Why culture matters to every business - large and small

22nd December 2014

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All businesses, whatever their size, have a business model which essentially describes the way they make their money. Most succeed by finding a way of delivering real value to their customers. Some look for a way of exploiting the vulnerability of customers in the hope they will not really notice as the banks stand accused of doing in the run-up to the financial crisis.

Whether they are benign or malign, business models will both reflect the values of those that designed them and affect the behaviour of the staff that  deliver them. A strategy like that of the worst banks, which was based on taking value away from the customer, will signal to the employees that, if it is all right to cheat the customers it is also all right for them to cheat their employer.

But that way can easily end up provoking crisis, which is why culture and values matter to every company. A business model underpinned by strong ethical and social values is likely to be sustainable and to secure the firm’s franchise. One built on flawed values is likely to founder. It is no coincidence that ethical culture at Tesco has come under scrutiny in the wake of its troubles. Tesco may not have been trying to deceive its customers, but it is accused of bullying its suppliers in a way which has sullied its reputation and damaged its brand.

Smaller companies may think this is not relevant to them. Often they lack the resources to run ethics and compliance departments as large companies do. But the cost of addressing the issue is not as great as it might seem and the price of neglecting it can be catastrophic, especially for companies who are part of a supply chain where high standards of behaviour are expected of them.

Consider these two simple steps. First, has your board agreed a clear set of values which drive your business? Do you want to be seen as honest, reliable and a company which respects those it deals with? Or the opposite, having a reputation for dishonesty, being unreliable and trampling over stakeholders? How would that affect your company?

Most people working  in companies want to do the right thing as they do in their private lives. But companies are made up of groups of people, often working under pressure. Sometimes group dynamics can lead them to make decisions they later regret, for example to ignore safety in order to get a job done in budget and on time. A clear set of collective values can protect them and your company from bad decisions.

Secondly, look at the targets are you setting for the employees. If they are so demanding that they cannot be met, and if your employees are terrified of what will happen to them if they fail, they will cut corners in ways that can put the whole business at risk. When that happens people are left wondering whether things could have been different, if the senior management had paid greater attention to corporate values and embedding them in the business. A good question, but it is better to ask it before trouble hits rather than later.

This article was written by Peter Montagnon, Associate Director, Institute of Business Ethics (IBE). For more details on how boards and managers can build a strong culture see Ethics, Risk and Governance, by Peter Montagnon, available from the IBE.

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