Leadership and Organizational Culture

An article by Ron Mau     Comments Off

Goldman Sachs was in the news recently as an employee resigned via the New York Times op-ed page. The resigning employee indicated the trajectory of the corporate culture at Goldman Sachs had resulted in a toxic and destructive environment. According to this employee, the firm is certainly at the forefront of establishing how work will be performed in the organization, what will be valued by the organization and the market values corporate culture as demonstrated by Goldman Sachs losing over $2 billion in market value the day the resignation letter was published. A key question then is how do leaders establish, influence, change and/or manage an organization’s culture?

To address this question, we should first define corporate culture. Corporate culture is a product of the firm’s core values and business principles management (leadership) espouses. Culture includes what is acceptable and what is not, and ethical principles of the firm. A simple way to consider culture is “the way we do things.” Culture is also related to an organization’s history. Schein (1990) describes the culture creation process as partially consisting of modeling by leaders that members can identify with and internalize the leader’s examples. However, some aspects of the leader’s behavior will work and some will not due to the history artifacts in the firm. Leaders and future leaders will find parts of an organization’s culture embedded and difficult to impossible to change.

Changing culture is not easy and cannot be done quickly. To overcome the history, leaders need to be patient and continue to attempt to embed their views of “the way we do things.” There are mechanisms that will assist in the process. Schein (1990) provides five primary embedding mechanisms:

1. What leaders pay attention to, measure and control
2. How leaders react to critical incidents and organizational crises
3. Deliberate role modeling and coaching
4. Operational criteria for the allocation of rewards and status
5. Operational criteria for recruitment, selection, promotion, retirement, and excommunication

Schein also provides five secondary articulation and reinforcement mechanisms:

1. The organization’s design and structure
2. Organizational systems and procedures
3. The design of physical space, facades, and buildings
4. Stories, legends, myths, and symbols
5. Formal statements of organizational philosophy, creeds, and charter

These ten items all seem reasonable for an organization’s management to establish and implement and will assist in creating, modifying, and managing culture. The importance of doing so is at least two-fold. The market place and labor market do consider and value an organization’s culture and cultures are continually evolving. Changes in the marketplace, new technologies, changing internal conditions (i.e. internal crisis, changing business prospects) all challenge “the way we do things.”

Establishing Schein’s primary and secondary mechanisms can assist in managing the organization’s culture. Are your mechanisms established?

Reference(s): Schein, E.H. (1990). Organizational Culture. American Psychologist, February 1990, 109-119.