Culture club: effective corporate cultures

Effective corporate cultures can create a warm and fuzzy feeling among employees — and shareholders.

When it comes to dealing with problems at home, few people would likely turn to the CEO of their company for advice. But that happens at the Toronto Blue Jays Baseball Club. “Many athletes and non-athletes have come to me with their personal issues,” says Paul Godfrey, the team's CEO and president. He chalks this up to a corporate culture that tries to make employees feel like they're part of a family. The benefits of this approach, Godfrey says, extend beyond creating a warm and fuzzy feeling among staff. “When you care about your people, they're going to be happier and more efficient at their jobs.”

The idea that corporate culture affects business performance has many fans. According to the second annual Canadian corporate culture study by Waterstone Human Capital Ltd. and Canadian Business, 99.9% of the 185 senior executives surveyed believe corporate culture impacts financial results. Yet, the report also reveals that while 60% of executives reward results, only 7% reward innovation and creativity and only 12% reward teamwork. Clearly, there's a disconnect between what executives say and do. “Many Canadian corporations are simply focused on outcomes as opposed to what drives the outcomes,” says Marty Parker, managing director at Waterstone in Toronto.

That shouldn't be too surprising. After all, the fear of missing quarterly results may cause some public companies to toss aside corporate culture issues. Analysts focus on revenues, earnings and margins, not the behaviour and values of an organization. But building shareholder value is not mutually exclusive from developing the right collective values and behaviour of the individuals in an organization. Take the 11 companies found by Waterstone to be the most admired for having effective corporate cultures. Companies such as WestJet Airlines Ltd., Royal Bank of Canada and Canadian Tire Corp. Ltd. Over the past three years, these firms, or their parent companies, boasted an average annual revenue growth rate of 38.9%. That figure is roughly three times larger than that posted by the companies on the S&P/TSX 60 during the same period. Perhaps more convincing, the stocks of these 11 companies boasted an average total return of 80% over the past three years, compared to 71% for the S&P/TSX 60.

Those numbers should catch every executive's eye, but building an effective corporate culture isn't easy. “A lot of managers feel uncomfortable even talking about culture,” says Graham Lowe, a founding partner of the Great Place to Work Institute Canada, in Kelowna, B.C., “because it's too soft of a topic.” A mission statement is one thing, but all too often its words are next to meaningless because they're whipped off quickly without much thought. That lack of attention, says Lowe, can lead to downright dysfunctional cultures, such as organizations that place costs, timelines and other operational goals above everything else, or hyper-competitive businesses that pit employees against each other. “These kinds of cultures actually stifle company performance,” says Lowe.

While changing a company's culture overnight is downright impossible, workplace experts say the first step is to take a close look at the existing culture, define it, profile it and then ask if it has the right qualities to back up the business goals. If an organization doesn't have the proper values, says Lowe, it needs to consult with its employees to find the right ones. That includes re-examining compensation and recognition programs to ensure they reinforce desired values. These values and programs then have to be constantly revisited. Senior leadership must also live and breathe these principles, if they expect employees to do the same.

While different organizations have different corporate cultures, their mission statements can sound strikingly similar, almost generic. They often include words such as integrity, respect and diversity. Company execs will talk about having an open door policy and that their employees are their most important assets. That's not a bad thing. After all, every company should promote those kinds of attributes, but it's how they are implemented and maintained that make the difference. In other words, choosing values isn't about being original; it's about being true to an organization's people and business strategies.

There's no doubt, developing and maintaining the right culture is a lot of work, but it can be done. Take Starbucks Coffee Canada. It does something 65% of the executives surveyed say their companies don't do: it regularly measures the status of its corporate culture. Every 18 months, the coffee chain asks its employees to spend 15 minutes filling out a Partner View Survey (every staff member is a “partner,” in Starbucks lingo). Among other topics, participants answer questions about their overall job satisfaction and commitment to the company, using a five-point scale from “very dissatisfied” to “very satisfied.” These questions are designed to gauge Starbucks' progress toward one of its key values, providing a great work environment where people treat each other with respect and dignity.

The survey is voluntary, but the most recent Canadian one, in March, boasted a 90%-plus participation rate. The reason? The company makes it easy for staff members to fill out the questionnaire by allowing them to complete it online at the store, and Starbucks pays employees for their time. The senior management team also encourages employees to take part. But the biggest factor for the high participation rate is likely that the organization actually does something with the data. “People have seen tangible results from providing us feedback,” says Colin Moore, president of Starbucks Coffee Canada, in Toronto. For example, the company recently learned its employees wanted to better understand career progression through the organization. Turns out, employees knew how a barista becomes a store manager but were less clear about how to land a job at the Toronto head office or one of the regional offices. “Our response was that we held career fairs in Vancouver, Calgary and Toronto,” says Moore, “where we rented halls and staffed them with our department heads and other people across our company who spoke about their roles and job opportunities within the organization.”

The Partner View Survey also serves as a two-way communications tool. Employees provide feedback; management reports the findings. During these discussions, the Canadian operation compares itself against operations in other countries and the entire Starbucks organization. Since the business tracks the results over time, it can see if it's making improvements every 18 months. Stores, district managers and functional departments of the company can also view the data and form workgroups to address specific issues and opportunities. “What the survey does,” says Moore, “is give us another forum to talk to our people.”

It seems to work. Even though one of Starbucks Coffee Canada's biggest challenges remains finding and keeping high-quality people, turnover is between 40% to 60% better than at many retail chains, says Moore. That's in spite of an aging population with fewer teenagers to take on junior positions. Make no mistake, part of what attracts people to the company are its well-known perks, such as extending benefits to part-time employees, giving employees the option to buy company stock at a discount and its commitment to social responsibility. But it's the company's culture that keeps them from leaving. “The Partner View Survey is a quantitative way for us to continue to ensure we're doing things that are consistent with our guiding principles and what we say we're going to do,” says Moore.

