The Impact of Chief Executive Officers on Company Culture
A company’s culture can make or break it. CEOs set the tone for their cultures and play a critical role in shaping them.
Excellent CEOs align their management processes to support priorities and drive change. They also ensure that a company’s culture is consistent with its brand.
Companies with solid cultures emphasizing adaptability and customer focus outperform those without these cultural traits.
CEOs and Organizational Culture
A company’s culture is its collective beliefs, values, and attitudes toward work. It affects how work is done, decisions, and people interact. CEOs are critical in creating and cultivating a company’s culture, even if they’re not always conscious.
Previously, a CEO might commission the Human Resources department to produce an influential company culture. HR would create a campaign to tout a mission statement and core values developed by the CEO and senior management. HR might also implement a few employee perks and field an annual employee engagement survey. Once the to-do list for building a solid company culture is completed, the CEO and HR might move on to other priorities.
But in this era of high-profile culture crises at companies like Uber and Wells Fargo, the pandemic, and an increased focus on diversity, equity, and inclusion (DEI), that sort of top-down approach no longer works. CEOs must be more active in building and aligning a compelling company culture with the organization’s strategic agenda.
The CEO’s Role in Culture Change
CEOs and executive teams need to take more ownership of culture. This means defining, cultivating, and managing an internal culture that improves employee engagement and business outcomes.
The CEO must define and live the values and behaviors supporting the desired culture. A company’s culture is what the CEO and executive team do, not what they say.
This role cannot be delegated to HR or anyone else. For example, if the CEO wants to establish a culture of customer-first behaviors, the entire leadership team must commit to these behaviors. This commitment must extend to all facets of the organization, such as training, manager feedback systems, and employee performance reviews.
We’ve seen a direct correlation between the dedication to cultural change and company revenue growth. Companies with high-purpose cultures generate revenue growth of 10.5% annually, whereas those with low-purpose cultures see a revenue decline of 4.4%. We’ve also found that CEOs prioritizing cultural change earn a higher total compensation than their counterparts overseeing low-purpose cultures.
How CEOs Shape Company Values
Whether they realize it or not, CEOs can help shape corporate culture. The most effective CEOs prioritize culture and demonstrate the desired behaviors in front of employees.
This requires a significant departure from the traditional top-down approach to leadership. While HR and senior managers may be essential in shaping culture, the CEO is responsible for the company’s overall direction.
CEOs can bolster culture by introducing new leadership practices and policies that support it. One of the best examples is how Microsoft CEO Satya Nadella has led the organization toward a more collaborative and employee-centric environment.
For a company to thrive, the CEO must be intimately involved in defining the values and behaviors that are most important to it. This means being present for focus groups and surveys and even participating in the wordsmithing process to ensure that every value and behavior is clearly defined. It also means ensuring that the company’s systems for hiring, promotion, manager feedback, and performance metrics are aligned with the desired culture.
CEOs and Employee Engagement
While everyone has a role in building culture, the CEO and leadership team must lead the charge. They must not just set the tone; they must live it. They must be intimately involved in defining values and behaviors and confident in the words they use. They must also ensure that all organizational systems align with cultural expectations, including HR, finance, marketing, and operations.
Finally, they must prioritize employee engagement and provide leadership and resources to achieve it. They must understand that engaged employees are more productive, are less absent, and are better able to support customers and partners. They must also realize this is a strategic imperative to compete in today’s fast-changing global marketplace.
CEOs who understand these findings and take a proactive approach to cultivating culture will find sustainable success. They must know that culture does not happen by accident; it’s an invisible human operating system that thrives when CEOs support innovation, forgive honest mistakes, and demonstrate appreciation for excellence and extra effort.
The CEO’s Influence on the Work Environment
As a leader, the CEO must set corporate culture leadership team, including the values employees embrace. This requires the CEO to be present in the workplace, listen to feedback, and respond to issues. The CEO should also actively ensure that new hires fit the company’s work environment well.
Having the right culture is critical to business success, but many leaders don’t realize how much of an impact their culture has on company performance. A study found that companies with positive cultures saw greater financial returns than those without.
To cultivate a high-performing culture, CEOs must understand that creating the right perks and hosting fun events is not enough. A company’s culture is an intangible, invisible human operating system that affects how things are done daily. It influences how people work together, what values are embraced, and the hidden assumptions that drive business practices. CEOs can influence their culture by supporting innovation, forgiving honest mistakes, and showing genuine appreciation for hard work.
CEOs and Diversity in the Workplace
For companies that value diversity, CEOs can help foster an open communication culture on complex and sensitive topics. They can help create forums, platforms, and opportunities for employees to learn from each other’s experiences. They can also ensure that company policies align with equality and inclusion values.
In addition, they can encourage their senior management team to do the same. This will send the message that leadership is taking the issue seriously. Some CEOs, such as Lowell McAdam (Vodafone), Kevin Johnson (Starbucks), and Marc Benioff (Salesforce), have embodied this concept by publicly opposing discriminatory legislation in states like Georgia and Indiana and marching alongside their employees during the Women’s March.
Ultimately, the CEO is in charge of cultivating the company culture. Those that understand the importance of this have a competitive advantage in the workplace. The best way to do this is by consciously prioritizing the company’s goals and values. This is the type of culture that leads to success. It’s the high-performing culture rewarded with top employee approval ratings, strong stock market performance, and excellent Glassdoor reviews.
The CEO’s Impact on Employee Morale
With the recent high-profile culture crises at Uber and Wells Fargo and the growing importance of workplace diversity and inclusion, CEOs must understand that embracing and managing company culture is no longer a luxury but a necessity. But how do CEOs shape a company’s cultural values? A new study has found that the tone at the top is a critical factor.
The researchers surveyed employees from 32 large firms. They also analyzed CEO personality traits, personal values, and the cultural values of the companies that the CEOs led. They found that the CEO’s personality traits and value systems were highly correlated with the cultures of the companies they lead.
The researchers found that a negative tone at the top can reduce employee perceptions of organizational culture values such as value congruence, social exchange relationships, and identification with the CEO or firm. They also found that employees’ wage satisfaction decreases with the CEO’s income gap, and the perception of unethical or immoral behaviors can also diminish workers’ morale. These effects are more potent in the financial sector, where many compensation controversies over CEOs’ pay occur.
CEOs and Ethical Culture
If a company wants to build ethics and integrity into its culture, it will help if those values come from the top. That means a CEO who is the first to take training classes brings the company’s code of conduct to meetings and rejects business strategies inconsistent with ethical values.
Similarly, a CEO who publicly takes a stand on issues like pay equity and working conditions can signal that she cares about the employees’ concerns and isn’t just interested in the bottom line. It’s important to note that this type of activism should be carefully weighed against the possibility of making a CEO look like an overly self-serving egotist, as research suggests that this can hurt morale.
An excellent way to balance this risk is to link CEO compensation to employee perceptions of fairness. This will allow CEOs to get feedback on how they’re perceived while also giving them the incentive to address any problems in a way that won’t undermine their intrinsic motivation to perform well.