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Why CEOs Don’t Know their Company Culture (and What to Do about It)

If culture is a top priority for CEOs, why do they fail to understand their own?

By Gustavo Razzetti

May 5, 2021

Hint: leaders confuse the ideal culture with the real one

Most CEOs don’t really understand their company culture. It’s not that they don’t pay attention or don’t care. Actually, culture is a top priority for most executive leaders.

CEOs know that culture precedes positive results. And, study after study shows that organizations with healthy workplace cultures overperform those with weak or toxic ones. So, why is it that senior executives don't really know their company culture?

For starters, there’s a difference between caring about culture and understanding your own. Most importantly, CEOs lack the language and structure to have a proper conversation about what culture is.

In this post, I will share five reasons CEOs fail to understand workplace culture and what to do about it.

1. They believe the culture they want is the one they have

CEOs tend to have an idealized version of their company culture. They tend to focus on the positive, minimizing negative aspects or what’s not working. Toxic positivity can harm your (perception of) culture.

Unlike what most articles say, people don’t leave bad managers; they leave bad cultures. Being a good boss won’t protect you or your team from a broken system. Factors such as conflicting priorities, bureaucratic rules, and a lack of authority – to name a few – go beyond a manager’s pay grade. No matter how well you lead, people will leave a broken system.

Most company cultures are in worse shape than their top leaders acknowledge or realize. If not, ask HR senior executives – only 31% say their organization has the culture it needs, according to Gartner.  

When talking about their company culture, CEOs tend to think of the ideal one – not the real culture.

Narcissism plays a significant role. Senior executives tend to overestimate their own performance, thus rejecting that which doesn’t align with their expectations. The cult of personality encourages a tribe of yes-man followers – people mimic leaders' behaviors even, if they don’t serve the organization.  

Also, the Iceberg of Ignorance provides some clues on why CEOs have an idealized version of the company culture. Senior leaders only see 5% of the problems affecting the organization. They are clueless to the other 95% affecting employees. This creates a gap between the real culture and what CEOs see.

Lastly, as I wrote on Why CEOs See Differently, senior executives are so immersed with their vision that they confuse what they want to achieve with what they have achieved.

I remember a client talking to his executive team about their most recent hotel opening and all the great things happening. The CEO was excited and talking in the present tense, as if the hotel were already open. On the other hand, the team felt skeptical – they were nervous about the challenges ahead in order to ensure the hotel could open in six months.  

A company's current state is not defined by a culture manifesto or a CEO’s vision, but by what people think and feel.

When helping organizations map their culture, one of the biggest challenges we usually face is that CEOs mix the desired state with the current one. To create awareness of this issue, we work with different segments within the company (departments, levels, countries, etc.) and map how each perceives the culture. The biggest gaps we uncover usually happen between the senior leadership and mid-level employees.

Working recently with a B2B automotive company, the CEO defined the culture as agile (nimble, adaptive, and fast). At the same time, employees and middle managers thought it was “bureaucratic, political, slow, and top-down.”

Avoid confusing the company you have with the one you want.

2. CEOs have a purpose instead of acting on purpose

I’m not the only one who thinks that the purpose craze is getting out of hand. Writing a purpose statement has become a self-serving exercise rather than an opportunity to serve others.

The notion of purpose matters more than ever. According to Deloitte, purpose-driven organizations are 30% more innovative. Research by EY shows that having a purpose improves corporate ability to transform by 84%, while increasing customer loyalty by 80%.

Unilever’s CEO believes the organization did a wonderful job adapting and thriving during the pandemic because of its purpose-driven people, brands, and culture.

Most companies get caught up in having a beautiful, inspirational statement that will make them look good. The problem is confusing having a purpose with acting on purpose. As a new study by McKinsey shows, 82% of employees feel it's important for their companies to have a purpose, but only 42% felt their company’s purpose statement had any impact.

Anyone can craft one with the right guidance and framework. The challenge is to adopt your purpose as a North Star – to keep you focused, especially in stormy weather. As I wrote previously, a purpose that costs you nothing is not worth having.

CVS stopped selling tobacco products because it wasn’t aligned with “helping people on their path to better health.” Patagonia pays the bails for employees who get arrested peacefully manifesting on climate issues because the company is “in business to save the planet.”

Writing a purpose is easy. Living your purpose – that’s a different thing. It requires actions, not just words. Rather than a self-indulgent exercise, developing your company's purpose should guide your decisions in service of the greater good.

3. They are data-obsessed rather than data-informed

There’s nothing wrong with using data to make informed decisions. The problem is the mindset that most leaders apply to statistics – they are looking for a success story, not for understanding.

I see this way too often. When employee survey results are good, senior leaders immediately jump to publicizing them both internally and externally. They want to celebrate what a “great culture” they have.