Like Starbucks, Royal Bank of Canada regularly surveys employees to measure the progress it's making toward its corporate culture goals. The two companies share the same challenge of promoting values and behaviour across their operations around the globe, but that task differs between the two industry titans in one fundamental way. “With a financial institution as diverse in its businesses as Royal Bank,” says RBC's CEO and president Gordon Nixon, “culture becomes much more complex than if you're a company that just manufactures one product.” He points out that his organization has multiple “subcultures.” Some investment banking divisions operate like partnerships, while certain stock brokerage businesses have an entrepreneurial feel.

A company doesn't need to be as massive as Royal Bank to have subcultures. For example, a sales group could embrace a different set of values and behaviour than those in the finance department. Or, the corporate culture of a Canadian division may differ from that of its American counterpart. But there is still a way to foster an overall corporate culture in these situations. At RBC, execs see the unique values of its individual businesses as assets. “We try to nurture our subcultures, not squash them,” says Nixon. For example, some sales organizations need to be entrepreneurial, since employees are responsible for building their own client rosters. At the same time, RBC promotes behaviour that should flow across all of its operations. “Whether someone is an investment banker in the U.K. or a customer-service representative at a rural Canadian branch, we want the focus on the client to come through.” Other common threads at RBC include integrity, teamwork, diversity and personal accountability.

“When I'm out speaking to our employees,” says Nixon, “I'm constantly talking about the values of the organization and what we're doing as a senior management team to ensure we're operating in a way that's consistent with what we're trying to develop.” During these discussions, he stresses RBC's guiding principles won't change. “If employees believe you're going to come out with a brand new set of values every two years, they'll think you're talking about a flavour-of-the-month initiative.” Communicating the desired culture is one of the key responsibilities of RBC's top execs, and it's a consistent hallmark of a sound corporate-culture strategy. Waterstone's culture study shows 38% of companies believe that corporate culture stems from upper management.

Talking about culture is one thing, but getting employees to live and breathe those values is another. And the best way to do that is to reward desired behaviour, not just results. In 2004, Nixon and other senior executives changed the bank's performance-review process to align the company's values with the way people are rewarded as part of RBC's Client First program. “The biggest producers in our organization are not necessarily the ones most recognized from a compensation or promotion perspective,” says Nixon, “because there are other very important components in terms of how we assess people.” He points to behaviour such as the ability for employees to work within teams, to live up to their commitments with respect and to put the customer first. “All those are factored in when we recognize people, including myself,” says Nixon.

RBC's performance reviews also address the realities of being a public company, which means it has to pay attention to the quarterly results, but not to the exclusion of the softer culture elements. “You'd be kidding yourself to think analysts focus on behaviour and the cultural activities within an organization,” says Nixon. Analysts and investors look at financial numbers, as well as a company's underlying strategies, but tend to overemphasize quarterly results, so the bank also links compensation programs to short-term divisional and corporate-performance metrics. But Nixon says showing employees their impact on an organization is just as important as the reward itself. “We have a lot of employees that bleed gold and blue,” says Nixon, referencing the corporate logo's colours. “But at the end of the day, you have to have the right rewards and compensation. And if they're not linked to values, you're going to have a hard time building your culture.”

Unfortunately, companies sometimes have to deal with new technologies, shifting consumer habits and competitive threats. That's when upholding a company's values becomes even more important. RBC eliminated about 2,000 jobs starting in 2004 as part of its Client First initiative, but it still treated those affected with respect. The bank tried to retrain and then redeploy affected employees to different parts of the organization. In cases where that option wasn't available, Nixon says the bank was fair with its severance packages and ample notice was given to allow employees to find opportunities outside of the organization. “You've got to foster your values in good times and bad,” says Nixon.

Big ideals aside, there are plenty of little things a company's top executive can do to promote the right values. At the Toronto Blue Jays, for example, Godfrey invites 10 to 15 of his 1,200 or so employees to have “snacks with the president” every two weeks. While the employees sit around a table and munch on goodies, Godfrey spends 15 minutes talking about the operations of the organization. Godfrey then fields questions from employees on any topic. To ensure attendees feel free to express their opinions, their immediate bosses are never present at these sessions. Godfrey also asks about their jobs and how the company could be a better place to work. “I always learn things I've never heard before,” he says, “like the complaints of some of our fans, ideas to improve concessions and ways to improve entering and exiting the building.”

Godfrey is a fan of what he calls “management by walking around.” During these strolls, he puts special emphasis on taking a hands-off approach to his managers and getting to know employees at the bottom levels of the organization. “I try to instill the idea that if a person at an entry-level position wants to speak with me,” he says, “they have the right to come and see me.” He also likes to personally recognize employees when he hears that a certain person has done an exceptional job. He'll send a congratulations note or give someone kudos over the phone. Sure, those are little tokens of gratitude, but they can make a big difference over the long run. Such open communication and acknowledgment of people contributing to a company's success are essential for building an effective corporate culture, says Lowe of the Great Place to Work Institute Canada.

Companies look at all kinds of options in their pursuit of growth. Some become income trusts. Other companies (notably resource companies) scour the earth for acquisitions. New technologies offer the promise of lower costs and different distribution channels. These can all be sound strategies, but so, too, is looking inward for solutions. “It's only now being recognized than an organization's culture can be a strategic advantage,” says Lowe. While fostering values can be a complex task, the basis for it is remarkably simple. As Lowe puts it, “The best way for an organization to achieve results is through its people.”