October 6, 2021
How does one quantify corporate culture? That is a question valuation expert have been grappling with for years. At Netherside, we recognise that our business partners have two main forms of capital: financial and human.
The latter is often deprioritised when businesses set focus narrowly on financial results, but in practice, the health of a team can yield increase performance and lead to a more favourable valuation.
So, what is corporate culture?
Certainly, a complicated question yet there is a common understanding on a basic level that corporate culture constitutes the values, vision and behaviours that guide the practices of an organisation. Corporate culture can aid in defining brand image and can influence how a business decides to grow.
In other words, corporate culture defines how your business is perceived by all stakeholders: customers, employees and more.
How can we measure corporate culture?
While there is much research on corporate culture, very little of it has examined its effect on productivity, creativity, value and growth rates. Yet in 2015, Shiva Rajgopal, an accounting professor at Columbia Business School, took a unique accounting and statics perspective to consider how culture affects investments, earnings and management. Rajgopal interviewed 1,400 executives across North America, 90% of which responded in saying that corporate culture was very important at their organisations, yet only 15% saying that their firms’ culture was where it needed to be. Nonetheless, 92% believe that improving corporate culture would improve the value of the company, and more than half said corporate culture influences productivity, creativity, profitability, firm value and growth rates.
So why does culture impact a firm’s success?
Corporate culture and performance go hand in hand - the right culture can often bind and integrate various elements of an organisation. This culture allows employees to define themselves and their position within the greater business. Corporate culture is a collection of visions, values, and day-to-day behaviours for interaction that help a business move towards its goals. Corporate culture is tough to define, and even tougher to accomplish properly, but to some, it can sometimes be as simple as ensuring your human capital remains happy and fulfilled. This could be as simplistic as injecting elements of fun into the workplace, something Google has excelled in over recent years. Others could see cultural improvement through the offering of true working flexibility, as we have discussed in our previous article (LINK). In essence, introducing a corporate culture means recognising the value of your employees and keeping them happy on the road to success. After all, if your employees feel as though they’re a crucial part of a growing dynamic, then they’re likely to work harder to achieve your organisational goals.
A toxic culture can have disastrous consequences for an organisation. Remember Volkswagen, where engineers were tasked with making sure the company’s automobiles could fool emissions tests. While the financial losses here were great, estimated at around $18 billion, the other perhaps more severe cost for the brand was the damage to its reputation, credibility and perceived value of the brand.
While executives are very clear that getting culture right, enhances value, very few are talking about it.
Here at Netherside, we recognise the value of corporate culture, and how even the smallest strategic changes can make a large difference to your business' valuation. To engage with us on either a strategic or valuation project, please reach out to us: email@example.com