Can Corporate Culture be Measured?

In the course of our work, the phrase “corporate culture” occurs frequently. Maybe an executive says his company’s culture is “dysfunctional.” Another executive may say his company has a strong “ethical culture,” or another has an “inclusive culture.”

      But that begs the question. What exactly does “culture” mean in the context of a business organization? Briefly, an organizational culture is invented, discovered or developed over time by a given group of people (usually its founders and/or leaders) as it adjusts to and copes with its many external challenges until an acceptable pattern of behavior is established.

      Those behaviors are then reinforced with employees, and introduced formally to new employees during onboarding. The culture of a company often comes alive in its vision, mission and values, particularly when that organization hews closely to them, encouraging the behaviors that reinforce them.

      In actual practice, a culture defines the organization and how it responds to the competitive marketplace. That said, is a company’s “culture” quantifiable? Is it possible to measure it, and then to determine whether the culture within any given organization is good or bad? For instance, is the culture currently bad but moving in the right direction toward becoming good – or vice-versa?

      Apparently so, if the words of New York Fed President William Dudley are to be taken seriously. The Wall Street Journal reported in a Feb. 2, 2015, front-page story that he is considering means of measuring banks’ culture to determine whether they are “ethical” organizations, as well as their overall health and fitness to stay in business.

      The article alludes to the application of such measures as a prelude to justifying a bank’s break-up into smaller entities – which presupposes that smaller financial institutions are more likely to operate ethically and within the law than large ones.

      Similarly, the U.S. Comptroller of the Currency Thomas Curry was also quoted in the same article saying that culture is a “critical component of a sound management team” – which is tantamount to saying that a car needs four tires to move, though not whether those tires are bald and therefore dangerous.

      Coming off the 2008-2009 collapse and near-collapse of a number of American financial institutions, Congress and the government’s various agencies have been working towards tightening existing and developing new regulatory controls to minimize the likelihood of future such breakdowns in the future. So Mr. Dudley believes that one approach in achieving that may lie in measuring and, by implication, managing an organization’s culture.

      The article further notes that banks already are reactively trying to do just that, collectively spending tens of millions of dollars on outside consultants who are only too happy to take their money. The measurements undertaken so far seem mostly to involve employee satisfaction surveys, based on the supposition that satisfied employees are more likely to be ethical in their business practices.

More Perp Walks?

It would be rash were government regulators to impose such tests and standards as pre-conditions for certifying and recertifying financial institutions. The initial effect would be chaos and fear. The long-term result would be closely attuned behaviors to match what the banks believe regulators are looking for. Meanwhile, the root problem in terms of ethical versus unethical behaviors will remain unaddressed. And we will, no doubt, continue to see the “perp walks” of indicted senior Wall Street executives.

      To expand on Mr. Curry’s self-obvious statement, a principled company leadership team builds an ethical culture in at least two ways: by the examples it sets for the organization, and through its management practices, policies and procedures.

      A CEO, for instance, who professes ethical behavior to subordinates and the public, but does the opposite in actual practice is not setting a good example of ethical behavior. Conversely, open dialogue and honesty within the company’s top tiers will translate into those same behaviors down through the organization’s managers and supervisors, particularly when those positive and appropriate actions are reinforced with reward and recognition.

      Similarly, the right behaviors – and, hence, an ethical culture – are also underpinned by a cogent vision/mission/values statement and established – and enforced – policies and procedures driven across the organization and from top to bottom. That means behaviors that adhere to appropriate business practices, thereby staying within the bounds of legal operations in the eyes of regulators like the Fed.

     But back to William Dudley’s contention in the Journal article… the fact is, corporate culture is amorphous and not readily quantifiable. Culture, whether a national culture or that of an institution, is like the human personality. You may describe someone’s personality by using words like “friendly,” “engaging,” “serious” – or their opposites.

      You may judge that Person A is friendlier or more serious than Person B, but that kind of judgment is purely subjective, and does not mean you can measure the difference in any quantifiable way.

      The same goes with the culture of an organization.