Board Cultural Check

Companies with strong organizational cultures outperform their competitors in revenue growth and profitability, with some studies showing a 400% increase over an 11-year period. Other tangible benefits include talent attraction and success in innovation. While there is increasing research supporting the critical role of culture in performance, few boards closely monitor this issue. The main obstacle is the lack of tools to assess cultural performance. This article provides a guide for each director to create their own compass: detect, measure, and track the most meaningful cultural indicators in their organization.

By Eduardo P. Braun

Most boards consider organizational culture a key element in achieving financial results. In this regard, an essential question for directors is: how do we manage culture? Despite its importance, few companies address the issue proactively. In most cases, overseeing cultural management takes a backseat due to the immediate pressures of performance and results.

To approach a solution, the first step is to understand what we mean by organizational culture. For some reason, the most commonly accepted definitions tend to be vague and unoperational. The most widespread definition holds that it is the “set of principles, values, and behaviors of an organization.” But what does it imply? What do “behaviors” mean? The response to this is often informal: “It’s how we do things around here” or “It’s what you do when the boss isn’t watching.” While these ideas are descriptive, they cannot be linked to results, which is increasingly important and desired by leadership.

My definition of culture is: “The set of human values and strategic behaviors that align team efforts to make countless micro-decisions consistently and in sync with the purpose, brand, and value proposition.”

For culture to truly multiply results, it must generate a series of emotions in each team member, such as pride, purpose, belonging, self-esteem, and trust. Such culture manifests and is implemented through ongoing communication, hiring and firing, continuous training, ad-hoc tools and processes, rituals, ceremonies, symbols, and the incentive system.

A Guide for Directors

Below I include a list of 10 questions that allow probing to what extent and in what way management is involved with the development of the company culture. It also helps to detect the degree of cultural evolution: if management answers this questionnaire satisfactorily, it means there is a solid culture, with established values and processes.

1. What was the process for defining our culture?
2. Was the company’s purpose and its alignment with the strategy, value proposition/brand considered?
3. Are we partners in the personal and professional growth and development of our employees?
4. Does my culture offer what the key employees I want to bring in (digital, technological, etc.) are looking for in a company?
5. What are all the means – formal and informal – to achieve effective communication of my culture?
6. Do we hire using a dual interview process, one for technical validation and another for cultural fit?
7. What upskilling/reskilling processes are being carried out for the identified cultural skills and capabilities?
8. Based on cultural values, what processes have been implemented to support each of them?
9. What rituals and symbols have been implemented to foster positive emotions such as pride, sense of purpose, trust, belonging, and commitment?
10. Are the incentives aligned with the culture? How are people hired, promoted, paid, given raises, performance measured, rewarded, and dismissed?

Question analysis and clues for answers

I will now analyze each question and offer a range of possible answers.

1. What was the process for defining our culture?
   Among other things, the answer should consider whether it was a top-down, bottom-up, or bidirectional process, and the degree of involvement of leaders and teams in determining values and strategic behaviors. An example of culture definition is the work carried out in the early days of Zappos. In January 2005, the company surveyed employees about what they thought the core values should be. Hundreds of ideas were presented, grouped into 37 essential themes that later became their core values such as “doing more with less,” “providing a wow service,” and “creating a positive and family-like team spirit.” In addition to being distinctive, these principles created a framework for action that guides interactions with employees, customers, the community, and even vendors and business partners.
   Tip: A very useful practice for assessing the alignment of culture with its foundational values is to conduct periodic micro-surveys that include questions such as: What behaviors would you like to see more often in the organization? What behaviors would you like to see less?

