UBS Center Newsletter | N°12, January 2019

10 In the seventh edition of the UBS Center Public Paper series, Ernst Fehr steps into the corporate world. He argues that corporate culture strongly drives employees’ behavior, thus designing the right corporate culture is in every company’s best inter- est. But what does it take to achieve a successful corporate culture? Dipping into the fascinating field of behavioral and experimental economics, Fehr explains how the right behavioral rules and incen- tives can foster productive cooperation among employees and at the same time limit free-rider effects or similar unwanted behavior. Corporate culture, trust, and success Among the many different aspects of a corporate culture, cooperation is one of the core elements for performance and success. A cooperative culture helps to build trust in an organization: employees trust that their colleagues will also behave in line with the organization’s values, and this trust itself reinforces obedience to the cooperative culture and strengthens it. Research shows that firms in which the employees perceive their top managers as trust- worthy and ethical in their business practices are more productive. Another study shows that coun- PUBLICATIONS New UBS Center Public Paper, condensed and distilled. Note: In the actual paper you will find several examples illustrating the four fields of the matrix. Source: FehrAdvice AG Matrix to assess and address corporate culture problems Awareness of negative externalities Willingness to comply voluntarily low awareness high awareness high willingness low willingness Awareness and Incentive Focus Increase awarness and change incen- tives Incentive Focus Change incen- tives and increase motivation Awareness Focus Increase awareness Attention Focus Shift attention II I IV III Behavioral foundations of corporate culture A sound corporate culture drives a company’s overall performance sustainably – this is not only common sense, but also evidenced in research. Why is culture so important for economic success, and what are the characteristics of a successful corporate culture? A new paper by Ernst Fehr puts cooperation and feedback cen- ter stage. Maura Wyler