Corporate Culture in the Numbers

A company’s policies provide insight into its culture.

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Corporate culture has long been a vital, if elusive, element of a company’s success. Cost-cutting and entrepreneurial cultures, for example, have been credited for the long-term success of many companies. Conversely, culture clashes have been blamed for merger and acquisition failures and incompatible employees. But just how corporate culture can be measured is still a mystery. For instance, the causal link, if any, between casual Fridays and a “risk-taking culture” remains empirically undemonstrated.

Three researchers are beginning to get a handle on measurable and meaningful characteristics through which corporate culture manifests. Corporate policies captured by investment and financial styles and operational budgeting provide windows into a company’s culture. In their January 2007 working paper, Does Corporate Culture Matter for Firm Policies?, Henrik Cronqvist and Mattias Nilsson, assistant professors of finance at Ohio State University’s Fisher College of Business and Worcester Polytechnic Institute, respectively, and Angie Low, a Ph.D. student at Ohio State University and Nanyang Technological University, suggest that when companies spin off new business units, those new corporations will inherit their parent companies’ culture. This inheritance, the authors propose, is evident in the comparison of the corporate policies of parents with their spinoffs. They looked at 217 spinoffs (excluding those forced by mergers and those owned by multiple parents) from 1980 through mid-2005 to see whether those companies’ policies more closely resembled those of their parents or their industry peers.

The authors’ findings confirmed that the apple does not fall far from the tree: The spinoffs’ policies tended to be more similar to those of their parents than to industry norms. This held true for each of the dozen policies that the researchers studied, including those in the categories of investment styles (such as preferences for growth by acquisition), financial policies (such as financial leverage, cash holdings and dividend policies) and budgeting practices (such as research and development spending and advertising budgets).

The authors also found that culture tends to be more evident in spinoffs’ policies when the parent companies are older. Additionally, the cultural resemblance between parent and spinoff lasts a long time: “Up to 10 years from the date of the spinoff, parents and spinoffs still have significant similarities,” reports Cronqvist. These findings support the notion that companies’ cultures become more ingrained and distinct over time. As a result, culture is likely to persist — and resist management efforts to change it.

Of course, culture is just one factor that could be inherited from a parent company. Other factors include written procedures, tools such as Six Sigma and even the people themselves. But, notes Cronqvist, “Some of the variables that we look at are influenced by the chief executive officer or other top executives.” In order to distinguish between culture and top managers’ individual styles, the researchers looked at whether the spinoffs in their study had new CEOs. They found that even when a spinoff’s CEO is relatively new to the organization, the company tended to be similar to its parent. This suggests that it is the corporate culture, not the style of the CEO, that is inherited. Of course, corporations tend to hire CEOs that “fit” with the company’s culture, so, from that perspective, the cultural norms are self-perpetuating. Indeed, the fact that culture persists, for better or for worse, is among the researchers’ major conclusions. “Even if [senior managers] recognize there is something about firm behavior that is not the way they’d like it to be, they have to respect the fact that the shared norms, beliefs and values of different employees will take a long time to change,” says Cronqvist.

In Cronqvist’s view, the high-level policies measured in the study are symptoms of the underlying culture — the shared norms, beliefs and values of a company’s employees, as he defines culture. These policies thus are representative of the culture as a whole. “We would expect the inherited policies to apply not only to these high-level corporate policies that we study,” says Cronqvist, “but perhaps to other aspects of culture as well.” For example, if a spinoff inherits its parent’s attitudes toward mergers and acquisitions and dividends, the similarities most probably would carry over into more difficult-to-measure areas such as the formality of reporting structures or the entrepreneurial culture.

For two companies considering a merger, it’s possible that these corporate policies provide a proxy for the fit of the companies’ overall cultures — a vital hint as to the merits of the merger and the potential ease of integration. So even if corporate policies are just a part of the corporate culture — along with, say, dress codes and work hours — they might help identify that culture in a more tangible and measurable way.

To obtain more information, download the paper or contact Henrik Cronqvist at


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