A landmark study produced by my firm has confirmed what many of us knew in our guts all along—CEOs who cultivate engagement and high-purpose cultures do better for investors, employees and themselves.
These respected leaders create environments that generate:
• Engaged and loyal employees
• Fanatical customers
• More innovative processes, products and/or services
• Above-market-average financial returns
• Higher personal compensation
• Outstanding recognition in the media
Our new report “Culture as a Management System: How CEOs Who Lead High-Purpose Organizational Cultures Deliver Remarkable Business Performance” draws on Gapingvoid’s work with a wide range of clients including AT&T, Microsoft, The U.S. Air Force and Zappos, building on our own compiled data with proprietary analyses along with respected third-party studies.
We developed this study because we realized that although the conclusion that workforce engagement significantly predicts organizational financial return on assets, net margin, and customer satisfaction had been proven, no one had actually taken the next step, exploring whether the CEOs who help drive these high levels of positive culture are rewarded with personal success. So we narrowed our focus and did the research.
Our report shows the answer to our query is a resounding ‘yes.” Gapingvoid’s research team found CEOs who embrace well-executed organizational cultures are powerful drivers not only of value creation, but influence, status and of personal income.
Simply put, by helping others they’re helping themselves in a big way.
7 Pillars of (Leadership) Wisdom
Here are some of the key findings from our study:
- High-Purpose CEOs Attract Top Talent. The most successful CEOs recognize the value in cultivating a meaningful work environment where employees feel valued. Employees’ perception about their work matters, and it shows in the bottom line. Culture is frequently viewed as too “soft” to warrant concern. However, CEOs who focus on purposeful culture increase the workforce’s ability to produce extraordinary, sustainable results.
- High-Purpose Cultures Predict Employee Retention. Companies with high-purpose cultures have employee turnover rates about 50% better than industry competitors. With average costs of turnover estimated at 90% to 200% of the exiting employee’s base salary, lower turnover rates result in significant cost savings, as well as knowledge retention. Low turnover maintains knowledge in the organization in addition to the cost savings mentioned above.
- Companies with High-Purpose Culture Have Superior Financial Returns. The CEOs of the best high-purpose culture companies command revenue growth of an average of 10.5% YoY while the worst suffer revenue declines at an unsustainable average of -4.4%. This is a 15 percentage-point difference.
- High-Purpose Cultures Enhance Share Performance. These companies averaged stock returns of 11.5% annually over a 17-year period, compared to a market average of 6.4%.
- CEOs Valuing Culture are Compensated More. The CEOs analyzed who instill and oversee high-purpose cultures earned total compensation of about .16% of company revenues. At the other end of the spectrum, CEOs from companies with poor culture scores, overseeing low-purpose cultures, earned about .07% of total revenues.
- Culture-centric CEOs are Highly Regarded by the Media. The best-rated CEOs are “loved” by traditional media. The research shows that they enjoy more favorable coverage and higher numbers of positive-toned mentions in media channels with broad reach.
- High-Purpose Culture is a Competitive Advantage. This finding is backed by leaders who’ve ‘walked the walk.’ In the words of Louis Gerstner**, the former Chairman and CEO of IBM responsible for its legendary turnaround, “Until I came to IBM, I probably would have told you that culture was just one among several important elements in any organization’s makeup and success – along with vision, strategy, marketing, financials, and the like. I came to see, in my time at IBM, that culture isn’t just one aspect of the game; it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value.”
Involvement, Innovation, Cooperation
Gerstner’s words sum up Gapingvoid’s research and our approach. To succeed over the long-term, culture needs to be the driving force behind all aspects of corporate management. Companies must do more than print mission statements and lists of core values; consistent initiatives must put these values into practice. Otherwise, they’re just platitudes.
We all know “trust” and “integrity” are important, but what really matters is that corporate leadership does the work to create cultures that showcase these values at every level on a daily basis.
The wisdom of IBM’s transformational CEO reflects another key finding from our CEO Study—Companies with High-Purpose Culture are More Innovative. And, as we know from real-world examples like Blockbuster and Netflix, survival and success depend on openly embracing innovation.
Our CEO study found companies with higher levels of trust in leadership—backed by a greater willingness to hear input from all levels of the corporate hierarchy—are the ones that support innovation by forgiving honest mistakes, involving employees in decisions, increasing cooperation, and demonstrating appreciation for extra effort.
These recommendations may sound incredibly simple, but successful leaders like LinkedIn’s Jeff Weiner, St. Jude’s James Downing and Enterprise Holdings’ Pam Nicolson and others highlighted in our report will tell you they’re incredibly hard to achieve.
*From Gerstner’s book Who Says Elephants Can’t Dance.