A great feature of today’s digital economy is that information is free and easy to obtain. This means that everything a company does is in plain sight of everyone in the world. Gone are the days when a company could indulge in unethical practices to maximize profits and get away with it. In today’s borderless world, such practices are brought to light sooner rather than later, creating massive reputational damage, which further results in reduced sales and earnings. Take Uber for example. When negative news about its internal culture and unethical business practices began to emerge, a lot of users deleted their Uber apps and switched to competition. Ultimately, the then CEO Travis Kalanick had to resign. Volkswagen, Deutsche Bank and Wells Fargo are just a few more examples of how easily unethical practices can hurt a good business.

So how should a company protect itself in today’s open environment? The solution is simple, but implementing it requires sincerity and persistence at the top. Management needs to pay much more attention to corporate culture than ever before. Just like managing financial measures such as Return on Equity or Return on Assets, Return On Culture must also be proactively managed by management, and not abdicated to the human resources department.

The problem is that culture—and how to shape it—is grossly misunderstood, and often neglected.

Let’s begin with getting a few facts straight:

What is corporate culture? There are many lengthy descriptions out there, but a simple way to understand corporate culture is the extent to which employees live stated company values, or not. At the end of the day, how your employees behave when no one is looking, is a good gauge of your culture.

How can it be shaped and managed? Simple again. Establish a set of values that you believe should be the bedrock of your culture; and find a way to make them matter.

As simple as these two ideas are, I find it amazing how few organizations get them right. It is easy to understand culture as explained above—that is, it’s about people actually living the values day in and day out, or not. It is also easy to understand that a company must establish the right set of values-based behaviour expectations. The problem usually lies in the second part—making the values matter. This is where most companies fall down. We see three common problems:

1) There are no visible rewards or consequences for living the values or otherwise.

2) Senior leaders talk about values, but do not walk the talk themselves. They are poor role models when it comes to value-based behaviour.

3) Performance expectations (KPIs) often encourage behaviour that violates or compromises company values.

Of the three, the first is the most tricky. How can one measure values-based behaviour or the lack of it? And how to establish a reward and consequence system? While there is no perfect system, one that I have found most impactful is to implement an annual 360-degree feedback system, and link the results to individual performance ratings and compensation. If you have a well-articulated set of company values, it should be easy enough to create a set of behaviour statements for each value.

Once a year, each employee must make a list of people he or she worked most closely with during the year; and seek feedback from them about how he or she demonstrated those behaviours. To prevent the system from being gamed or misused, it is important that immediate managers approve their employees’ rater lists. Once feedback is collected, each employee’s values score must become part of their performance rating, and linked directly to compensation, including bonus. Now that it directly impacts their compensation and rewards, employees pay more attention to values-based behaviours, and slowly the right culture develops at the company. Simply printing the values on colourful posters and putting them up in hallways doesn’t do it. For them to drive behaviour, they must be linked to rewards.

Naysayers will punch a lot of holes in such a system. They will come up with a million reasons why it is flawed and subjective. It is. But in all my years of observing cultures, I haven’t found a better replacement. So as a leader if you really want to change your company’s culture, you will have to put your money where your mouth is; and make the values matter by establishing a 360-degree system. In addition, if you proactively walk the talk and encourage your top team to do the same; and be mindful about not setting KPIs that encourage the wrong behaviour, you’ll be well on your way towards establishing the culture you want.

21st Century Leadership is a column that rewrites the rules of leadership and management for the all-digital open source era. Rajeev Peshawaria is the author of Open Source Leadership and Too Many Bosses, Too Few Leaders. He is currently the CEO of The Iclif Leadership and Governance Centre, Malaysia.

Close