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

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

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

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