How corporate culture affects results

The corporate culture of companies is credited when they are successful and blamed when scandal breaks out.

In a new study from the Fuqua School of Business at Duke University, executives say corporate culture drives profitability, acquisition decisions, and even if employees behave ethically.

“Executives overwhelmingly indicate that an effective corporate culture is essential for a business to thrive in the modern business world,” said Professor Jillian Popadak. “We set out to determine what are the mechanisms and corporate policies that lead to an effective corporate culture and how an effective corporate culture relates to outcomes such as risk taking and value creation at long term. “

Popadak and his fellow Fuqua professors John Graham and Campbell Harvey, more Shiva Rajgopal of Colombia Business School, surveyed more than 1,800 CEOs and CFOs around the world, focusing their initial analysis on more than 1,400 in the United States and Canada. They also interviewed executives from around 20 mostly large companies (with average sales of $ 50 billion) for the 13-month project, which closed on October 31. The team presents the preliminary results during a conference at the Federal Reserve Bank of New York on Thursday, November 12. More results will be published as the authors continue to analyze the data.

Campbell HarveyOver 90% of executives said culture is important in their business, and 78% said culture is one of the top five things that make their business worthwhile. But only 15 percent said their own corporate culture is exactly where it needed to be, and 92 percent said they believed improving their company’s corporate culture would improve the value of the business. ‘business.

“We talk a lot about culture and almost no scientific research; we have filled that gap, ”said Harvey. “Putting a value on culture is difficult – you don’t see it in the company’s quarterly reports. We look to CEOs and CFOs and they are very clear that a good culture enhances value. Fifty-two percent place culture in the top three things that make a business valuable. It’s a puzzle that if culture is so important to assess, why do we hear so few CEOs talking about it? More often than not, we talk about culture after a disaster – like the VW emissions scandal. We need to change the conversation. “

Executives have variously defined culture as the tone of a business, the style of operation, the standard of behavior, and even the “invisible hand” that guides a business. They tended to characterize culture as shared values ​​that guide employee decisions. More than 50 percent of executives said company culture influences productivity, creativity, profitability, a company’s value and growth rates.

“Our research provides systematic evidence – perhaps for the first time – that effective crops are less likely to be associated with short-term behavior, unethical behavior, or profit management to inflate. quarterly profits, ”Rajgopal said.Professor John Graham

Almost half of executives said they would not buy a company whose culture did not match theirs. Executives were asked to imagine that they were in a company with a strong and effective culture and were evaluating two companies for acquisition, both of which would offer the same strategic and operational advantages. One had a culture closely tied to that of the acquiring company, the other did not.

“We thought acquisitions were a good way to measure the value of culture,” Harvey said. “We asked if the CEO would rule out a goal if the culture was misaligned. Thirty percent said they would discount the offer up to 30%, and an extraordinary 46% would not even make an offer. “

While the survey found that governance and financial incentives can strengthen culture, the researchers also concluded that culture is more than a mission statement or code of conduct.

“The leaders who participated in our study are passionate about the effects and importance of corporate culture,” Graham said. “Our research team is just beginning to synthesize the thousands of detailed information provided by executives, and we look forward to many new findings in the months to come.”

This research was conducted in partnership with CFO Magazine and COLE, the Fuqua / Coach K Center on Leadership & Ethics.

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