Culture Matters for Corporate Performance
On Feb. 5, 2018, Wells Fargo, then the third largest bank in the United States by assets, lost nearly $30 billion in market capitalization in a single day. The Federal Reserve had barred the bank from growing, as a penalty for opening more than 2 million accounts without authorization from customers.1 An investigation commissioned by the bank’s independent directors concluded that the root cause of the fraudulent behavior was the culture of the division whose employees opened the accounts.2
Culture matters. Now we can measure it.
See how major companies in the world economy rank across the nine dimensions of corporate culture, based on more than one million Glassdoor reviews.
The link between a toxic corporate culture and unethical behavior would come as no surprise to most executives. According to a recent survey, 85% of CEOs and CFOs believe that an unhealthy corporate culture leads to unethical behavior.3 The cost of a dysfunctional culture can be substantial. Public companies caught committing corporate fraud lose, on average, 25% to 44% of the value of their equity.4
On the flip side, a healthy company culture can turbocharge corporate performance. The same survey of CEOs and CFOs found that 9 out of 10 believe that improving corporate culture would increase their company’s value, and nearly 80% ranked culture among the five most important factors driving their company’s valuation. A growing body of research by financial economists has shown that a good corporate culture is correlated with higher profitability and returns to shareholders.5 Companies listed among the best places to work based on their corporate culture, for example, delivered nearly 20% higher returns to shareholders than comparable companies over a five-year period.6
Measuring Culture With Glassdoor Data
Culture matters for performance, but how can we quantify corporate culture and compare it across organizations? To understand how a company’s culture plays out in practice, we would need candid data from a large cross section of employees. To dig beneath simplistic assessments of culture as good or bad requires nuanced descriptions of the specific elements of corporate culture that are working well or poorly. Consistent data across a large number of companies is required to benchmark corporate cultures. Finally, linking culture to results requires data that can reliably predict corporate outcomes, financial performance, or innovation.
As it turns out, such a data source exists, and you may have used it when researching potential employers. Glassdoor is one of the largest job and recruiting sites in the world. Since its launch in 2008, Glassdoor has collected more than 49 million reviews and employee insights, covering approximately 900,000 organizations. Employees submit anonymous reviews, which means they can offer their candid opinions without fear of reprisal. Companies, moreover, cannot remove critical reviews. By aggregating these reviews, we can construct a comprehensive picture of a company’s culture that moves beyond the anecdotes and personal observations that managers often rely on to understand their corporate culture.
On Glassdoor, employees rate their company’s culture and values on a five-point scale, but these quantitative scores alone shed little insight on the specifics of a company’s culture. The real value for understanding and measuring culture lies in the free text responses that each reviewer provides. Here, employees describe — in their own words — the pros and cons of working at a particular company and offer advice to management. By analyzing this textual data, we can assess how well a company is doing on critical dimensions of culture — including diversity, collaboration, or integrity — in the eyes of employees.
Glassdoor reviews also provide clues to a company’s future performance. Wells Fargo’s reputation plummeted after regulators announced the bank’s financial fraud, but Glassdoor reviews signaled the bank had a problem with corporate ethics well before the fraud was made public.7 A series of studies have used Glassdoor data to predict a range of corporate outcomes, including future profitability, stock market returns, innovation, customer satisfaction, and financial fraud.8 In the years prior to the scandal, Wells Fargo employees were nearly twice as likely to discuss integrity in their reviews, and half as likely to discuss the bank’s ethics in positive terms compared with other large banks.9
To create the MIT SMR/Glassdoor Culture 500, we analyzed 1.2 million reviews using a natural language processing (NLP) methodology that accurately classifies free text into more than 90 culture-related topics. The combination of Glassdoor’s rich data set and our NLP algorithms allows us to present, for the first time, an online tool to compare the corporate cultures across companies that collectively employ 34 million people — the equivalent of one-quarter of private sector employment in the United States.10 This article describes how we define culture, the advantages of the Glassdoor reviews, how we analyzed the free text, and how to use the Culture 500 interactive tool to see how companies’ cultures stack up.