How much does a great company culture matter? 

Let’s assume for a moment that you don’t believe in this 'leadership stuff' and 'HR fluff.' Perhaps, you see yourself as a no-nonsense, down-to-earth practical person who understands that business is about performance and results. Well, in that case, you might be interested to know that the connection between a better company culture and improved business results is well-proven and often quantified.

Ted Kitterman from Great Place to Work provides valuable insight into the relationship between culture and performance. Great workplaces boast considerably higher retention rates, translating into significant cost savings. For instance, in the typical US hospital in 2022, losses in nursing staff cost between $5 and $9 million per year. That's no small amount, is it?

 

”Great company cultures also lower burnout rates."

Workers who report burnout are 2.6 times more likely to actively seek a different job, 63% more likely to take a sick day, and 23% more likely to visit the accident and emergency department. Moreover, great workplaces innovate faster by fostering an 'Innovation by All' culture, leading to a remarkable 550% faster revenue growth compared to less inclusive organisations.

Finally, if you're still not convinced, companies with a great culture simply demonstrate higher stock returns. Researcher Alex Edmans from the London School of Economics shows that such companies outperform the stock market by 2% to 3% per year.
 

How can it be achieved? 

To understand how it can be achieved, let's briefly remind ourselves of what company culture is. In my 16 years in executive education, I've often heard managers speak as if it's an alien entity, a stranger knocking on the door, something beyond reach and control. Company culture encompasses shared values, attitudes, behaviours, and standards that collectively shape a work environment. It's essentially about the overall experience people have at work.

Two key points are worth noting. Firstly, there is no company without culture. Even if we don’t actively develop it in a targeted and coordinated way, some form of culture will inevitably exist. Secondly, the foundation of building a company culture lies in the phenomenon of consciously or subconsciously mimicking our manager. The manager plays a pivotal role in defining what is considered normal in the workplace – from the choice of words, level of clarity and transparency, to behaviour, body language, quality of meetings, respect towards customers, empathy, friendliness, politeness, and mutual respect.

 

"Our manager is the walking symbol of what's okay and sets the standard, whether it's high or low."


If we communicate a clear signal to company managers about the welcomed and expected leadership behaviours, and each of them makes a concerted effort to align their actions accordingly, others will naturally mimic that behaviour. This concerted effort results in amending and improving the company culture. The key to this lies in designing and communicating desired 'leadership behaviours,' essentially creating a corporate standard. This process leads us to what can be considered the 'corporate Olympus' – the management team. Their involvement and commitment to renewing and building a better company culture are instrumental.
 

What is the role of the management team?

The management team plays two equally important roles. First, they must define crucial and expected leadership behaviours. This task is more challenging than it may sound. These behaviours need to align with the company values, reflect on recent challenges and future ambitions, and consider the existing culture — including the strengths to build on and the weaknesses to address.

Leadership behaviours aren't an extensive 11-page memo that no one can memorise. Instead, they are a combination of 6-8 key behaviours that we primarily expect from our managers, relying on them in daily work and collaboration. The process of distilling these behaviours is quite complex, drawing from employee surveys, the existing business strategy, owners' expectations, competitive challenges, and the level of ambition. All this data needs to be collected, analysed, discussed, and summarised by the company's management team. However, it's not sufficient to just crystallise and define these leadership behaviours!

 

"Corporate has a long history of company values that only have one function: to decorate corridor walls."

Leadership behaviours require role models. If employees copy the behaviour of their managers, and managers mimic the behaviour of their leaders in the management team, it forms a chain. Remember the saying "a fish rots from the head down"? Well, it works the other way around too. A management team where each executive demonstrates the behaviour defined by the (newly) prioritised and calibrated leadership principle serves as a role model to the managers. Consequently, managers strive to improve their behaviour, impacting their subordinates. Before you know it, you begin to harvest the divine power of a great company culture.

Ready to harness the power of a great company culture?
 

To sum up

Company culture is really important, impacting the well-being of both employees and leaders, as well as the bottom line. It's not something forced upon us; instead, it's something we can deliberately change and develop. To do that, we need to clearly define the behaviours we want from our leaders. The management team is key—they set the example by showing these behaviours in their daily actions. It sounds simple, but making these changes can be tough, especially if you don't believe in the divine power!

Originally published in Hanken & SSE Executive Education blog series, January 2024.