The problem with corporate 'values'

"Don't be evil" - Google

"Creating a culture of warmth and belonging, where everyone is welcome" - Starbucks

"Include and empower" - Zillow

CORPORATE values sound really good. They're positive, optimistic, and assert some sense of moral authority, which has become expected by consumers: A majority say they expect companies to take a stand on issues, whether they agree with the stand or not.

"Moral leadership in this country has been ceded to the corporations now. I don't think anyone has much faith in politics taking care of people anymore. Corporations are sort of the default, and there's a lot of pressure on them to do the right thing," says Tyler Wry, a management professor at Wharton. One way corporations take up that mantle is through corporate values statements.

Statements on corporate values are pervasive: About 80 per cent of large companies have an official list of values on their websites. At their best, core values are spoken of as hallowed and immutable, the heart and soul of a company.

Despite the language of essentialism around them, though, corporate values don't always track with company behaviour (all the value statements above have come under fire for inconsistencies with action). Despite lip-service to the contrary, the long-term vision that values require is not rewarded. Generally, corporate governance norms are based on the shareholder value model, which enshrines maximising shareholder profits as a company's raison d'être.

This model in its most typical application operates at the expense of a labour and economic ecosystem. We've reached a tipping point in this power imbalance triggering both individual and collective action. Employees are resigning at unprecedented rates, with many employees opting out of the system entirely.

Despite rising incentives, when companies are unwilling to make governance and policy changes, it's hard to see initiatives like extra time off or even pay raises as anything other than an attempt to placate employees in lieu of giving them more power.

The value of values

Corporate values are guiding principles and beliefs that serve as the foundation for behaviour. These values are reflected in the decisions the company makes: who gets hired and who gets fired, what gets rewarded and what gets punished.

Broadly speaking, values say what a company cares about. They refer to ethical characteristics like integrity and respect, strategic lenses like customer focus, and ways of working like collaboration (all four values listed appear on about 30 per cent of value statements). It's also become common to see social impacts noted on corporate value statements, like diversity and environmental impact.

Internally, values can guide the day-to-day employee experience, like a culture of feedback or innovation. They speak to expectations, both how employees are expected to behave and how they can expect to be treated. Externally, they articulate what customers and other parties can expect in their experience.

Corporate values are also integral as marketing tools. Leaders really like to talk about them: More than three-quarters of chief executive officers interviewed in recent decades in Harvard Business Review spoke about their company values, even when they weren't specifically asked about them.

This messaging can pay off. According to a recent study from the Bauer Leadership Center at Washington University in St Louis and Vrity, a brand measurement company, 82 per cent of people say they are willing to pay more money to buy from companies whose values align with their own, with 43 per cent of respondents willing to pay twice as much.

On the recruitment side, company values may help attract and retain talent. They also may make employees more engaged, and engaged employees are productive employees.

No significant impact

The problem is, values often don't have a significant impact on making the world better. Diversity statements can do more harm than good. Environmental impact commitments fall short.

One obvious reason is that the highly subjective nature of value statements renders them nearly meaningless. Values are couched in the language of platitudes: respect, integrity, and even having a positive impact on communities mean different things to different people.

There are some relative exceptions, like Netflix. Its actual values are no longer novel - they've been parroted by many tech companies - but the form embodies best practices, with a highly detailed culture memo of more than 4,000 words that takes a strong perspective on what each of their values means in context.

Netflix's stated values range from the typical - respect, communication, and inclusion - to nuanced, company-specific norms like freedom as the explicit priority over error prevention. The memo includes statements explaining why they set these norms and examples of actions that support values.

In at least some ways, it sets the stakes: The memo talks about compensation in line with values, having a fire-fast culture for those who don't live up to them, and incentivising people who want to leave to do so by fully vesting company stock options rather than requiring employees to stay for a certain amount of time to cash out.

In a more typical vacuum of process and operating principles, though, application and enforcement are up to interpretation.

In early 2020, a US Bank employee was fired for bringing a customer who was stranded at a nearby gas station US$20 with manager approval. (Her manager was also fired for approving the trip; the bank cited "unnecessary risk" and said it does not allow call centre workers to meet with customers.) US Bank's culture statement at the time was, "Our employees are empowered to do the right thing" (the language has since been changed to "We do the right thing").

Doing the right thing is highly personal, and asks the question, the right thing for whom? The employee acted in a way consistent with her interpretation of company values, yet was terminated without severance for "putting herself and the bank at unnecessary risk", answering the implicit question with "the company".

Inconsistencies in internal value application can attract negative attention and impact brand sentiment, but the effects are often temporary and do not catalyse substantive changes. "To a certain extent, it's driven by news cycles. The company thinks that they manage these things with PR as opposed to action. I mean, it's a cheaper solution," says Wry.

The root cause of bad strategy around values is that for most companies, no matter what they say, values simply are not a top priority.

This is not a moral judgment against corporates, but a simple fact of how corporate governance works. Values are a long-term commitment. Research indicates that prioritising community and employee satisfaction do have positive long-term financial gains, but to actually live up to their promises takes resources, and as a rule, short-term financial priorities win out over any value statement, no matter how detailed.

The longstanding defence of maximising shareholder profits is that it is the most likely to ensure the survival of the business, which is good for everyone. In practice, though, limiting the end goal of companies to making money for shareholders has shifted gains from worker productivity to shareholders, stagnating wages and stifling economic growth. In 2019, the average CEO made 320 times as much money as the average worker.

Upending hierarchies is a big cultural shift - one that requires a lot of work, process, and bureaucracy, not to mention a departure from current operating norms - but it is long overdue. The solution is procedural changes: distributing voting power, with stakeholder needs systematically represented, and expanding the definition of success beyond purely the financial and setting incentives and accountability to that end.

They are not without precedent. "If you look abroad at the number of European countries, including one that's well known for it, Germany, there's a co-determination system, so by law, employees actually are entitled to have seats on the board. They do not only voice concerns and suggestions. They participate in the key strategy decisions," says Julie Battilana, a professor of organisational behavior at Harvard's Business and Kennedy Schools and the author of Power, for All.

Procedural changes are not as flashy as culture decks, but they are how companies can expand their focus past financial goals. And with a quick reframe, they can sound like the best kind of value statement: articulating a long-term vision and how to execute on it.

It's subjective, perhaps, but so is "doing the right thing". VOX