Author: Carolina Trejos | UC Berkeley School of Law | LLM Candidate, Colombia | Posted: August 13, 2019
Earlier this year, EY, State Street Global Advisors, and Black Rock reminded us of the importance of corporate culture for companies’ advance on their long-term value[1] within an environment that claims ESG goals.
But, what is corporate culture? How can we measure it?
Based on what these three have actors said, all we know is that corporate culture is an intangible asset that is driving corporate value and that it is difficult to measure accurately. However, this does not mean that companies, stakeholders and acquirers should ignore it.
State Street Global Advisors brings a definition of corporate culture as follows: “Corporate culture encompasses a broad range of shared attitudes shaping the behaviors of individuals as a group across an organization. It allows employees to identify with their organization and differentiates companies from competitors. It is closely associated with human capital management.” [2]
Based on State Street’s definition, one could say that corporate culture is the DNA of a company that determines the way to be and the way to act that makes it different from others. With this in mind, it is counter-intuitive to consider using a single system or metric that can measure corporate culture within organizations such as how ROI or EBITDA are used in corporate finance.
Employee turnover rates, retention rates, employee satisfaction survey results, diversity, and inclusion metrics, have been considered as a means to measure corporate culture[3]. However, it is difficult to determine which aspect has more value than the other and to measure how intangible assets are key in a company’s success strategy.
Despite the difficulties, what is easier is to understand is how aligned mission and action are within a company. In other terms, how coherent a company is and how its “DNA” has come to life. The more coherent the company is, the stronger its corporate culture will be.
Without disregarding the above-mentioned metric proposals, thinking about long-term profits and ESG goals, herein are some ideas of questions that might help to assess the challenge of validating the corporate culture within a company:
1. What are the company’s mission and values?
When we are talking about ESG goals and sustainability, such values should include transparency, equality, and impact in society, among others.
This question should be asked to the board, c-suite, but more importantly to employees; if someone would like to go beyond it, companies could also survey suppliers and customers. Corporate culture is stronger when there is a high-rate of acknowledgment among stakeholders.
2. How is the selection process of employees and suppliers? How are they evaluated?
With this question, a third party evaluating corporate culture would be able to understand how the company makes sure employees and suppliers share their mission and values, or how they are educated and evaluated on them. Corporate culture is stronger when there is a high-rate of personal fulfillment, especially among those who acknowledge the company’s mission and values.
3. How are ESG goals implemented within the company?
Corporate culture will be stronger if the ESG goals being demanded are practiced at work. For example, transparency as a value should not be left to the board regarding shareholders; employees can also claim transparency of their salaries since it might affect another value such as equality.
4. How are ESG goals incentivized accordingly among the employees?
A company is more coherent and has a stronger corporate culture when the incentives or awards are consistent with the ESG goals. For example, a company whose mission is the promotion of women and work-life balance culture could reward employees that meet goals financially or with extra days off to share with their family.
Even though the business world is still looking for a formula to measure corporate culture, what is relevant to social enterprises is that investors will evaluate the alignment of mission and strategy, especially for the advancement of ESG goals. Perhaps HR should be more involved.