Tim Glowa, M.B.A., IBDC.D, GCB.D, (he/him)
Corporate culture shapes employee behavior and organizational success. For boards, understanding and addressing cultural misalignment, especially with 1/3 of workers labeling culture as toxic, is vital to improving morale, engagement, and achieving strategic objectives.
Corporate culture is one of the most critical, yet often misunderstood, drivers of organizational success. For boards of directors, understanding corporate culture—what it is, how it functions, and how to address potential misalignment—is essential for effective governance. Culture shapes employee behavior, influences company performance, and determines whether strategic goals are met. This article explores the definition of corporate culture, its impact on organizations, and strategies for boards to evaluate and align it with business objectives.
One-third of workers describe their corporate culture as "toxic," a serious issue that directly impacts organizational performance. Toxic cultures often lead to high employee turnover, low morale, and diminished productivity, creating significant challenges for achieving strategic goals. Such environments erode trust and engagement, making it difficult to foster innovation or collaboration. For boards, addressing toxicity is crucial to mitigate risks and ensure long-term organizational success. Early intervention and alignment with healthy cultural practices can reverse these negative trends.
What Is Corporate Culture?
Corporate culture is more than a set of stated values or a mission statement. It encompasses the unwritten norms, shared beliefs, and everyday behaviors that define how employees interact and work. Harvard Business Review captures its significance, stating, “Culture can be a powerful lever for maintaining, renewing, and shaping an organization’s viability.” When aligned with leadership and strategy, corporate culture acts as a catalyst for achieving positive outcomes and navigating challenges.
Understanding what corporate culture is not is equally important. Culture is not static; it evolves over time. It is also not merely a collection of perks or policies—such as free snacks or casual Fridays—that companies often highlight as cultural benefits. These are surface-level elements that can support a culture but do not define it.
Instead, culture is deeply embedded in how people work together and how decisions are made. It reflects both leadership aspirations and the lived experience of employees, making it an essential area for boards of directors to monitor and guide.
Two Perspectives on Culture: Leadership vs. Employees
Corporate culture operates on two distinct levels: the vision of leadership and the experience of employees. These perspectives must align for a culture to be effective.
Leadership’s Vision
From a leadership perspective, corporate culture represents the aspirational identity of the organization. It answers the questions, “Who do we want to be?” and “How do we want to work?” Leaders use culture as a framework to guide behavior, promote core values, and achieve strategic objectives. This top-down approach helps define purpose, communicate expectations, and establish a unified direction for the organization.
Employee Experience
For employees, culture is experienced in day-to-day interactions. It reflects the practical reality of “how things actually are” and “how work gets done.” This includes communication styles, decision-making processes, and interpersonal dynamics. Employees’ lived experiences may not always align with leadership’s stated cultural goals.
Bridging the Gap
When there is a gap between leadership’s vision and employees’ experiences, it creates a misaligned culture. For example, a company might promote a culture of innovation and risk-taking, yet employees might feel constrained by strict policies and a fear of failure. Such misalignment can erode trust, reduce engagement, and negatively impact performance.
The Cost of Cultural Misalignment
Cultural misalignment can have serious consequences for an organization. When employees perceive a disconnect between stated values and actual practices, it leads to confusion, frustration, and disengagement. These issues can snowball into larger problems such as low morale, high turnover, and diminished productivity.
A notable example is a Fortune 1000 technology firm that initially prided itself on a culture of agility and innovation. As the company grew, bureaucratic processes began to dominate, stifling creativity and frustrating employees who had joined expecting a dynamic environment. This cultural shift not only hurt employee satisfaction but also slowed the company’s ability to innovate, weakening its competitive position in the fast-paced tech industry.
Culture in Mergers and Acquisitions
Cultural alignment becomes especially critical during mergers and acquisitions (M&A). According to McKinsey, a significant number of mergers fail to achieve their full potential due to cultural differences. Even when financial and strategic goals align, ignoring cultural factors can lead to conflicts and derail integration efforts.
McKinsey's research highlights that organizational issues, including cultural differences, account for nearly 50% of merger failures. This statistic underscores the critical role that culture plays in the success or failure of M&A transactions
For example, in a merger between two firms with contrasting cultural values—one prioritizing hierarchical decision-making and the other favoring collaboration—employees may struggle to adapt to new norms. Boards of directors play a key role in ensuring that cultural integration is prioritized during M&A processes. This includes assessing compatibility during due diligence and proactively managing post-merger cultural alignment.
How Culture Evolves Over Time
Corporate culture is not static; it evolves in response to internal and external factors. For instance, the COVID-19 pandemic brought significant changes to workplace culture. The shift to remote work altered how employees collaborate, communicate, and balance their personal and professional lives. These changes created new cultural norms that companies had to navigate.
Boards must recognize that culture is dynamic and requires continuous monitoring. As external conditions change, such as advancements in technology or shifts in employee expectations, culture must adapt to remain relevant and effective.
Measuring and Managing Corporate Culture
Boards of directors have a responsibility to oversee and guide corporate culture. To do this effectively, they need tools and strategies to measure and manage it.
Tools for Measuring Culture
1. Employee Surveys: Regularly conducting surveys provides insights into how employees perceive the culture and whether it aligns with leadership’s vision.
2. Focus Groups: These allow for deeper exploration of cultural dynamics and help identify specific areas of concern.
3. Culture Audits: Comprehensive audits assess whether the organization’s practices and behaviors align with its stated values and goals.
Indicators of Cultural Issues
Boards should watch for early warning signs of cultural misalignment, including:
-High employee turnover
-Low engagement or morale
-Negative feedback in surveys or exit interviews
-Resistance to change or new initiatives
By identifying these issues early, boards can work with leadership to address underlying problems and realign the culture with strategic objectives.
Strategies for Managing Culture
1. Align Culture with Strategy: Ensure that cultural priorities support the organization’s long-term goals. For example, a company focused on innovation should foster a culture that encourages experimentation and tolerates failure.
2. Communicate Clearly: Leaders must consistently communicate cultural expectations and reinforce them through actions.
3. Model Desired Behaviors: Leadership’s actions set the tone for the organization. Boards should hold leaders accountable for exemplifying the cultural values they promote.
The Role of Boards in Shaping Culture
Boards of directors have a unique vantage point that allows them to influence corporate culture. By regularly discussing culture as part of governance, boards can:
- Ensure alignment between culture and strategy
- Hold leadership accountable for cultural initiatives and failings
- Provide oversight during major transitions, such as mergers or leadership changes
Boards should also consider appointing a culture committee or integrating cultural metrics into performance evaluations for senior leaders. These steps can help ensure that culture remains a priority at the highest levels of the organization.
Conclusion
Corporate culture is a powerful but complex driver of organizational success. For boards of directors, understanding and managing culture is essential for effective governance. By bridging the gap between leadership’s vision and employees’ experiences, addressing cultural misalignment, and adapting to changing conditions, boards can help create a culture that supports strategic goals and fosters an environment where both the organization and its people can thrive.