We are speaking today with Pamela Forbes Lieberman, a member of Morrow Sodali’s Strategic Advisory Board. Pamela is an experienced business executive and corporate director and has a very impressive history as CEO and CFO.
Our topic today is corporate culture, a subject that’s very high on the list of important ESG issues, including corporate purpose and sustainability. We’re interested in how companies can achieve a healthy corporate culture.
Let’s start with the ABCs of corporate culture. How do you define it? And why is culture important for a business enterprise to be successful?
When you think about culture, it’s really your business environment. It’s the behaviors, beliefs and practices that determine how a company’s leaders and team members interact among themselves and with all of their constituents. Part and parcel with culture are the values that are the guiding principles that don’t change. Culture can change over time, but guiding principles (that might include items such as respect, integrity, trust and accountability) should always stay consistent.
It’s really important for an enterprise to think about the effects of culture on every facet of its business. This is particularly important when decisions are being made — the impact those decisions are going to have on all of the company’s constituents and how they will be perceived by parties outside of the company. If you look at decisions you’re going to make through a culture lens, and it’s a great culture, you’re more likely to have successful outcomes.
Research has shown that there are five different typical types of cultures. I think Ernst and Young summarized it well in terms of cultures that are focused on innovation, cultures that are focused on building a company’s brand (and protecting it), cultures that are focused on the customer (where everything is driven by the customer), cultures that are focused on efficiency, and cultures that are focused on quality (where everything is all about precision and continuous improvement). Each type of culture is reflective of the nature of the business.
Is there a link between culture and communication, both internally and externally? If so, what is that link and how do they work together?
Companies that have great cultures tend to have transparent communications. In a great culture, you communicate frequently and you tell your employees the entire story. Some people may think they just need to share a sliver, but the more you can share, the more you can build a trust bond with your employees. The stronger the trust bond with your employees, the more they’re going to join together to meet the common goals for the company to make customers happy and to satisfy all constituents.
You have used culture as an agent of change when turning around a corporation where you were CEO. Could you share with us how that happened and how you managed that process?
When I was appointed CEO of True Value it was known as TruServ and it was a co-op. The company was in financial distress with related legal issues and several years earlier the company had gone through a troubled merger. One of the biggest issues in my view was that it had lost its way culturally. It was a company that wasn’t consistently meeting its customers’ needs. The financial distress had created concerns for the customers (who were also the shareholders in this co-op environment), and it also created concerns for the suppliers and the hardworking but demoralized employees. An employee satisfaction survey that was done shortly before I joined the company showed there was 37% employee satisfaction at the corporate headquarters. None of the key constituents felt they were getting the facts and the trust bond had been broken.
You can fix a company’s balance sheet, but if you don’t fix the underlying culture, a company won’t stay fixed. I made significant changes to the leadership team so that we had a team with shared values, and we were able to focus on changing the culture to one that was customer focused. We reinforced core values. We had continual transparent communications with all constituents and we reported on the positive actions we were taking. Because of that, we were able to earn back the trust of our constituents, which resulted in supportive customers, suppliers and lenders, and inspired employees.
The leadership team, the entire team, and I were able to execute a well-defined short-term and then long-term strategy that resulted in a successful financial, operational and cultural turnaround. After the turnaround, the employee satisfaction for the group I just mentioned went from 37% to 93%. It was really the significant improvement in culture that helped everyone rally around and drive us to be a truly customer focused company that was successful.
You mentioned the leadership team. So tell me, what is the role of the board of directors in corporate culture and how do they monitor it?
I would say it’s up to the CEO and his or her leadership team to define what the culture is and determine if the desired culture is truly in place, or whether there are gaps that need to be closed.
It’s the board’s responsibility to oversee how the leadership team is defining the culture and how that culture is aligning with the company’s purpose and strategy.
There are numerous ways that a board can monitor culture. Every discussion that’s held on strategy and risk should involve a discussion on culture, and board members should have conversations with members of the team below the leadership team level. In pre-pandemic times, you could do that at a board dinner, or you could do it by walking through a facility. Hopefully those opportunities are going to be returning in the future.
Another idea is to hold board meetings at key customers’ facilities. Board members can observe interactions of the leadership team and the customer. By talking with customers, you can gain insights from them — how they perceive the company of board that you’re serving on. Another way is to take a look at compensation plan design, not just for the top executives, but for all employees involved. Is there an alignment of goals? Do the plans reward the right behavior? Do they incentivize potentially too much risk? It tells you a lot about the culture.
Boards can also be taking a look at employee engagement surveys to see how employees are perceiving their company. The boards can also go on sites such as Glass Door and, recognizing there might be a negative bias if it’s just terminated employees on there, getting some flavor for a company’s culture there. Boards can also look at customer surveys, results of focus groups, and Net Promoter Scores, if they’re done within an enterprise, that all provides insights. There are also supplier surveys, and you can also take a look at the awards customers are giving to your company (and if they’re not, that could be an issue). Finally, there’s always the whistleblower hotline to take a look at. Are there trends; are there issues that repeat?
Do you think that a formal statement of corporate purpose is important to a company’s culture? If so, do you think that the directors should prepare a statement of corporate purpose?
Corporate purpose is gaining in importance. It was a key issue at the World Economic Forum, where they defined corporate purpose as “producing profitable solutions to the problems of people and planet and not profiting from producing problems for people or planet.” When you have a purpose, it makes employees feel that they’re part of a much larger project. It’s why organizations exist.
Corporate purpose is linked inextricably with culture, and both are especially important to millennials and to Generation Z. Boards shouldn’t be defining the purpose, but they should be overseeing the development. It’s really up to the CEO and her or his team to actually define what that is.
