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Corporate culture is more important than the choice of CEO at many companies

Corporate culture important for company performance

Attorneys who work inside companies are often very aware of a company’s culture. To understand which companies have better cultures, GMI Ratings of Portland, Maine, attempts to rate them.

The highest  “Accounting and Governance Risk” (AGR) rating from GMI is Progressive Corp., followed by Range Resources, American Electric Power, CNA Financial, CSX Corp., LinkedIn, AFLAC, Under Armour, Colgate Palmolive and Whole Foods Market.

The ranking is important, and some have argued it is far more important than who the company’s CEO may be.

In fact, Rakesh Khurana, a professor at Harvard Business School, said that, “large-scale statistical studies have failed to find any direct causal link between CEOs and firm performance.”

The internal culture “exerts a far greater longer-term influence on the company’s success,” he added in a statement to MarketWatch.

Still, corporate culture is “difficult to define, much less measure,” the report adds.

Yet, in trying to come up with a way to measure corporate culture, Paul Gompers of Harvard, Andrew Metrick of Yale and Joy Ishii of Stanford, said a “good proxy for corporate culture is a firm’s governance,” MarketWatch reports. That is defined whether it restricts “shareholder rights and thereby entrench its leadership?”

The study came up with an index which showed that over 10 years companies which had the least restrictions “gained 9.3% more than those with the most,” MarketWatch said.

In coming up with ratings, GMI uses corporate governance and the reliability and accuracy of a company’s financial reporting data.

Corporate culture can change. For instance, when it comes to corporate culture, InsideCounsel reported that GM shook up its corporate culture after the ignition system controversy.

“I see this as an opportunity to accelerate our culture change,” GM CEO Mary Barra said in a recent statement about the events. Entrepreneur magazine has also included a report by Patrick Proctor, vice president of operations at Stash Tea Company in Portland, Ore., that a company's culture includes “values, visions, norms, working language, systems, symbols, beliefs and habits, from the inside out.”

“It also embodies the internal movement, habits and overall feeling experienced by employees about the employer,” the report adds. “Company culture is sometimes shared with vendors, suppliers and even customers.”

In addition, a company’s leadership should engage their employees to get “open, honest and creative feedback,” the report said.

And the culture, as well as the company’s mission and brand, work together to help the company grow over the long term, Proctor said.

 

For more on this topic check out these stories:

GM shakes up corporate culture in wake of ignition switch issues

General counsel must become global change agents

Globalization, talent crunch among trends affecting the legal profession

 

Contributing Author

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Ed Silverstein

Ed Silverstein (emsilverstein@gmail.com) is a veteran freelance writer and and editor for magazines, websites and newspapers. He writes frequently for ALM Media's

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