Different types of cultures place different demands on a CEO, but is it culture or leaders that determines behaviour?
Recently, I was asked by a bank what kind of a CEO a bank might need to shape its culture. But hang on: do CEOs shape culture?
I have heard several CEOs say: “When I came here, I had to change the culture.” But does not the culture also shape the CEO, for example by choosing the candidate and by setting success criteria?
Culture even determines what a “strong leader” looks like. Therefore, the question for a bank is not: “Can we find a powerful CEO who can come to change us”, but rather: “What CEO can work with our culture and evolve it?”
Corporate culture, underneath its visible processes, artifacts and value statements, is linked to what motivates the employees and defines their social contracts – among themselves and with the organisation. Therefore, culture has a strong emotional component expressing what people find right and satisfying.
The chart below is an overview of organisational cultures; two of the culture types should look familiar to banks. The mercenary organisation has a clear strategy and incentivises its employees to take the right actions – but relationships are not prioritised. This can work well when goals are clear and measurable, but it does not foster loyalty.
The fragmented organisation is low on common goals and relationships. Its members are partners who independently hunt business, competing to be the most macho, successful “hunter”. This can work well when there are few interdependencies between partners – such as in law firms, consultancies and investment banks.
Money (whether a monthly pay packet or a bonus) is not the key driver in all organisations. Networked organisations put relationships (positive and negative) centre stage; in elite organisations, people are motivated by “being the best” and doing all they can (including burying internal conflict hatchets) to preserve this status. I once told the CFO of a bank that academics were powerfully motivated by recognition and praise. He said: “That’s interesting. In my organisation, people don’t care about recognition. You could put my office on the street corner among the deadbeats – as long as you pay me my £5m bonus!”
Finally, the communal organisation emphasises a common identity, common purpose and mutual commitment – an ideal that is wonderful in good times but tested when times are bad and resources scarce.
It is not that one culture is better than the other, just that they emphasise different things. In 2002, I had the chance to work with Hewlett Packard, historically a network-oriented organisation, who had just bought (or merged with) Compaq, historically a sales-orientated, mercenary organisation. Some employees told me: “This is a tragedy: the solidarity is lost. People who used to have enough trust in each other to try out new things and innovate are now just doing the obvious straightforward stuff to make the numbers.” Others said just the opposite: “This is great; the old morass where no one was accountable and there were too many free riders is being drained and people are now held accountable for what they are contributing.” They were both right.
Culture, not leaders, determine behaviour
But each of the different types of culture places very different demands on the style of the CEO, and their behaviour reflects the dominant culture of their organisation. The communal organisation welcomes the often described role-model charismatic CEO: he or she does it all, inspiring the employees to share values across relationship networks, while at the same time developing a strong strategy that allows everyone to contribute to a common goal. But this is really hard. It tends to be sustained only in small companies where everyone can rally around a charismatic leader and common goals. Large companies easily fragment because different units do different things and, typically, either relationships or incentives takeover when hard trade-offs have to be made.
In mercenary firms, a CEO embodying the culture means crafting strategies with formal performance measurement and incentive systems and holding people accountable for achievement. In fragmented organisations, the CEO is more of a “primus inter pares” who eggs on the partners to out-do one another and bring home the bacon.
Some elite organisations can harness their reputation to motivate employees to look for common ground and act together. In a networked organisation, CEOs encourage a bottom-up approach, where people can take initiatives that are then negotiated and, ideally, pruned into a cohesive set of actions. My own organisation is of this type, and it is an art to channel initiatives into high-energy directions without imposing formal goals from the top.
Motivation, culture and the banking sector
So why do I talk here about banks’ needs to wisely choose CEOs? The demands on bank CEOs are changing. As retail banks begin to compete on new dimensions of customer service, formal incentive systems may become insufficient to support the new model. CEOs will need to foster the shared values, relationships and emotional commitment that underpin excellent service.
And as exorbitant incentives in investment banks come under attack (in no other industry do the management teams take home so much of the economic value created by the firm), maybe CEOs will need to morph from a “macho” style of leader who fires on partners to someone who can foster a culture built on delivering shared value to customers, building an ethos of service excellence rather than “we are the best and will therefore rule the world”.
In combined financial institutions, the CEO may need to do several of these things in parallel, working with the right leadership team. Because as every trader knows, changing times create new opportunities – and as the demands on the banking sector evolve and change, so, undoubtedly, will their leaders.
Notes: the picture and the discussion are based on Goffee and Jones, What holds the modern company together, Harvard Business Review 1996; and on Loch, and Wu, Behavioral Operations Management, Foundations and Trends® in Technology, Information and Operations Management 1 (3), 2007, 121-232.