Corporate Culture Gets Real

Corporate culture’s effects on economic performance.
It's one thing for companies to say they value integrity—it’s quite an­other for them to act accordingly. If a company’s professed corporate culture runs counter to the one its employees perceive, its profitabil­ity can suffer, say Luigi Guiso of the Einaudi Institute for Economics and Finance in Rome, Italy; Paola Sapienza of Northwestern University’s Kellogg School of Management in Evanston, Illinois; and Luigi Zingales of the University of Chicago Booth School of Business in Illinois.

In a working paper for the U.S. National Bureau of Economic Research, the three researchers looked at a number of corporate websites to discover what values those companies tout as part of their corporate cultures. Seventy percent of these sites mentioned integrity as an important driver of their activities. How­ever, Guiso, Sapienza, and Zingales found no correlation between the companies’ promotion of their values and their long-term performance.

To get a better idea of the effects of actual, not advertised, corporate culture, the group examined data from the Great Place to Work Institute (GPTWI). The data was based on a GPTWI survey that asked employees at more than 1,000 U.S. companies about the levels of credibility, respect, fairness, pride, and camarade­rie they perceived within their workplaces.

The researchers found that when employees perceived high levels of integrity at work, their companies were more productive, more attractive to potential new hires, and more profitable. For each standard deviation increase in perceived integrity, companies saw a 0.09 standard deviation increase in profitability and a 0.24 standard deviation decrease in worker unionization.

The researchers also found that employees at publicly traded companies reported lower perceived integrity than those at privately held companies. One exception was venture-capital-backed firms, where perceived integrity was no lower than at privately held firms—perhaps because these firms tend to favor long-term goals over short-term profits, the authors speculate.

The authors, who hope to spark further research on culture’s effects on economic performance, refer to Goldman Sachs, a company that promoted high values but lost its integrity after becoming a publicly traded company. Goldman Sachs’ downfall is just one indication that “a focus [on shareholder] value maxi­mization undermines the ability of a company to sustain a high level of integrity,” the authors write. “Maintaining a culture of integrity can have some short-term cost (the forgone profit today), but also long-term benefits.”

“The Value of Corporate Culture” is forthcoming in the Journal of Financial Economics. A draft is available at