced new core values: staff will receive bonuses and be measured on matters such as respect, integrity, service, excellence and stewardship – in addition to financial targets.
• Written to all staff inviting them to leave if they can’t live up to the values.
• Announced all this publicly and asked for five years’ time to deliver.

So, he’s been quite busy, but the jury is still out.

Top tips, pitfalls and takeaways

Top tips

• Write a mission statement that declares what you will do, how, and for whom – and make sure you live up to it.
• Make sure you have effective whistle-blowing procedures to help root out poor practice.
• The J&J mission statement has stood the test of time. It pledges commitment to all stakeholders

Top pitfalls

• Planning only for things going well, and not building in contingency for crisis.
• Groupthink: lack of diversity in outlook, experience or behaviour at the top.

Top takeaways

• Organisational culture is of fundamental importance to strategy, performance and risk management; it’s not ‘the soft stuff’.
• Many of the recent crises can be traced back to poor organisational cultures.
• Think carefully about the culture of any organisation and whether or not you can agree with its values personally before you join.

¹ Cooper, Cary and Worrall, Les, ‘The quality of working life’, CMI Management Article of the Year, 2013.

² ‘Bosses think their firms are caring: their minions disagree’, The Economist, 11 Sept. 2011. The study cited is by LRN, a corporate culture advisory firm.

³ Sunday Times, 3 Mar. 2013, separate section.

⁴ Curtis, Mary, Schmid, Christine and Struber, Marion, Credit Suisse Gender Diversity and Corporate Performance, 13 July 2012; ‘Women matter’ by McKinsey (2007, 2008, 2009, 2010, 2012); the Catalyst reference is ‘The bottom line: connecting corporate performance and gender diversity’, by Catalyst (2004).

⁴ http://womeninleadership.managers.org.uk/women-in-management

⁶ Devi, Sharmila and Bothwick, Fleur, ‘Working for progress in a firm with global reach’, Financial Times, 20 Feb. 2013.

⁷ http://www.ft.com/comment/lucy-kellaway

⁸ Roads to Ruin, a report by Cass Business School on behalf of Airmic, sponsored by Crawford and Lockton, 2011, p. 5.

⁹ BSI, CMI, Cabinet Office, 2011 survey on business continuity.