Words on Paper

Is that what your company’s purpose, vision and values are – just words on paper? Or do they inform and shape your company’s strategies and actions?  Are they reflected in the everyday behaviors of the people who work there and reflected in how the company adapts as business dynamics and competitive realities evolve? In other words, are they embodied in your corporate culture?

There’s been a lot of talk about corporate culture lately.  More often than not, it’s about dysfunctional cultures where the impact is obvious and negative.  But culture has a direct, positive impact on productively, profitability and employee relations according to research which correlated data from the Great Place to Work Institute’s surveys of employees at more than 1,000 U.S. firms with market performance[1]. Not surprisingly, this research also infers that financial markets (and companies) often underestimate the value of integrity capital (inherent in corporate culture) and its only over time – as the profits come in – is its value appreciated.  This is a problem.

First and foremost, acting with integrity and treating others with respect and dignity is non-negotiable.  Second, in a world where intangible assets represent more that 52% of the average company’s market value[2], culture matters.  In other words, things like intellectual property (patents, trademarks, copyrights, proprietary methodologies), goodwill and brand reputation – things created, nurtured and optimized by culture – have a significant and material influence on valuation.  This is why some of the world’s largest institutional investors care.

So, what is your company’s culture?  How does it support and align with its mission and strategies?  If an investor asked, could you describe it or talk about where and how you communicate about it? Not easy questions.  Even boards – who are charged with monitoring corporate culture as part of their risk oversight responsibilities – have a hard time with it.

Many companies have already articulated the guiding principles of its corporate culture and continuously work to extend, reinforce or enhance them.  Congratulations if you work at such a company.  But if you don’t, not all is lost.  You may find that your corporate culture, while not formerly articulated, is reflected in your company’s position within the market place, i.e., are you a disruptor, innovator, trusted brand, efficient operator?

You may also find your corporate culture embedded in core communications like your proxy statement, annual and/or sustainability report and governance section of the website. For example, your company’s code of conduct, the compensation discussion and analysis section of your proxy statement and the charters of your board’s audit, compensation and governance/nominating committee charters all contain varying aspects of your corporate culture from behaviors expected … to compensation philosophy (including how performance is evaluated and rewarded) … to the board’s role in overseeing risk.

Use this information to create a matrix of what information is where.  Then, to help prove your culture is more than words on paper, identify the processes used to assess the current state of your culture.  This could include examples or descriptions of how your company adapts and responds to employee survey results or customer/vendor feedback, manages its compliance training program and whistle-blower hotline as well as other initiatives that reinforce desired behaviors or manages culture-related risk.  This effort will help you develop a cohesive narrative and put your culture in context when the inevitable investor questions arise.

Lisa Ciota
Lead-IR Advisors, Inc.

[1] Guiso, Luigi; Sapienza, Paola; Zingales, Luigi, The Value of Corporate Culture, 2013, National Bureau of Economic Research

[2] Dettman, Joe, Culture Ate Strategy For Lunch — Now It’s Eating At Your Value, April 12, 2019, CEO Magazine