Corporate culture: The interview evidence

Abstract

This interviews-based paper supplements survey-based evidence reported in "Corporate Culture: Evidence from the Field." http://ssrn.com/abstract=2805602 ABSTRACT We conduct in-depth interviews of senior executives representing over 20% of the market capitalization of the U.S. equity market to understand: (i) the importance, antecedents and consequences of corporate culture; (ii) the mechanisms that underlie the creation and effectiveness of corporate culture; as well as (iii) the factors that deter a firm from achieving its aspirational culture. Our interviews provide the following insights. First, executives characterize culture as "a beliefs system," "a coordination mechanism," and "an invisible hand." Second, most executives view culture as one of the top three factors that affect their firm's value. Cultural fit in M&A deals is so important that most executives would walk away from a target that is culturally misaligned. Third, culture is primarily set by the current CEO. Fourth, boards do not directly choose the firm's culture; instead, they influence the choice of culture by picking the CEO and through their influence on specific policies like incentive compensation. Fifth, executives emphasize that for a firm's culture to be effective, the firm's espoused values must be backed up by actual behavior and norms. Sixth, an effective culture improves firm value and profitability by: (i) fostering creativity and encouraging productivity; (ii) promoting more risk tolerance; (iii) mitigating myopic behavior; (iv) creating a climate for suggesting critiques and for allowing ideas to germinate organically; and (v) by compensating for mistakes in ways that the firm's assets cannot. In addition to the above, executives suggest several sources of publicly available data to measure corporate culture.