"Corporate culture pays off – as long as it is genuine"
Nov 2024
Unlocking the culture code
For many companies, corporate culture is a cornerstone of their business that influences the performance and, not least, determines the value of the company. But why is it (still) so important and, above all, how great is the risk of it becoming an end in itself? We caught up with Prof. Luigi Guiso from the Einaudi Institute for Economics and Finance, who will be discussing the topic at the USI as part of the public conference of the UBS Center for Economics in Society on Thursday 14th November.
This interview by Dimitri Loringett was originally published in Italian in Corriere del Ticino on 12.11.2024. Translated by Wylkomm. Edited for layout purposes by the UBS Center.
Does it even make sense still to establish a corporate culture in large companies, especially ones listed on the stock exchange, which basically pursue the sole – albeit legitimate – purpose of maximizing profits?
Today, companies attach greater importance to having a strong corporate culture than they did in the past. There is plenty of evidence to support this. You only need to look at a company’s website: Often, the first thing you see are the values that the company explicitly claims to uphold.
Are these values genuine, or just a façade?
I would say both. Values are sometimes proclaimed but not actually practiced. Think of the Enron case, for example: The values of ‘Integrity’, ‘Communication’, ‘Respect’ and ‘Excellence’ were prominently displayed above the main entrance of the company’s former headquarters. Obviously, these were not the values that were practiced within Enron, because – as we all know – the company later went bankrupt due to fraud. However, corporate culture can also be tested to some extent by other means, such as by comparing the visions of the management with those of the employees and determining whether they match the image that the company presents to the outside world. One of my studies showed that the values proclaimed by a company do not correlate with its performance, but the values declared by employees do.
In one of your studies, you spoke of corporate culture as a way of establishing a certain degree of ‘social control’ (over employees). Can you tell us a bit more about this idea?
If we understand ‘culture’ as the ability to ‘indoctrinate’ a company’s employees, this ‘brainwashing’ can be used to incite certain ‘distorted’ behaviors. The question is to what extent this is done as a deliberate strategy or, conversely, to what extent the company simply attracts people who have this kind of inclination or interest or who share the values that prevail in the company.
International companies are increasingly multicultural. How can multiculturalism be managed within a corporate culture that is based on values from a time before globalization?
Ultimately, the company decides itself who to hire. If it is overwhelmed by the cultural diversity of its workforce, it can simply limit itself to hiring people from a similar cultural background. Of course, this depends on which profiles are needed and whether they are available on the market: For example, if a Western high-tech company needs Asian IT specialists, it will have to establish an integration program. Whether it succeeds in doing so is another matter. Among other factors, this depends on the environment within the company. In some fields, such as higher education, it is relatively easy to bring people from different cultures together, because they are ‘compatible’: They express themselves in the same way (academically) and typically communicate in English. In high-tech companies, where the emphasis is on being innovative and thinking unconventionally, multiculturalism tends to emerge quite naturally and effortlessly. However, the situation is different for companies whose environment is also influenced by external changes in ethnic composition, such as demographics in the local labor market. If the company is limited to hiring new employees locally, it is, in a sense, dependent on the composition of the market and has to address the integration needs of employees. This problem is rather complex and not only concerns the company itself but also what happens outside the company, such as within these communities and the local labor market.
Today’s generation (Gen Z) seems to be more interested in genuine values, not just proclaimed ones. Do you agree?
Indeed, we are increasingly seeing more people – relatively well-educated ones in particular – attach greater importance to other characteristics such as the meaningfulness of the work when looking for a job. They want to join companies that have a clear purpose and a goal they can relate to. Companies have recognized this. Many now openly commit to and adopt ESG or DEI (Diversity, Equity, Inclusion) practices, knowing that the new generation of employees is looking for precisely these characteristics and values and a corresponding mission. Very often, these individuals don’t just want to work anywhere but, rather, in a company where they can make the most of their talents and skills. At the same time, they also have their own values, which must be recognized and accepted within the company. A study by a colleague uses an experiment to show that people who are very environmentally conscious tend to work for companies with very high ESG values, as they feel more comfortable there. They know that their values align with the company’s goals. And they are even prepared to accept a lower salary – 10 per cent less – than for a job that would require them to compromise their values.
For many companies, corporate culture is a cornerstone of their business that influences the performance and, not least, determines the value of the company. But why is it (still) so important and, above all, how great is the risk of it becoming an end in itself? We caught up with Prof. Luigi Guiso from the Einaudi Institute for Economics and Finance, who will be discussing the topic at the USI as part of the public conference of the UBS Center for Economics in Society on Thursday 14th November.
This interview by Dimitri Loringett was originally published in Italian in Corriere del Ticino on 12.11.2024. Translated by Wylkomm. Edited for layout purposes by the UBS Center.
Does it even make sense still to establish a corporate culture in large companies, especially ones listed on the stock exchange, which basically pursue the sole – albeit legitimate – purpose of maximizing profits?
Luigi Guiso is the Axa Professor of Economics at the Einaudi Institute for Economics and Finance. He has directed the Finance Programme at CEPR of which he is still a fellow. He has held teaching positions at the University of Rome, the European University Institute, the University of Chicago, Graduate School of Business and at Northwestern University, Kellogg School of Management. He is a recipient of several publishing awards. Luigi Guiso has broad research interests. Besides his work in the field of households finance, he has contributed research in the field of labor economics, firms’ investment and financial decisions, entrepreneurship and banking, political economy and institutions, and in the field of culture and economics.
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They are even prepared to accept a lower salary – 10 per cent less – than for a job that would require them to compromise their values.
The value of corporate culture
On November 14, 2024, the UBS Center and Università della Svizzera italiana gathered a significant audience in a joint event to explore the critical role corporate culture plays in both the triumphs and failures of businesses today. In his keynote lecture, Prof. Luigi Guiso delved into the evolving understanding of corporate culture in economic research and business. The panelists concluded that corporate culture is a living, dynamic construct shaped by leadership, values, and societal influences.
On November 14, 2024, the UBS Center and Università della Svizzera italiana gathered a significant audience in a joint event to explore the critical role corporate culture plays in both the triumphs and failures of businesses today. In his keynote lecture, Prof. Luigi Guiso delved into the evolving understanding of corporate culture in economic research and business. The panelists concluded that corporate culture is a living, dynamic construct shaped by leadership, values, and societal influences.
The panel discussion brought together Luigi Guiso (EIEF), Sergio P. Ermotti (UBS), and Ernst Fehr (University of Zurich), with USI Rector Luisa Lambertini as moderator.