That’s exactly what happened to Amazon. Jeff Bezos recently bragged about their employee survey results: 95% of people would recommend working there to a friend. However, Amazon workers pushed back on Bezos’ narrative. Many employees have concerns about the Connection tool and the accuracy of its data.

What happened to Amazon occurs to many companies, too. When there’s internal pressure to show good results, employees respond with what their managers want to hear. If there’s fear of retaliation, people will stay away from saying anything that could be perceived as conflictive.

Being data-driven encourages the wrong behaviors.

For example, companies using software to track remote workers’ behaviors, such as hours on the company system or the number of keystrokes they make, are prompting employee backlash. Such intrusive approaches are not only questionable, but also encourage people to fool the system. Rather than increasing productivity, companies are incentivizing presenteeism.

Employee productivity when working from home is a culture issue – it’s a trust matter, not a performance one.

Rather than measuring how good your company culture is, focus on understanding. Use data to uncover what’s working and what’s not to build a more conducive environment. Take a cue from Airbnb: be data-informed versus data-driven.

4. CEOs have a vague understanding of company culture

One of the problems most CEOs have is the lack of a vocabulary. They know how to talk about long-term vision, product innovation, or financial goals. However, conversations about culture take CEOs out of their comfort zone.

Corporate culture means different things to different executives. Most companies refer to their company’s culture as values or principles. However, research shows no correlation between official values and actual behavior. Culture is often referred to as "the way we do things here.” But that feels vague and fluffy, too – CEOs need more specificity.

That’s one of the realizations I had advising senior leaders for over 20 years. Most CEOs lack a clear structure – and the vocabulary – to understand, assess, and measure their company culture.

That’s what inspired me to develop the Culture Design Canvas. I wanted to create a framework that could provide a more grounded and simple way to define a company culture. Making it visual was vital to keep it top-level – ideal for senior leaders who lack time and attention.

A company culture is much more than a set of principles of beliefs – it also includes how they feel (emotions), think (mindsets), and act (behaviors).

The Culture Design Canvas maps all those key elements on one single page. It elevates the conversation to other areas such as behaviors that are rewarded and punished, the power of unwritten rules, or the difference between empowerment and distributed authority.

In my experience, it has shifted the conversation with senior executives. They realize that their company culture includes three areas: the core, emotional, and functional cultures. CEOs love visualizing what’s working (or not) across the different blocks of the canvas. It ignites specific, straightforward, and actionable conversations about how to move culture from the current to the desired state.  

5. They are not willing to make sacrifices

What’s the single most important thing for your organization? I like to ask that question when interviewing a client for the first time. Each company culture is different, and priorities help shape their uniqueness. Unfortunately, many CEOs want it all. They want to be a people-first, customer-centric, purpose-driven, and stakeholder-driven organization.

I’m not saying all those things aren't important. The issue is, when push comes to shove, what matters the most?

Clear trade-offs are crucial to deal with conflict. Otherwise, employees end up torn between conflicting priorities. Should I focus on experimentation or excellent implementation? Most employees have to deal with tensions like this in their day-to-day work, according to Gartner research.

Consider the following tensions:

Quality versus speed (Focus on precision and perfection, or move fast?)

Commercial focus versus people focus (Prioritize financial goals, or prioritize people satisfaction?)

Efficiency versus innovation (Do things right, or experiment and make mistakes?)

Senior executives must define clear priorities to help people translate those into their specific day-to-day work. People need to know:

- How to make trade-offs between conflicting priorities

- What to sacrifice to support the culture

- How priorities will guide decision-making

One of the building blocks of the CDC is “priorities.” It uses ‘even/ over’ statements to force executives to choose one good thing even over another good thing.

A Canadian bank I was consulting with had gone through a reorg to deal with issues at the senior level; executives were cutting corners to meet financial goals. Although one of the company values was “integrity," many weren’t living up to that standard. We recommended the client include “Integrity even over financial results” as one of their top three priorities.

Using even/ over statements helps define trade-offs. It’s not that our client didn’t care about business growth; it was simply stating that – when forced to choose – people should prioritize acting with integrity over making money.

Your Ideal Culture Is Not Your Real One

Our culture design process includes three clear steps: mapping the current culture, assessing the current state, and designing the future state.

Mapping the current culture requires adopting an anthropologist mindset. Leaders need to visit the other side with open eyes, being an observer of how people see the company rather than filtering things through their biased lenses.

The assessment phase requires critical eyes. Don’t let your vision cloud your judgment. Analyze what’s not working like a detective or philosopher would – seek the truth and make sense of the evidence.

The last step is about designing the future state. Now it’s time to focus on where you want to take your company culture and what needs to happen to get there.

Keep in mind the differences between each step to avoid confusing your current company culture with the ideal one.

Do you need help mapping and assessing your company culture? Reach out and let's chat.

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