2. Was the company’s purpose and its alignment with the strategy, value proposition/brand considered?
   The central point of this answer lies in the alignment or consistency between the company’s purpose and brand values, and how these are put into practice and manifested in every action or communication of the company. It is important that the purpose and vision are clear, simple and inclusive, ambitious yet achievable, and that people are committed to the purpose. A company that excels in strategic-cultural alignment is Southwest Airlines. Their purpose “to connect people to what’s important in their lives through friendly, reliable, and low-cost air travel” aligns with values like “warrior spirit,” “servant’s heart,” and “loving and fun attitude,” and these, in turn, align with the following behaviors:
   • Warrior Spirit: work hard, want to be the best, be brave, show a sense of urgency, persevere, innovate
   • Servant’s Heart: treat others with respect, put others first, demonstrate proactive customer service, embrace the Southwest family
   • Loving and Fun Attitude: don’t take yourself too seriously, celebrate success, enjoy your work, be a passionate team player, maintain balance.

Other examples are Walmart, whose purpose “save money, live better” is communicated in every piece of communication and action of the company, and Lush, the cosmetics company that makes “cruelty-free cosmetics” and, as part of its culture-strategy alignment, does not sell products to China. This company publicly declares: “The Chinese government requires that all cosmetics be tested on animals, which contradicts our commitment to cruelty-free. We know this disappoints our followers in China, but we will never put our profits above the welfare of animals, NEVER! We hope that your love for Lush and for cruelty-free beauty products will inspire you to spark change.”

3. Are we partners in the personal and professional growth and development of our employees?
   Professional growth and development have gained more relevance recently and are key in a dual dimension. On the company side, it is necessary to have the technical and soft skills that allow capitalizing on technological advances and the use of digital tools, as well as having the conversational skills that facilitate agile work in hybrid or geographically distributed environments. On the other hand, more and more studies show that salary alone is not enough to retain talent; people seek other incentives, and the main one is personal and professional growth and development.
   A recent McKinsey report states: “Organizations that make learning and development a priority and part of their mission can create a virtuous circle and improve their chances of success in attracting, promoting, and retaining talent. Our research shows that encouraging a growth mindset among leaders and employees, for example, through training and internal career advancement opportunities, is the cornerstone of effective organizations.”
   Creating a training and development system is a shared responsibility between companies and employees. Both must engage in this action, aligning expectations, interests, and needs.

4. Does my culture offer what the key employees I want to bring in (digital, technological, etc.) are looking for in a company?
   Talent expectations, interests, and preferences are changing. Some companies, such as Pixar and Globant, provide resources for people to train not only in the topics the organization needs but also in other areas related to their individual interests, offering incentives like flexible work from anywhere in the world, email or phone-call free weeks, among other things. They even offer benefits like reimbursement for fertility treatments or egg freezing.
   A highly valued element is the growth opportunities within the organization. Designing clear strategies for promotions to more responsible positions or lateral moves to other areas is a common practice in successful cultures. An example is Schneider Electric, which uses AI to create an “open talent market” that facilitates people finding new challenges and opportunities internally rather than seeking them externally.

5. What are all the means – formal and informal – to achieve effective communication of my culture?
   This question could be reformulated as: Is there a true “storytelling” of culture, that is, of the values and behaviors desired by everyone? Effective storytelling uses foundational stories of early leaders and employees, current anecdotes, and future projects that embody the cultural values of the company. These stories, anecdotes, and experiences are communicated through formal channels, such as the company website, onboarding programs, events, internal memos, institutional messages, as well as informal channels, from spontaneous meetings in the cafeteria to jokes and meetings outside the workplace.
   Lego Group preserves the original house of its founder, Ole Christiansen, in Billund, Denmark, as a symbol and reminder of its origins. The house, transformed into a free-access museum for employees, holds wooden toys Christiansen made before using plastic for the famous bricks, as well as iconic collections from various stages of the company’s history. Other companies turn to digital media to encourage and promote communication, such as Globant, which uses the tool Startmeup to measure the alignment of informal conversations with culture. At Haier Group, new employees go through the “Culture Museum,” which displays images of their foundational milestones.
   A useful KPI to measure the effectiveness of culture communication is the percentage of employees who remember the company’s values and behaviors.

