Hundreds of books have been written about how CEOs should create corporate cultures that use purpose and a sense of mission to help their companies perform at a high level. Thousands of speeches and similar numbers of consulting assignments have tackled the same challenge.
A group of 15 CEOs at a Chief Executive roundtable co-sponsored by PURE Insurance on “Building a High Performance, Highly Engaged Culture” concluded that the challenge is only getting greater. The rise of the Millennials, a demographic contingent of 20- and 30-year olds, means that CEOs cannot simply assume that they will embrace corporate ideals. They have their own distinct set of values that they cling to. Many, for example, choose to work short-periods of time as part of a flexible work force.
At the same time, CEOs are facing ever greater pressures to achieve short-term financial results because of the rise of increasingly successful activist investors and private equity funds—which the Germans call “locusts.” This “rampant shorter-termism,” in the words of moderator Jeff Sonnenfeld, intensifies pressures on employees and tends to erode the building of long-term trust between them and top management.
Still another factor: new waves of technology keep disrupting established industries, forcing CEOs to rapidly shift and reallocate their human resources, making it difficult to build and maintain long-term relationships with some employees. Sir Martin Sorrell, CEO of advertising giant WPP, used an old analogy to explain the situation. “Legacy companies have to change the engine of an aircraft while it is still flying,” he told participants.
The way CEOs respond to these intensified challenges to their cultures, participants agreed, varies considerably depending on:
- The age of their companies. New companies can consciously create new cultures.
- Their size. It’s often easier to create winning cultures in smaller companies.
- Whether a company has grown organically or is the result of mergers. It’s tricky to merge different corporate cultures.
- Whether the company operates in multiple countries.
It may be difficult to persuade different nationalities to buy into the same values.
Jeff Paraschac, co-founder and CFO of PURE Insurance, shared how his member-owned company, created in 2006 to address the insurance needs of high net-worth individuals, went about consciously crafting a culture. The company’s top management was determined to differentiate itself from other insurance companies that provided poor service. It sat down and hammered out a statement, which read: “We help our members become smarter, safer and more resilient so they can pursue their passion with greater confidence.” That gave employees a clear picture of how they were supposed to act every day, Paraschac said. Employee engagement jumped.
Then, top management asked a rank-and-file grouping of employees to produce “principles” that would translate top management’s statement into day-to-day behaviors. Those included such slogans as “be member-centric” and “have fun.”
The firm evaluates its people on the basis of how they adhere to those principles, not just their job performance, and offers perks such as extended time off and hardship loans.
The net result, said Paraschac, has been superior financial performance. The company now has 500 employees, but it aspires to grow to 5,000.
James McNerney faced a dramatically different challenge when he took over as CEO of Boeing in 2005 after a period of scandal and dysfunction at the aerospace giant, which had 180,000 employees. McNerney had previously served at GE and Honeywell. Did he simply import the cultures he had learned at those companies into Boeing? Not entirely.
“Cultures that work make a company more competitive—that’s the definition of a functional culture,” McNerney, who stepped down as Boeing’s CEO in July 2015 and retired as its chairman in March, said, “You have to read and react to what you’re dealing with. There are pieces from your background that make sense and there are other pieces from your background that don’t make sense.”
“The choice was whether to impose the old legacy Boeing culture or create a fifth culture that everyone could aspire to; we chose the fifth culture,” he added. “Let us choose what we want to be, both the aspirational piece and then the behavioral piece. Behaviors are what really change cultures.”
If there is a magic sauce in creating a culture that competes strongly in the marketplace, McNerney concluded, it is this: “It’s got to align with individuals. Why is it worth it? What’s in it for me? How do I grow?” That “alignment” with the aspirations of employees is key.
CEOs of other older, large “legacy” companies at the roundtable, such as Stanley Black & Decker (173 years old) or RR Donnelly (152 years old) spoke about how they have tried to retain the enthusiasm of employees despite upheavals, such as acquisitions and downsizings. John Lundgren, CEO of Stanley Black & Decker, the world’s largest tool company, said his company had established a clear culture. “You won’t get shot if you fail once,” he said, “but you’ll probably be fired if you fail three times. Three strikes and you’re out.”
The company sends out surveys to 20,000 of its employees every 18 months and gets a 60% to 65% response rate, which is considered high. The company can analyze how people in different business units and different geographies feel about their work, and then, it tries to fix any problems. “The fact that we do respond to the findings, that we acknowledge ‘This is something we’re lacking,’ that’s helped,” Lundgren said. “Morale has never been higher.”
Tom Quinlan, CEO of RR Donnelley, said CEOs need to have “disciples” below them in the management chain, who promulgate cultural values. His company has 70,000 employees in 39 countries, complicating the task.
Ultimately, the issue of culture is connected to the issue of leadership, another subject that has spawned hundreds of books and worthy speeches. “Driving a coherent culture across a multinational company across multiple industries is a real big-time challenge,” said John Garrison, president and CEO of Terex Corporation, the maker of construction equipment and related materials. “It comes down to leadership. A leader drives the culture.”
Paul Winum, who serves as practice leader of board & CEO services at consultancy RHR, said there’s nothing wrong with coming up with value statements or behavioral statements that seem like “motherhood and apple pie.”
The real moment of truth comes when a company faces a clear conflict between upholding its values and making a profit. Only a CEO can resolve those conflicts, he said. “Don’t underestimate the impact of your leadership, the way you behave,” Winum added. “People pay attention to things you reinforce in value. That catches on and people will follow the leader.”
It ultimately boils down to a CEO’s “authenticity,” another buzzword but one that contains real meaning. “If we as leaders show up and act differently from what we are saying, then we are not authentic,” said Tom Harrison, former chairman of Diversified Agency Services Division, Omnicom. “We are fakes.” And the workforce, particularly the Millennials, will know it.