Measuring Corporate Culture: It’s Complicated

Can corporate culture be quantified?

“Spoiler alert,” Alison Cottrell admitted at the start of a presentation addressing that question last December. “Our answer will be no. But there are things you can measure that help you access culture.”

Cottrell is chief executive officer of the U.K.’s Financial Services Culture Board, a nonprofit membership organization formed in 2015 to help raise standards of behavior and competence in, and rebuild the trustworthiness of, the banking sector.

“You could have firms that have exactly the same strategies, the same structures, the same values, but different cultures, and the latter will affect the way that strategy lands on the ground,” Cottrell reasoned in a more recent exchange with GARP Risk Intelligence. “The way it’s delivered will be different for each firm, because the culture will affect the way that strategy is actually translated into action.

Alison Cottrell of the FCSB

“The question for boards then becomes, ‘If it matters how strategy translates into action, what sort of culture do I want?’” she continued. “’Do I let it happen, or do I try to manage it?’ If you’re trying to manage it and have aspirations as to what your culture should look like, then you need some sort of data, some sort of information, to tell you what culture you actually have.”

Banking, management, risk and human resources experts would agree that measuring and monitoring corporate culture make for good governance and effective enterprise risk management. But gauging and getting their arms around it can be complicated, elusive, and is an ever-evolving proposition.

“One of the Biggest Risks”

Despite culture being “one of the biggest risks that the organization has, it’s very intangible and very difficult to measure,” emphasized Erika Eliasson-Norris, founder and CEO of London-headquartered consulting firm Beyond Governance. “The essence of the organization is in the people who are in there – that is the corporate culture.

“It’s people where the value of the business is. Without good people, the business isn’t worth anything at all.”

Culture and its effectiveness in the financial industry rose to prominence as a boardroom and a regulatory concern in the aftermath of the 2008 global crisis. Further reinforcing the need for oversight were cases of misconduct – such as the 2012 JPMorgan London Whale trading scandal, the manipulation of the now-being-phased-out Libor (London Interbank Offered Rate) benchmark, and Wells Fargo Bank’s cross-selling abuses in the 2010s – and market dislocations including the pandemic; environmental, social and governance issues; workplace upheavals and economic uncertainty.

Erika Eliasson-Norris of Beyond Governance

Governance and culture became a signature initiative of the Federal Reserve Bank of New York as well as the FSCB. The latter, formerly known as the Banking Standards Board, announced plans in January to cease operations in 2023. It cited financial reasons while claiming credit for creating “a dataset on organizational culture in financial services that did not exist before and still exists in no other sector or jurisdiction.”

The Great Workforce Challenge

In a report stemming from the 2021 Global Board Risk Survey, EY recommended that companies “align corporate culture to strategy and recognize when culture should evolve.” The firm described the “misalignment between culture and strategy” as “the greatest culture and workforce-related challenge when it comes to risk management.”

“Culture is important because it establishes whether or not risk management is viewed in a favorable way as a valued business partner,” remarked Clifford Rossi, a risk management veteran and consultant who is professor-of-the-practice and executive-in-residence at the University of Maryland’s Robert H. Smith School of Business.

“Any institution that does risk management well has a good risk culture – good risk DNA – from the board to the executive committee and on down the line,” Rossi insisted. “The tone is set from the top. It will provide that stature and credibility for risk management to be effective in this role.”

Research Methods

To take the pulse of their people, companies have traditionally turned to surveys and questionnaires – what a January-February 2020 Harvard Business Review (HBR) article, The New Analytics of Culture, called “the workhorses of culture research.”

Nick Wainwright, FSCB head of data science and assessment, detailed to Risk Intelligence that annual surveys the board conducted from 2016 to 2022 were designed to help its members detect self-bias: the tendency for people to agree with statements regardless of how they really think or actually behave, making it tough for companies to get a true read on culture.

The surveys were supplemented by interviews with directors, executives, employees and focus groups to contextualize the data, and were further supported by industry roundtables and working groups to promote ongoing communication and collaboration.

Nick Wainwright: “The real power is in the benchmarking.”

FSCB sent its 2022 survey to 122,257 employees at 23 firms, and 41,906 responses were received. Results were delivered in the form of an interactive dashboard, allowing for deep dives into the firms’ respective cultures, including the ability to drill down into demographics and make comparisons with other companies across the industry.

“I think the real power is in the benchmarking,” Wainwright observed.

Measuring culture is about “continuous improvement,” Cottrell commented. “For any organization it’s about how you can get better. The data you get from a survey like ours is not the end point. These are all inputs to how you manage and lead your business.”

An AI Tool

Text mining, or text analytics using the artificial intelligence technique of natural language processing, has been gaining ground as a way to assess culture and adaptability.    

In the HBR article, authors Matthew Corritore, Amir Goldberg and Sameer B. Srivastava asserted the “explosion of digital trace data” found in emails, Slack communications and Glassdoor reviews, combined with the “availability of computational methods that are faster, cheaper and easier to use,” has “ushered in a new scientific approach to measuring culture.”

“By studying the language employees use in these communications, we can measure how culture actually influences their thoughts and behavior at work,” they wrote. They compared this "computational-linguistics approach” to surveys and questionnaires, which they characterized as having "significant shortcomings," including “employee self-reports” considered “often unreliable.”

CultureX, founded in Cambridge, Massachusetts, in 2020, says it provides “actionable insights organizations need to measurably improve their cultures” by “harnessing” MIT-developed AI. Through its Culture 500 collaboration with Glassdoor, the firm created a digital “culture scorecard” database of 1.4 million reviews from more than 500 of the largest U.S. employers across 41 industries.

However, AI comes with caveats, including around privacy and ethical concerns. In a Pew Research survey, conducted in December and released in April, 61% of 11,000 U.S. adults opposed AI “tracking workers’ movements while at work.” That included keeping tabs on their communications.

Refinements to Come

Zabeen Hirji, RBC’s former chief human resources officer and currently executive advisor for Deloitte Canada’s Future of Work, speculated in a February webcast that with “increased reporting requirements around human capital, I expect us to be developing more holistic pictures – something that’s going to be reported to the board on a quarterly basis similar to financial reporting.”

“In those organizations that are keen to make it work, the boards, C-suites and senior managers are incredibly good at listening to their employees,” Eliasson-Norris noted. “They will above all else look at what works best for the people they have in their organization.

“The litmus test is having those one-to-one conversations with people and assessing the level of communication that organically happens amongst the team. Communication is key to a great organization,” she continued.

“That is what builds a great corporate culture, and that can’t be monitored,” Eliasson-Norris maintained. “Metrics are helpful, but they only go so far.”

L.A. Winokur is a veteran business journalist based in the San Francisco Bay Area.