6. Do we hire using a dual interview process, one for technical validation and another for cultural fit?
   A phrase that encapsulates the importance of the dual interview to ensure culture continues to strengthen is from Herb Kelleher: “hire for attitude, train for skills.” Often companies focus on measuring technical competencies, trusting that cultural fit will be achieved later. However, it is crucial to ensure that the values of each new hire align with the company’s cultural values from the outset. For example, MercadoLibre looks to detect entrepreneurial ability and learning agility in people before hiring, because they believe that: “knowing your learning agility helps us make better decisions for your future development, and understand how well your profile fits both the role we want to fill and Mercado Libre in general.”
   Tip: Two useful indicators to periodically evaluate and measure cultural fit are: the 2×2 annual evaluation matrix (assessing the What and the How). Secondly, measure what percentage of dismissals are for cultural reasons, i.e., people who perform well technically but are let go due to poor cultural behavior. Tony Hsieh, the legendary founder of Zappos, didn’t hesitate to fire a company superstar if their cultural behavior wasn’t right.

7. What upskilling/reskilling processes are being carried out for the identified cultural skills and capabilities?

This question goes a step further than question 3. While the previous question probed the company’s commitment to people development, this question seeks to delve into the implementation aspect, considering two dimensions. On the one hand, the soft and technical skills identified in question 3; on the other hand, the cultural behaviors and values. While cultural fit is a prerequisite for joining the company, it is necessary to live these values on a daily basis, identifying any deviations in real-time, and reminding everyone of the fundamental principles that guide their actions.
Two useful KPIs at this point are: measuring the competency level of employees in each of the identified cultural skills and capabilities; and considering how many hours of mentoring each C-level manager does and receives in these cultural capabilities.

8. Based on cultural values, what processes have been implemented to support each of them?

Cultural values must permeate processes in all areas. True to its commitment to savings, Walmart, for example, requires three rounds of negotiation before hiring a supplier. Meanwhile, Haier Group came up with the practice of the “Red Army versus Blue Army battle” to encourage two of its cultural values: communication and continuous improvement. This involves selecting, every six months, the 20 topics related to “headaches” in the organization at that time and forming teams of five people who argue in favor, five people who argue against, and 40 people who will be spectators of each discussion. The debate round lasts for two months, and in each meeting, participants learn to consider different viewpoints and solve problems.
In some companies, information systems and technological tools reinforce the communication of values. For instance, in a travel assistance company whose core value was speed in handling claims, every computer had a screensaver showing service KPIs: the number of calls before answering the phone, and the number of hours to resolve the case. All employees were constantly “breathing” these KPIs.

9. What rituals and symbols have been implemented to foster positive emotions such as pride, sense of purpose, trust, belonging, and commitment?

One KPI to evaluate the response to this question is to ask for a list of the rituals carried out in the company. Some examples include:

• The WOBI (formerly HSM) organization conducts surveys at each of its events to gather feedback from attendees on speakers, location, experience, among others. The emphasis and dedication placed on this practice allow them to achieve a high response rate, generally very positive, contributing to fostering pride and a sense of purpose.
• At Globant, employees call themselves “globbers,” which reinforces their sense of belonging.
• Salesforce includes customers and business partners in their definition of “community,” in addition to employees, calling them “trailblazers,” the pioneers who open new paths, a name that fosters pride, commitment, and belonging.
• Haier Group names new tools after the employee who contributed to their design, another way to reinforce the sense of pride and emphasis on innovation.

10. Are the incentives aligned with the culture? How are people hired, promoted, paid, given raises, performance measured, rewarded, and dismissed?

Incentives are a powerful tool for shaping culture. Spotify, for example, defines itself as a “band reimagining the entertainment industry” and offers group trips to industry festivals and events (Spotify On Tour) to its employees. Another example is Unilever, which places emphasis on environmental care and has created the Sustainability Progress Index, an index that takes into account variables like reducing gas emissions in manufacturing processes, plastic usage in packaging, etc. This index influences the calculation of the annual bonus and the Performance Share Plan compensation.