Breakfast of Champions

This week’s episode of Bad Business Behavior stars . . ..  OK, this is a fake TV show idea but unfortunately the premise is all too real in today’s world.

What’s up?  Is it vanity, greed or an underdeveloped sense of ethics?  Is it the constant pressure for higher sales and profits or the drive to beat the competition?  There is no single answer but many agree a strong corporate culture can shape the behaviors of a company, its leadership and employees for the better.

Corporate culture is often considered a soft issue that’s difficult to measure.  But despite what some think, its critical to valuation.  Ocean Tomo’s 2015 Intangible Asset Market Value Study indicates that:

84% of the S&P 500’s market value is represented by intangible assets.

In other words, things like intellectual property (patents, trademarks, copyrights, proprietary methodologies), goodwill and brand reputation – things that are created, nurtured and optimized by culture – have a significant and material influence on valuation.  This is why investors, boards and management should care.

Culture distinguishes an organization from competitors.  Its built on a foundation of purpose (why the organization exists) and values (behaviors encouraged/discouraged).  It is embodied by the everyday actions of the organization’s people and reflected in how the organization adapts as business dynamics and competitive realities evolve.  No wonder its said that:

Culture eats strategy for breakfast.

Culture is an intrinsic responsibility of the board, CEO and senior management to create, shape and guide.  Their decisions relative to the selection and development of talent, the structure and alignment of compensation, and oversight of compliance and risk management processes, all play a part in developing and reinforcing culture.

But, do investors care?  Investors often want to know the how and why behind your results.  Core communications such as the proxy, annual and/or sustainability report, and governance section of the website are places where you can articulate purpose and values.  Then on earnings calls or at roadshows, conferences and one-on-one meetings, consider how to integrate messages about culture in context of your strategy and performance.

Michelle Edkins, Managing Director of Blackrock has said “over the long term, how a company does business is as important as profit at any one point in time.”  Culture is the breakfast of champions.  What did you have for breakfast?

 

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