LEADERS AND THE ORIGINS OF AN ORGANIZATION CULTURE

Culture springs mainly from how leaders behave: what they say and do, and how they say and do it. Culture is forged and communicated in the messages they send about what is important and what is not important, what is acceptable and not acceptable, and who is valued and who is not valued. Most messages leaders send are nonverbal. Everyone watches and listens for clues to ascertain with assurance the boundaries of acceptable behavior to determine the zone within which they can safely operate. This safety zone solidifies the norms of behavior. The end result is culture, a direct result of the behavior of leaders.

An anthropological example will illustrate the power of a culture to shape the behavior of its members. Because the Maya worshiped the sun and the moon as gods, their priests—their "executive team"—instituted a taboo against making objects shaped like the sun or moon. Circles became a really big no-no. As a consequence, the Maya only rarely constructed circular structures (the astronomical observatory at Chichén Itzá is one example), and they never developed the wheel. No wheels meant no long-range transportation and no mechanical engines. No engines, no industry. Mayan clerics did, however, get fairly adept at cutting out the throbbing hearts of still-living sacrificial victims to honor their gods and assure a bountiful harvest. The winners of the Mayan court ball game (played something like modern-day soccer), according to some sources, earned the right to slay the losers and run victory laps while hoisting the oozing heads of the now decapitated losers in one hand and a mug of homebrew in the other. Win or get whacked. Talk about performance management! Much to the delight of the drunken upper-class spectators, these games sometimes went on for weeks and were said to be "spirited." Really. Culture does drop to the bottom line.

How many good ideas, products, and services are waiting in closets because the behaviors of an organization's leaders inhibit or squash risk taking? The ability to take a risk or not is just one gauge of an organization culture. Assume, for example, that you belong to a closed, fear-based organization. You believe the company needs to take a risk in the marketplace with a breakthrough technology, product, or service. However, because anxiety fixates the firm, its leaders refuse to take the risk. They bicker, they deny, they delay. Then they ask for more data. This executive dithering precludes the opportunity to secure the resources needed to bring your new offering to market, along with the potential of revitalizing the business. The company languishes under the weight of fear and timidity. The opportunity passes or, worse, a competitor snatches it.

On the other hand, some business cultures thrive on risk. Nokia, a manufacturer of wireless telecommunications equipment, knew that its customers were increasingly younger and younger. It therefore decided to break the color barrier of wireless handsets. Until then, you could get a handset in any color, as long as it was black. Nokia started to produce handsets in all sorts of colors, with a rainbow of appliqués, and soon became the number one manufacturer of wireless handsets. Was their technology any better? No. Their leaders set up an environment in which an individual felt comfortable taking a risk.

Innovation can intimidate because of traits embedded in the psyche of the people who live in a risk-averse culture—in this case, fear. Fear, a powerful negative energy, drives predictably defensive behaviors within an organization. In the example of the fear-based organization above, leaders punished risk takers. And the legacy and the residue of that negative energy continue to haunt that company to this day. Once the wagons are circled, it takes extraordinary leadership and a big kick in the backside to get them back on the trail.

Culture by Evolution or by Design?

Culture plays such a vital role in the success of an organization that leaders can no longer afford to leave it to chance. Yet, as crucial as culture is to bottom-line results, most leaders spend little time reflecting on the constructs or consequences of their cultures. Leaders do from time to time prattle on about culture (or appropriate euphemisms). They publicly espouse the implications of it for their business, employees, and customers. Yet they personally continue to behave in the same ways and are puzzled that their subordinates are not changing. Culture is something to throw change management programs at. It's one of those people things for the human resources department to worry about. Forging culture, it seems, is not part of an executive's real! job!

Cultures materialize in two principal ways. The most common method, "culture by evolution," happens when no deliberate thought or design is applied to the configuration of an organization's culture. With few exceptions, most corporate cultures have evolved in this manner, especially many of the brick-and-mortar industries that are the stalwarts of Wall Street today. Rarely did their founders have insight on the importance of molding a specific culture to help them succeed in their marketplace. More important, seldom were they aware that what they were doing and saying and how they were doing and saying it would fashion their company's culture. What Bill Procter and Jim Gamble started at the suggestion of their father-in-law over 150 years ago still molds both the strategic and tactical decisions being made at Procter & Gamble headquarters in Cincinnati. For all the brothers-in-law knew, they were just manufacturing and selling candles (Procter) and soap (Gamble). They were less interested that they were inventing brand management. But they were.

Culture by design happens when leaders sit down and formulate a culture and then rigorously communicate and live by its tenets. Few businesses have consciously taken this more purposeful path, though some have had the advantage of having leaders with an unconscious competency in the area. On the other hand, many religious and nonprofit organizations were founded around a tightly knit set of ideals and are recharged daily by these principles. For example, Benedictine monks still live by the simple precept of hospitality to strangers and the maxim Ora et Labora (pray and work), though St. Benedict set these norms over fifteen hundred years ago. Member physicians and nurses of Doctors Without Borders, often at the peril of their lives, abide by the principle of treating the needy regardless of nationality, ethnic origin, or social class. If we asked how the International Red Cross and the International Red Crescent serve their communities, almost anyone would be able to come up with examples. The pertinent lesson of these nonprofit organizations is that cultures that have been designed to champion a powerful purpose stand the test of time. Religious faith has kept people—often separated by vast distances in space and time—connected with each other long before the World-Wide Web, or e-mail, or instant messaging. The most deep-seated ties that bind are ethereal, not material.

In the twenty-first century, a business that wants to stay alive, and thrive, must learn the lessons of a designed culture. Pick one and learn from it. Better yet, take a week and go live in a monastic community. For with a culture by design, leaders must think resolutely about the atmosphere, environment, and customs that they want to permeate their organization. In their gut, they must make the connection between their organization's purpose and the culture required to sustain that purpose. Moreover, they must take stock of their own ability and willingness to model the attitudes and behaviors they are seeking and realistically assess if they are truly acting as they want others to act.

The scandals in corporate accounting and the trading shenanigans in the fund industry have prompted some organizations to refocus on the role of culture in influencing the behavior of employees. As this book was going to press, Morningstar, a firm that rates the performance of mutual funds, announced that it was going to begin rating mutual funds on five governance issues. One of these issues for which each fund will be assigned a letter grade from A to F is corporate culture. Yes, investors, you will soon be able to see in the clear light of day whether or not a particular fund with which you have entrusted your bucks has failed corporate culture. What fund manager wants to bring home that report card?