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Organisations with strong and transparent cultures perform better

Having clearly-defined and -communicated values helps companies attract and develop key talent

Companies with strong cultures perform better, a study from Mercer has revealed. In research seen exclusively by HR magazine, Mercer analysed Glassdoor feedback from 75,000 current and former employees who were asked to rate their employer’s culture from one to five.

Businesses that scored highly tended to be team-orientated and stand by their values. Firms with
a ‘great’ culture had a total shareholder return (TSR) outperformance median of 3%; companies rated ‘bad’ for culture had a TSR outperformance of -11%.

The research found that while company culture can create value – mostly through attracting and developing talent – the reverse is not true: high performance cannot create better cultures.

“Our research has shown that companies with problematic cultures can still perform well,” Sophie Black, partner of executive rewards at Mercer, explained.

“We do know, however, that companies with bad cultures tend to be less adaptable to the economic climate, and poor practices mean that they tend not to be sustainable. We’ve seen high-profile cases of poor corporate governance in some of the most prestigious companies. So it’s clear that profitability does not ensure a good working culture.”

Learning and development, leadership, and accountability were identified as contributors to culture. Black emphasised that a strong set of values, clearly communicated, was also key.

“A lot of organisations might think they have a strongly implemented set of values, but when you move across various levels you find that’s not the case. Employees, stakeholders, customers and supply chains need to know what their organisation stands for,” she said.

“If one of those groups is unsure of where the organisation’s at, or if something is amiss, it’s enough to have a negative effect across the whole business.”

The research identified pharmaceuticals company Dechra as an organisation that performed well as a result of investing in culture and championing internal talent. The company’s revenue growth in 2016 was 60%.

Eugenio Pirri, chief people and culture officer at the Dorchester Collection, said that a focus on company culture had similarly dramatically improved his organisation’s performance.

“It’s depressing to think that company culture is still seen as a ‘soft’ area of corporate life. Culture is everything: it dictates both the behaviour of those in leadership and the wider employee base,” he told HR magazine.

“It’s about having a clear understanding of what your business is putting into the world and where you’re going, but it also involves a kind of repetition. You need to make sure you are continually reminding everyone about who you are and why you’re making certain decisions.”

Pirri added that while it is not always possible to achieve perfect cultures, they should be transparent. “We’ve been through negative press; we’ve had various clients who have decided that they didn’t want to do business with us anymore because of who our owners are,” he said, in relation to 2014 when several companies boycotted the Dorchester Collection following its owners’ support of Sharia law. “It’s important to have an honest conversation and be clear when things haven’t gone to plan.”

Jane Sunley, founder and CEO of Purple Cubed, also identified clear communication of values as the driving force behind strong company cultures. “I’ve worked with business leaders [who’ve]told me that they’ve implemented values, but need to double-check when you ask them what those values actually are,” she said.

“Talking about values is only 10% of the work though… Leaders need to actually personify those values, and put them into practice. Then good culture becomes infectious.”