Corporate value statements - do they mean it?

Corporate values are in vogue. In a period when big business is often vilified as being ethically challenged, many companies are attempting to counter this perception by adopting formal statements of corporate values, while senior executives increasingly identify integrity, honesty, and accountability as uppermost concerns on their companies’ agendas.

Cynics will argue, of course, that they are simply paying lip service in an effort to appear pristine in the wake of the accounting and disclosure scandals that tarnished Parmalat, Ahold and Enron. But it is a legitimate question – do companies really embrace the values they so freely espouse?

To explore this issue, Booz Allen Hamilton and leadership think tank the Aspen Institute recently conducted a survey of corporations in 30 countries. Its aim was to determine the way companies define corporate values, to examine how deeply values are embedded in organisations, to analyse the relationship between values and business performance and to identify best practice for managing corporate values. Senior executives of 365 companies were polled – and almost a third were CEOs or board members.

The vast majority of respondents – 89% – said their organisation possessed a written statement of values, and many indicated that these credos were not intended to be taken lightly. In fact, nearly three-quarters of the sample said that in the current business environment both executives and employees were under significant pressure to demonstrate that they operated closely to their company’s beliefs. Ethical behaviour was the most prevalent value adopted by companies, followed closely by commitment to customers.

Beyond these two principles, there were striking regional differences among companies in the other values they chose. North American companies favoured integrity, teamwork and honesty by margins of more than 10% over their European counterparts. And by an equal measure, European businesses were more partial to social responsibility, environmental concerns and entrepreneurship. Nearly 60% of European respondents said their companies produced separate annual reports on social and environmental activities and discussed their performance with the NGOs and local activists in the communities in which they worked.

Although many businesses appear to at least be attempting to incorporate values into the DNA of their companies, fewer than one in three respondents could point to a direct connection between values and either earnings or revenue growth. That finding would seem to raise the possibility that the acceptance of values could be a short-lived phenomenon, especially in an era increasingly focused on definable returns from specific investments.

But other data belies that conclusion. For one thing, three quarters of executives said that social responsibility had a slight or strong positive effect on their company’s long-term financial performance, while about two-thirds said that it was also beneficial to short-term financial results.

At the same time, respondents said that reputation and relationships with suppliers, customers and employees were greatly influenced by values and that these factors rivalled earnings and revenue growth in their impact on overall business strategy. Reputation and relationships are also critical elements of risk management, which is probably why 77% of respondents said that a strong system of values was a vital aspect of their company’s risk management programme. This holds not only for compliance or ethics-related risk, but also for risk outside of the traditional confines of financial performance and operations.

Many companies now attempt to measure the correlation between mitigating risk and values. More than half of executives worldwide – and over 80% in Europe – stated that they used surveys to assess the role that values play in employee retention and recruitment. Meanwhile, a smaller group – about 30% – said they relied on consumer preference data to help determine how the company’s values and social positions influence customer loyalty, the perception of brands and the reputation of the business.

It appears that, at the very least, a company’s values may produce positive primary effects – for instance, an improvement in customer or client relationships – which, in turn, may generate desirable secondary effects, such as better annual results.

After a company has defined the values that it chooses to embrace – and is convinced that values could be beneficial to financial performance – the hard work of instilling these principles in the corporate culture begins. Not unexpectedly, the chief executive – who, after all, is the face of the company – bears much of the burden. A total of 85% of respondents said that their companies depended on explicit CEO support to reinforce values.

But for CEOs to succeed, they must back up their endorsement of values with both their words and their behaviour, and they must be supported in their efforts by ongoing corporate activities that consistently articulate what the company’s values are. Key among these activities are performance appraisals, internal communications and training.

If the company’s managers espouse one thing but do another, employees may view values as another management scheme that requires them to do most of the heavy lifting while their supervisors are free to ignore the high-minded principles. Consequently, it is essential for businesses to diagnose misalignment and target changes in management mechanisms to realign – or align for the first time – the organisation’s values and behaviour.

One way to do this is to conduct surveys and focus groups with employees to determine if there are perceptions of misaligned behaviour, and then use these perceptions to create a roadmap for cultural change in the corporation.

Now that many businesses are talking about values and reshaping the way they think and behave based on clear sets of principles, the next imperative is to produce evidence that these values are truly driving corporate performance and change. Consumers, investors, local communities and other stakeholders are leery of corporate initiatives that fail to deliver demonstrable results. And while a belief in corporate values may be in vogue, the cynics will remain sceptical until corporations can prove that they are committed to using values to create value.

Reggie Van Lee is vice-president at consulting firm Booz Allen Hamilton

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