THE ECONOMIST: How to build the right corporate culture, critical to a company’s success

Every company has a culture, whether it wants one or not. But too few firms think deeply about what they want their culture to be, or about how to embed it.

As the latest episode of the Economist’s Boss Class podcast discovers, it’s not enough to recite a few abstract nouns. No one has ever become more transparent or collaborative because they see those words in the lobby.

The obvious reason to think about culture is as a means of increasing employee satisfaction, which matters when discontented workers have other options.

A paper published in 2023 by Alex Edmans of the London Business School and his co-authors looked at data for 30 countries.

They found that higher levels of employee satisfaction were associated with higher financial returns, and that this link becomes stronger in more flexible labour markets.

But that does not mean all firms should have the same culture.

Although no one relishes working at a firm where they are being roundly abused, people have different preferences about their working environments.

Donald Sull of the Massachusetts Institute of Technology gives the example of two aerospace firms that both score above the average for employee ratings.

SpaceX does poorly on work-life balance but scores highly for attributes like innovation and perks such as watching rockets blast into space.

Lockheed Martin does much better among its employees on work-life balance, but less well for being at the cutting edge.

The reason why bosses need to nurture such different environments is because, in Mr Sull’s words, culture is an operating system for companies. And because strategies differ, cultures should too.

In his example, SpaceX is a disrupter, working to up-end the space industry; prime contractors like Lockheed Martin have a much greater interest in stability.

That implies different things for the norms and behaviours that define both firms, and for the types of people that they want to recruit.

Culture determines how people behave when the boss is not looking. In their book “Move Fast and Fix Things”, Frances Frei and Anne Morriss tell a story from the early days of FedEx, when the delivery firm was struggling to survive.

A bride whose wedding dress had not arrived called FedEx in tears; an employee took it upon herself to charter a Cessna to make sure the dress was delivered and the big day was not ruined.

Among the guests at the wedding were some executives; impressed by the story, they gave some business to FedEx. The rest is history.

The story may be apocryphal but the moral has truth. As Ms Frei says: “Where strategy is silent, culture fills the gaps.”

Since culture counts for so much, it makes sense to be methodical about it. Novo Nordisk, a Danish pharma firm best known for its weight-loss jabs, encodes its culture in a set of principles called the Novo Nordisk Way.

A set of ten norms known as “essentials” are meant to guide decision-making.

More unusually, the firm runs a process called “facilitation”, which is designed to help the firm’s managers behave in the desired way.

Experienced facilitators travel the world, speaking with leaders and employees in various units, and feeding back to the bosses in Copenhagen about the state of the culture.

Culture-focused companies embed it in promotions and hiring processes.

Moderna, a pharma firm with a harder-edged culture than Novo Nordisk’s, has a set of 12 “mindsets” (“we push past possible”, “we accept risk”), which are used to assess job candidates.

Stryker, a medical-devices firm, even uses organisational design to spread its performance-driven, underdog ethos.

When the company’s divisions get too big, they are split apart.

“You have these smaller units that have to then grow and feel almost like startups,” says Kevin Lobo, the firm’s chief executive.

The gap between culture and cult can feel narrow in firms with strong identities.

Today it’s mindsets and essentials, tomorrow it’s mass weddings.

But managers are well-advised to take culture seriously.

If you want your employees to behave in a certain way, it’s not enough to paint generic words on a wall. You have to keep bringing them to life.