Corporate culture starts at the top

Last Monday, I wrote about how important corporate culture can be, particularly during crises. The unfortunate thing is that this research was based on machine learning analysis of earnings calls, which is not at the disposal of most investors. So, how can we grasp the culture at a firm?

In my view, the main indicator of the culture of a company is the one I have mentioned several times in these posts before: Voluntary employee turnover. If employees don’t like a workplace they vote with their feet. And as the saying goes: People don’t quit jobs, they quit bosses.

It is the behaviour and the character of the top management and the middle management at a company that sets the tone and that drives good people away or attracts quality people and keeps them motivated. A company that allows narcissists to flourish will inevitably experience a broad decline in profitability as I have shown in my ongoing series on the impact narcissists have on businesses.

Speaking of which, I recently got asked if I have produced an overview article on this topic, and since I haven’t here is a list of the posts I have written so far for your enjoyment:

• The “No jerks rule”

• Hold my beer

• At least there is one upside to narcissistic CEOs

• Two narcissists walk into a bar

• A narcissist manages money

• Narcissistic risk takers

• Narcissists vs. pushovers

It feels like I must have missed some because I am sure I have written more about narcissists than just seven articles, but you get the gist.

But I recently came across another study that provides a useful indicator for poor corporate culture: staggered boards.

For the uninitiated, staggered boards are corporate boards where not all directors are elected at the same time, but only a fraction (typically one third) are elected at any given time.

Activist investors hate staggered boards because it makes it almost impossible to replace an underperforming board and ensures that the ‘old buys club’ can remain in power even against considerable resistance from shareholders.

Using the corporate culture indicator I discussed last Monday, this new research showed that companies with a staggered board have on average a 7% lower score on corporate culture, which in turn leads to all kinds of adverse outcomes like worse performance in adverse times. But what did you expect, if the company leadership doesn’t have to fear being summarily sacked by shareholders, why should they worry about poor performance of the company. As long as they can keep their cushy jobs, the world is going to be fine for them…