The early morning coffee is laid out; the computers are powered up; and everyone is feeling refreshed after their night’s sleep. Investors, stakeholders, shareholders and news agencies are on standby, waiting for the release of the latest culture audit report issued by an independent reviewer on the state of the company’s culture. The report outlines the company’s significant increase in assets: how the company is making significant strides in employee engagement, psychological safety and trust. It also outlines where there are significant liabilities, particularly in the over-reliance on some team members and a hesitation to challenge authority and the “it is what it is” attitude. The report is analyzed. The coffee cups are empty. The daily schedule commences.
You are right to be confused—because this does not happen.
What the Numbers Don’t Tell Us
The release of financial statements usually gets that level of attention—not the release of culture audit reports. In general, financial results receive more scrutiny, specifically those of a company reporting to public investors, or of a smaller/private entity reporting to private investors or banks. Whether you are running a large public construction company or a smaller private contracting enterprise, financial statements reporting assets, liabilities and income are analyzed in detail by stakeholders, but it is not surprising if no questions are asked about your company’s organizational culture. As sociologist William Bruce Cameron wrote in 1963, “Not everything that can be counted counts, and not everything that counts can be counted.”
Measuring and reporting things in externally oriented financial statements or internally oriented financial reports is important, but, equally, it is also important not to overlook the fact that there are many elements that impact the measurable results of an organization’s performance, and an important one of those is culture.
Edgar Schein, one of the most influential thinkers on organizational culture, described culture as a “multifaceted learning structure and practice of the people who lead and the people who follow.” That is why culture is not something that can be simply written on a poster. It is ever evolving, as the shared learning, described by Schein, never stops. That is why culture is always worthy of our attention.
Everything Is Awesome… Or Is It?
A company leader might say, “Our culture is solid! We might have a few areas to work on here and there, but, overall, our culture is good. We might hire a culture consultant, conduct an employee survey or strike a committee once our financial performance stabilizes, but we are feeling pretty good about our culture.” If you are thinking along those lines, you are not alone. Many leaders believe that, although important, organizational culture is probably good enough right now not to be at the top of their priority list, unlike, for example, managing accounts receivables or keeping projects on schedule, which always requires attention.
If you saw The Lego Movie, you might remember the theme song Everything is Awesome!!! that accompanied seemingly happy folk going to work, not questioning the rules or authority and being happy with the “it is what it is” attitude. Spoiler alert in case the movie missed you: Things unravel fast after the first performance of the song.
It is not uncommon to hear phrases like, “our culture is solid” or “good” or “healthy”. However, most organizational cultures are clearly not just “good” or “not good”. In fact, most observed behaviors are not outright “good” or “bad” either. In contrast to an asset or a liability on a balance sheet, a particular element of organizational culture is not clearly an asset or a liability; it can be either depending on the circumstances.
Asset? Liability? Both?
Having knowledgeable, strong people on a team can be a real plus: They take initiative, they pick up the ball when it is dropped, they spot defects before handover and they resolve problems with subcontractors. But are they a certain organizational asset? For example, if, in the same organization, juniors are not being coached, and those few strong people who carry an overwhelming number of things on their shoulders experience burnout and disengagement, a bottleneck is created in the system, leaving a gap that nobody is trained to fill. As in The Lego Movie, it is possible that everything is reported to be “awesome” to management, but not for the right reasons.
There are other possible dualities:
- requiring staff to strictly comply with managerial procedures may be an organizational asset but it can also be a hidden liability if it stifles independent questioning when something goes wrong or requires a fresh approach
- annual performance reviews aimed at recognizing achievements and/or identifying areas for improvement could also become a liability if an employee is caught by surprise at year-end by the comments and ratings, causing them to focus on why they received an “unfair” rating rather than on the intended purpose of the review
- the open space concept, which is aimed at achieving open communication, could also be a liability as it might be penalizing those employees who require quiet, uninterrupted focus time, especially in the knowledge or professional service line of business, such as those preparing estimates or reviewing project specifications
What a Culture Audit Can Reveal
This type of interconnectivity happens at many levels of an organization. To identify these interconnectivities, culture audits rely on a systematic approach, using surveys, interviews, data analysis, the collection of documentation—anything from bonus structures to value statements—and the corroboration of the evidence. What culture audits might uncover are hidden liabilities that are greater than the financial liabilities on the balance sheet, staff tension that impacts performance or warning signs that board members might have been blind to.
So, how well do you know your organization’s culture? This is an important question whether you are in management, on the board or are an external stakeholder. Do you know the culture better than, or at least as well as, the staff at the kitchen watercooler or the site canteen, the silent observer of honest conversations and uncensored emotions?
Off-Balance-Sheet Auditing
In January 2018, Carillion went into liquidation in the U.K., with just £29 million in cash against nearly £7 billion in liabilities. A joint inquiry by the House of Commons Business, Energy and Industrial Strategy Committee and the Work and Pensions Committee concluded that “the problems that caused the collapse of Carillion were long in the making, as too was the rotten corporate culture that allowed them to occur”.
In early 2017, financial reporting concerns were raised internally. The June 2017 lessons-learned exercise, carried out by senior management of the organization, followed an accounting review. One recommendation, or lesson-learned, was to conduct a culture audit aimed at widening some aspects of the business. In addition, a review of values was recommended, ensuring that staff understood that behaving with transparency, honesty and integrity was as important as achieving, improving and delivering. About six months before liquidation, Ernst & Young was retained to consult the company on cost reduction and cash collection. Interestingly, the review also identified cultural issues, including an “aversion to change,” and pointed to the need for greater diversity of thought and a stronger culture of learning and continuous improvement.
Have any of those things been reported on the balance sheet? Was “aversion to change” quantified? Was it reported to shareholders? How about the lack of diversity in thinking? Which report identified those as an organizational liability to the board, especially when that liability was growing in size and impact?
According to the EY presentation, those intangible, seemingly immeasurable driving forces manifested in a culture of non-compliance and an inward-looking culture. The culture audit that was suggested by senior management was necessary, but too late. How late? Schein’s definition of culture implies that there should have been a gradual “‘learning” process for the entire organization. As the old proverb reminds us: “Mighty oaks from little acorns grow.”
A culture audit conducted in a timely way identifies the gaps, dualities, hidden liabilities and assets in a system. However, conducting a culture audit is not an overnight exercise and neither is the work that is done as a result of the culture audit itself, but its impact will undoubtedly be felt soon enough.
It is not possible to say exactly what a culture audit would uncover in your organization. Culture auditing is an exercise tailored to take into consideration not just the organization itself, but the goals set out in the review. Unlike financial assets and liabilities, the assets and liabilities of organizational culture can often act as chameleons. That is why the goal of the culture audit is not to assume or to draw quick conclusions. It investigates the issues, examines different angles and explores the consequences.
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