Category Archives: Management

What Business Leaders Need to Know about Defining Corporate Values

What Business Leaders Need to Know about Defining Corporate Values
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Business leaders often seem to put a lot of stock in values by giving them a central role on websites, framing them in meeting rooms, and bringing them up in interviews. However, all too often, these values do not actually penetrate to the core of the company. Customers and employees alike may not know what they are or—even worse—believe that they do not accurately reflect the work of the organization. Of course, executive teams have the best intentions when they set out to define a company’s purpose and define supporting values. However, the truth is that these ideas are much easier to write down than to carry out in real life. Establishing core values that truly stick and serve to guide a company’s development takes a lot of effort.

The Hidden Costs Behind Establishing Corporate Values

What many business leaders do not quite understand about corporate values is that they come at a cost. “Excellence” and “innovation” are great values to have and do not really cost a company anything in the end. True values will eventually cause a company to make sacrifices. For example, both Nucor and Southwest have put their employees first and created a policy that they will never conduct layoffs. As a result, while both companies have faced difficulties, they have never reneged on their stated values. A decade ago, Nucor actually lost almost $300 million and Southwest posted quarterly losses that year. While employees would have understood if layoffs occurred and investors would have encouraged them, both companies favored poor earnings reports over jeopardizing the trust of their employees.

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An article in the Harvard Business Review by Patrick Lencioni explains that real values will eventually cause pain to a company. If this is not the case for a business leader’s values, then the organization should re-evaluate its priorities and reformulate what it considers to be most important. Innovation can be a value provided that a company is willing to sacrifice other business processes to maintain that one. When values are involved, there is a price to pay. Think about companies that value collaboration and part ways with employees who denigrate their peers. These organizations surely lose some of their best talent in the process. However, they also gain something important in creating the type of culture they value. Thus, the value has real purpose.

Creating Corporate Values That Serve a Real Purpose

Values should always serve a purpose. However, leaders can sometimes take the hidden costs of values too seriously. Perhaps the most famous reflection of this tendency is the story about Nordstrom, which holds customer service as a value and, upholding this belief, accepted a customer’s return on a tire when the store did not even sell this item.

The purpose of valuing customer service is in building trust with these individuals, not blindly following the will of customers. While accepting fraudulent returns is not the same as customer service and will cause some degree of financial backlash that will cause shareholders, employees, and/or customers to devalue them, the real version of this story is different. The Nordstrom store was in a location recently occupied by a tire store, and the customer was legitimately confused. The manager recognized the sincerity of the customer and approved of the return as a sign of goodwill. Thus, the situation was not quite as ridiculous as some people might have thought, although it still demonstrates that there must be a balance between sacrifice and purpose when it comes to corporate values.

The Difference Between Corporate Values and Beliefs

The other problem that business leaders face when it comes to establishing corporate values lies in sorting out the difference between values and beliefs. While the empty platitudes that often become a company’s values actually represent beliefs, true values should reflect bold choices directly related to the overall mission of an organization. In that sense, figuring out values is more about looking at choices than beliefs. Going back to Southwest, the airline places a major emphasis on having fun. This value has nothing to do with actually operating an airline. However, it does guide how the company operates, from its in-flight materials to the people that it hires. This is the sort of value that really distinguishes a company from the competition and makes it unique. Values should always move toward the greater mission.

Another example worth considering is Google. The company values quantitative decision-making and data. This value accurately reflects the purpose of the company and its work. However, it also tells customers something about how Google operates. The company will not make moves based on the intuition of its leaders. Instead, it bases its decisions on data. This value does involve some degree of sacrifice, as it may slow business processes when speed is important. However, it reflects what the company ultimately considers to be most important.

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