Culture trumps strategy. That phrase is well-worn for a reason. Think about every major corporate failure you can recall; Uber, Wells Fargo, Volkswagen, FIFA or you name the scandal and there was a failure of corporate culture, even with a successful sales strategy involved in the business. A section in this month’s Harvard Business Review (HBR) entitled Leading Culture had a series of articles dealing with the intertwined issues of culture and strategy and most importantly, how to effect a change in corporate culture. Over the next few blog posts, I will be exploring the issues raised by these articles. Today I will consider the article “The Leader’s Guide to Corporate Culture” by Boris Groysberg, Jeremiah Lee, Jesse Price and J. Yo-Jud Cheng.
The authors begin by noting, “Strategy and culture are among the primary levers at top leaders’ disposal in their never-ending quest to maintain organizational viability and effectiveness. Strategy offers a formal logic for the company’s goals and orients people around them. Culture expresses goals through values and beliefs and guides activity through shared assumptions and group norms.” They believe, “strategy provides focus and clarity for collective action and decision making,” whilst culture is the unspoken behaviors that move an organization forward. While most senior leaders are more than comfortable directing strategy, they are usually much less able when it comes to directing culture. Leaders often essentially outsource culture to the Human Resources (HR) function, which the authors believe is a big mistake.
The authors next turn to defining corporate culture, finding four characteristics. A culture is shared as it “resides in shared behaviors, values, and assumptions and is most commonly experienced through the norms and expectations of a group—that is, the unwritten rules.” Culture is pervasive in that it is manifested “in collective behaviors, physical environments, group rituals, visible symbols, stories, and legends.” A culture is enduring as it “develops through the critical events in the collective life and learning of a group.” Finally, it is implicit as even though it may be unspoken, employees are hard-wired to recognize and respond to it.
The problem for many Chief Compliance Officers (CCOs) or other senior leadership is how to impact a true cultural change. This can be after a major Foreign Corrupt Practices Act (FCPA) violation and attendant enforcement action or even at a time less than such a dramatic event. Obviously executing a new business strategy can be much easier but that does not mean it cannot be accomplished. The authors note four practices through which they have seen a successful cultural change.
Articulate the aspiration
As with any new change, before you make it, you need to know where you are. This means you should assess your current culture with a “framework which can be openly discussed throughout your organization.” Clearly there can be cultures which do not align with doing business ethically and in compliance with laws such as the FCPA. Yet change can be framed “in terms of real and present business challenges and opportunities as well as aspirations and trends. Because of culture’s somewhat ambiguous and hidden nature, referring to tangible problems, such as market pressures or the challenges of growth, helps people better understand and connect to the need for change.” If your change is to do business more in line with the requirements of anti-corruption laws, you might aspire to be named as one of Ethisphere’s World’s Most Ethical Companies.
Select and develop leaders who align with the target culture
Obviously strong top-level leadership is required to make such a culture change. But it will require more than tone at the top but true leadership from the top. If a leader will not embrace this challenge, they may well need to move on. Yet, the authors found “Incumbent leaders who are unsupportive of desired change can be engaged and re-energized through training and education about the important relationship between culture and strategic direction. Often they will support the change after they understand its relevance, its anticipated benefits, and the impact that they personally can have on moving the organization toward the aspiration.” This also applies to new leaders who come into the organization and they can serve a higher profile role as catalysts for change.
Use organizational conversations about culture to underscore the importance of change
This ties into the articulation principle set out above but takes it a step further. You need to engage your employee base early and often about the culture change and then keep at it. The authors note, “As employees start to recognize that their leaders are talking about new business outcomes—innovation instead of quarterly earnings, for example—they will begin to behave differently themselves, creating a positive feedback loop.” There many different types of communication tools which can be utilized, all of which will be familiar to a CCO. They include road shows, listening tours, town halls, social media platforms or any other mechanism which facilities a true 360-degree approach to communications.
Reinforce the desired change through organizational design
This can be a key area where a CCO or compliance practitioner can use a corporate compliance program to help impact cultural change as this practice uses written standards, policies and procedures and internal controls to effect transformation. This can even move down into such systems as performance management where an obvious carrot approach can be viewed as a positive incentive. The authors note, “When a company’s structures, systems, and processes are aligned and support the aspirational culture and strategy, instigating new culture styles and behaviors will become far easier.”
The authors conclude that at times, cultural change is vital. It may be a legal violation, business reason, market conditions or disruption which requires a cultural change. Distilled down senior management “must become aware of the culture that operates in their organization.” They must target the culture they aspire to embrace. The final step is to “master the core change practices of articulation of the aspiration, leadership alignment, organizational conversation, and organizational design. Leading with culture may be among the few sources of sustainable competitive advantage left to companies today. Successful leaders will stop regarding culture with frustration and instead use it as a fundamental management tool.”
Every CCO should consider these points and use them going forward to effect a cultural change, if needed in your organization. Tomorrow we will consider how to shape your culture to do business ethically and in compliance.
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