Culture, Transparency and Profitability

It is a difficult time for business: busted banks and a financial system that feels like it is creaking at the edges, waiting for yet another EU summit to push it over the edge; a relentless recession that feels like a never-ending Narnian winter. Media and public scepticism about business seems at an all-time high…

Last week, Dan Currell of Corporate Executive Board spoke at the RSA on Doing Better Business – business integrity, transparency and profitability. (There were four other speakers on the podium, but, frankly, they added little.)

Currell was discussing recent research by CEB across over 500,000 employees in 130 organisations, which identified seven factors (out of 200 investigated) which mitigate against wrong-doing by employees or the organisation, and are indicators of an ethical organisation culture. These factors are

  • comfort speaking up
  • trust in colleagues
  • direct manager leadership
  • ”tone” at the top
  • clarity of expectations
  • openness of communications
  • organisational justice

I don’t think any of these are surprising: if one were to describe a positive, healthy organisation culture, these features would probably feature high on the list. (Indeed, the research by CEB supports a service they provide, which includes a “cultural audit”.) Of all seven factors, the first – “comfort speaking up” – apparently trumped all the others. Again, not necessarily surprising – the seven factors may be pretty well linked – if you are comfortable speaking up, the others are likely to be in place, too. An ethical culture may be embodied by comfort at speaking up (which would make it pretty easy for an organisation to assess).

The interesting thing was the relationship between “integrity”, measured on these factors, and ten-year shareholder return – a highly significant (p < 0.01) correlation of 0.58. Those organisations that score highly for integrity also make more money shareholders over the medium term.

Of course, as Currell acknowledged, correlation is not causation: it could be that integrity causes organisations to be more profitable, or both are caused by another factor – or, as someone in the audience pointed out, maybe only highly profitable organisations can afford an open, trusting culture. Currell’s money was on the second – that good management fosters both an open culture and a profitable organisation. With a healthy, ethical organisation culture, these features are likely to form positive feedback – management will recruit those who fit and promote the culture; employees are more likely to listen and act on customer feedback; and managers will manage their staff in ways that reinforce the culture.

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