Yes and a lot, according to a new study. Researchers from Duke and Columbia University performed an interview-based analysis of 1,348 North American firms, finding that the majority of senior executives believe corporate culture to be a major driver of firm value. More important, though, they did “not find a strong relation between tracking stated values and business outcomes. We argue that for stated cultural values to have full impact on business outcomes, they must be complemented by norms that dictate actual behavior and by formal institutions. Consistent with this argument, we find that norms are at least as important as the values themselves in driving outcomes, and that formal institutions can either reinforce or work against these informal corporate institutions” (pg. 3; emphasis mine). “More specifically,” they write,
our econometric investigation into the effects of culture on business outcomes suggests several important findings. First, for culture to have full impact, values should be complemented by reinforcing norms and by formal institutions. Second, formal institutions and cultural norms substantially explain the effectiveness of corporate culture. These factors alone explain almost 36% of the variation in the effectiveness of culture. Third, an effective culture impacts firm value significantly, and influences many specific examples of innovation and ethical outcomes. Fourth, we find evidence consistent with an effective culture working by intrinsically motivating employees to perform and shaping the way their expectations are formed. Finally, given that an effective culture is positively associated with value creation and economic efficiency, we ask executives what is preventing their firm’s culture from being effective in practice. 69% blame their firms’ underinvestment in culture.
…Our work relates to a number of strands in the literature. First, our findings are consistent with recent research pointing to the first-order importance of internal company practices for determining productivity and performance (Bloom and Van Reenen (2007); Bloom, Sadun, and Van Reenen (2012); Martinez et al. (2015)). Second, our research highlights the vital, but underappreciated, role that corporate culture plays in value creation (Hermalin (2001); Guiso, Sapienza, and Zingales (2006); Guiso, Sapienza, and Zingales (2015a); Guiso, Sapienza, and Zingales (2015b)). Third, our results suggest that formal institutions such as corporate leadership (Bertrand and Schoar (2003); Gibbons and Henderson (2013)), incentive compensation (Lazear (2000)), and corporate governance (Shleifer and Vishny (1997); Popadak (2016)) meaningfully interact with the underlying corporate culture. Fourth, our results indicate culture works by intrinsically motivating employees, consistent with theory showing trade-offs among systems of incentives within organizations (Akerlof and Dickens (1982); Gibbons (1998); B´enabou and Tirole (2003)) and the literature suggesting contract incompleteness depends on the firms’ internal organizations (Macaulay (1963); Levin (2003)). Finally, our evidence links culture to ethics (Guiso, Sapienza, and Zingales (2006)), myopia (Graham, Harvey, and Rajgopal (2005); Dichev et al. (2013)), whistle-blowing (Bowen, Call, and Rajgopal (2010); Dyck, Morse, Zingales (2010)), risk (Fahlenbrach, Prilmeier, and Stulz (2012)), and compliance (Kedia, Luo, and Rajgopal (2015)) (pgs. 3-4).
Shaping corporate culture is something managers should take seriously.