2020 was a truly unusual year and 2021 is probably also going to be unusual because we have yet to get out of the issues of COVID and the pandemic. To what degree do you think that corporate culture helps companies get through these types of extraordinary circumstances?
I think it makes a significant difference. Companies who always have put their employees’ health and safety at the forefront of their decision-making surely had an easier time of rallying the troops than those who just recognized once the pandemic began that, oops, we better do something differently. In companies with great culture, people come together more quickly. They want to solve problems when they know leadership cares about them. They give their best thinking in terms of how do we make things work? How do we keep our fellow employees safe? How do we keep our customers safe, our suppliers safe, and deliver upon our promise? It was, and is, a crisis that we’re in and frequently in crises you’re really able to get people to work together for the best results, and it’s more easily done when it’s a great culture to begin with.
Continuing on with the extraordinary times we’re in now — a lot of employees are working from home. How do you maintain culture in this environment where you’re not in an office, you’re not around the water cooler talking about things, where you don’t have “management by walking around” and the other techniques where we interact together at work?
You’re right. Interaction among employees is truly an essential part of any company’s culture because employees learn from observation. A new professional may sit in on a meeting and see how others are interacting and make a mental note of that. Of course, that can also happen in the virtual environment. Companies are inviting young professionals to participate in virtual meetings. Perhaps they’re just one of the many boxes in the gallery on this virtual screen, but they can at least get a sense. I think companies are also putting together more social gatherings on whatever platform they’re using so people can get to know one another.
The one upside that I have found, and I know others have seen it as well, is that it seems there is a quicker intersection of business and personal in this environment. In a first meeting, whether it’s with a supplier or a customer, you might look at the bookshelf behind them and see that you are reading that same book, and you now have something to chat about. Someone’s young child may come in and put their arms around mom or dad while the meeting is going on and you’ll have a reason to talk, or you have a new puppy that’s barking in the background and there’s a discussion to be had there. That seems to break down some of some issues with respect to hierarchy in an organization — you’re all an equal size box on the screen and can chat with one another.
When we go to a hybrid model, there will need to be some opportunities to get together in person, because I think that just as human beings, we need that interaction. While virtual is certainly a lot better than a phone conversation, there’s nothing that makes up for in-person interaction, being able to read more of the body language, being able to have side conversations, etc. But I’m sure we’re all going to figure it out.
There are some other public issues that have arisen during the pandemic that are probably more enduring — things such as “black lives matter,” “#metoo,” climate change — the sort of social and political issues that companies traditionally didn’t see as a part of their remit. These are becoming increasingly more visible as discussions shift away from the idea of the company being responsible only to generate a profit for shareholders. We’re starting to look at companies as members of communities and economies and the impact that they have on society. How does culture fit into that set of dynamics?
There’s definitely an expectation, especially from millennials and Gen Z, that companies are going to take positions on important social issues. It should really be done in a way that is appropriate for the individual companies, and there should be plenty of trans- parent communication on the issues. It gets back to business purpose — we need to make it known what our positions are.
What about the future, what do you think are some of the issues that will become increasingly important in the realm of corporate culture within the next few years?
I think the future is here now, and it’s what you opened up with — ESG – environmental, social and governance issues, and certainly the sustainability issue. As companies look to align their strategy with ESG, it links inextricably with culture because companies are taking a look at topics such as diversity and inclusion and equity in pay, and those relate to culture. They’re going to take a look at what they should be doing to be better protectors of the environment and that also relates to culture.
What advice would you have for CEOs today and for the future? Has the CEO’s role changed from the old days when the CEO was judged primarily by the bottom line? Is it becoming more of a parental role? Is it a different job, a more expansive job?
It is a different job. I think the CEO has to be aware of the overall environment and what his or her company is doing in a positive fashion for that environment. He or she has to think about how to get the entire organization inspired to walk through walls for its customers while meeting the goals that are good for the planet.
I think we’re starting to really understand that businesses are human enterprises and they have to be run as such, with real attention to the human dimension. This wasn’t really part of the job definition for CEOs in the past. Does this represent a fundamental change in the way we look at business enterprises?
Yes, but for some companies, it’s just a part of the owners’ DNA. Years ago I worked for a company called Fel-Pro Inc., one of the top automotive parts manufacturers in the original equipment and aftermarket segments. They, from the very beginning, always knew they had a corporate purpose and it was shared with employees. Employees were told about the parts they were making, what kind of vehicles they were going into, the importance of that for safety, and how they were making a difference by turning out quality parts. They had a marvelous culture and it was customer focused, but it was also employee focused. Employees felt good about the company and about their jobs, and they would walk through walls to meet customers’ needs.
The company had a wonderful upward trajectory in the profits they shared, but even in difficult times, when employees knew that there just weren’t the dollars to share, they continued working with their best efforts. There were benefits beyond that — they had a daycare center and a day camp for children. Back in the eighties they started computer classes for the children of employees. They were always ahead of the curve and as a result, they had excellent financial results and they outperformed everyone in the sector. But they did it because it was just part of their DNA to do the right things by their employees, and then good things happened.
That would make a great case study. It was very unusual at the time, I would think, but it seems to me that’s where we’re heading now.
The University of Chicago did a case study on Fel-Pro in the early nineties, trying to determine if there was a link between company performance and culture, and the company always intuitively felt they didn’t need a study. They said “we know there is the link,” but it did take decades for many companies to realize that culture really just needs to be part and parcel of everything you do. It isn’t a list of 10 things where culture is number 10 after you get to the first nine; it’s embedded in each of numbers, one through nine.