The Business Case for a Culture Blueprint
“The business of business is people; yesterday, today, and forever.” – Herb Kelleher, Founder & CEO, Southwest Airlines
This is Part 1 of a series of columns focused on creating a blueprint for building positive & supportive organizational cultures. This series is adapted from a workshop at the Aspen Institute’s First Mover’s Summit in October 2023. You can find that content through this link.
Why We Care About Culture, IR & Beyond
We believe culture is THE LARGEST value-creation lever for any leader, today and over the long term, in any company private or public. The data below bears that out.
For public companies, the reality is that your employees are one your largest if the largest shareholder. As a public company, you have the opportunity to align employees to your long-term narrative, operating priorities, and results (at minimum) four times a year.
We believe team engagement is one of the highest ROI objectives of strategic IR.
Culture’s History as Mythology
Leadership, culture, values, purpose. All have become popular business concepts. For years, all have been deemed “important” by management teams to drive successful talent brands or by investors as a marker for performance.
BUT…there’s been two problems with culture:
1 - It was impossible to quantify.
2 - There was no framework for how to build a strong culture.
Culture has felt like alchemy, and good examples are framed as outputs of top-down CEO mythology vs. the result of a bottoms-up operational flywheel. You can attend business school to learn how to run an NPV, optimize a supply chain, or rationalize a workforce. But until now, you couldn’t learn how to build & operate a positive, high-performance team. It’s been pure conjecture.
Culture Outperforms
That’s starting to change.
Predictably, data has led the way. We can now measure that strong cultures drive dramatic, even radical, long-term outperformance.
Here are oft-cited data points:
Retention: High-retention companies’ share prices perform about 30% better than the average public company and 50% better than low-retention companies. This data comes from public investment giant Morgan Stanley Investment Management.
Diversity: Companies with higher gender & ethnic diversity grow revenue 3-5x faster than low diversity companies per the Great Place to Work Institute , and have 25-36% higher profitability per McKinsey.
Innovation: If you’re driving better revenue growth, profitability, and market returns, you’re innovating and winning with customers. Per McKinsey again, companies that master innovation produce 2.4x higher profits. Innovative companies win in spades.
While these are strong business outcomes, it’s hard to tie them to overall performance. Fortunately, over the last 20 years, several studies have definitively measured long-term outperformance:
The Great Places to Work top 100 companies have outperformed the market by over 3x over 24 years
Jim Collins’ “Good to Great” companies by 7x over 15 years
Williman Thorndike Jr’s “The Outsiders” by 20x over 20 years.
All three groups of outperformers represent a wide-ranging set of businesses and industries. For the Good to Great & Outsiders companies, none were tech darlings or in particularly attractive long-term markets. In fact, these results came from challenging business models like retail and newspapers across many recessions. No, these companies outperformed by building cultures that did things differently. True to form, these organizations represent only about 2% of publicly traded companies.
Culture is the through line of that differentiation. As it turns out, companies that keep a diverse set of employees for long periods out-innovate and out-compete peers and the market. Maybe that’s obvious, but few companies choose to take that path. The truth has remained an undiscovered secret until now.
The Need for a Culture Blueprint
Because we’re just discovering that strong cultures outperform, we’re even earlier in understanding HOW best to operate great cultures. Most readers have never attended business school classes or development training about culture building.
You’re not alone, and it shows. Most employees in virtually every company do not sit in strong cultures. Gallup puts out the most robust annual survey of global employees. Just 22% of workers are actively engaged & thriving at work (which means nearly ~80% are disengaged). 44% of employees say they experience a heavy amount of stress each day, 51% of employees are actively looking for new job opportunities, and culture is the top thing people would change about their workplace.
And people are essential. To drive innovation, you need a strong team. In the post-industrial service economy, nearly all of the value of a company is its people. In 1975, just 17% of the value of the S&P500 was in intangible assets; in 2020, that was 90%. Your most valuable asset, and often your only real asset, is your people. You need a blueprint on how to nurture and support your team.
Great Culture Starts with YOU
The other big takeaway from the Gallup Data: 70% of employee engagement is attributable to your direct manager. In other words, as a leader, you matter most to someone’s job experience. You create culture.
What’s exciting is that the research shows that culture building isn’t alchemy & magic, nor is it complex rocket science. There’s a basic blueprint that works for 3-person teams and 100,000-person organizations alike. It’s easy to learn, change, and can start with you.
Are you ready? Let’s dig in! The following columns in this series will consist of the four blueprint pillars across two themes:
Theme 1 is Motivation, and under motivation is:
Pillar 1, Autonomy & Decision Making
Pillar 2, Recognition & Support
Theme 2 is Connection, and within connection is:
Pillar 3, Shared Vision & Values
Pillar 4, Narrative - Alignment & Transparency
We’re excited to share these insights with you.
About Long-Term Value Advisors
LTV is an investor relations public company advisory firm focused on helping outstanding organizations navigate the public markets and build investor relationships to serve their long-term goals.
Check out our Strategic IR Playbook (article | open-source playbook doc), follow our “Shareholder Letters” LinkedIn newsletter, and reach out at contact@long-termvalue.com and our website.
References
Counterpoint Global Insights Culture Quant Framework; Morgan Stanley Investment Management; April 2022, link
A Great Place to Work for All; Michael C Bush, CEO & Great Place to Work Research Team; 2018; pgs 27 & 83; link
Diversity Wins: How Inclusion Matters; McKinsey & Company; May 2020; link
When Employees Thrive, Companies Triple Their Stock Market Performance; Ted Kitterman, Great Place to Work, April 2023; link
Good to Great; Jim Collins; 2001; link
The Outsiders: Eight Unconventional CEOs and their Radically Rational Blueprint for Success; William Thorndike Jr; 2012; link
State of the Global Workplace: 2023 Report; Gallup; 2023; link
Working Group on Human Capital Accounting Disclosure, Petition for Rulemaking; SEC; June 2022; link
