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Published: May 23, 2005

 
 

The Value of Corporate Values

Regional variations on the factors that help align practices and values are significant, although globally, two top the list: the behavior of the company’s CEO, and corporate strategy itself. In North America, it’s personal. Seventy-three percent of respondents in the U.S. and Canada say that “my personal values system” is a primary enabler for aligning values with decision making, compared with 60 percent who cite corporate strategy. Beyond these enabling factors, no factors score higher than 40 percent among North American respondents.

In Europe and Asia/Pacific, only 47 percent and 35 percent, respectively, select “my personal values system” as one of the top five factors enabling decision making consistent with corporate values. Among Asian companies, values-based decision making is driven much more by corporate strategy (78 percent) and customer demand (53 percent) than is the case at companies in North America and Europe.

As for factors that inhibit the alignment of values and management decisions, one stands out. Among financial leaders, fewer than one-third say short-term economic costs hinder alignment with values; among other public companies, however, more than half are deterred by the short-term costs.

Embracing Opportunity
Our survey shows that values are seen by the corporation as a critical component of establishing its license to operate. However, the research suggests that while the logic in relating values-based management to business performance has a strong following among executives around the world, the management practices and measurement techniques related to the values are works in progress at most companies. Specifically, there seems to be a lack of recognized “best practices” in establishing linkages between values and both long-term strategic goals and shorter-term results. There is also relatively little agreement on what works and what doesn’t work, both in aligning values with strategy and in embedding values in management processes.

Executives generally see the impact of values on important strategic objectives relating to corporate reputation and relationships, as well as to product quality. However, most have a harder time seeing how values directly affect the top and bottom lines. This is not surprising, because business has always had a hard time dealing with intangibles. Consider, for instance, the decades’ worth of discussion, academic debate, and trial and error that have gone into defining and measuring the returns on investment in brand, research and development, and training. In the same way that techniques have been developed to measure the returns on these intangibles, leading companies are beginning to develop ways to measure the return on values.

The study does show that companies that can be called financial leaders have come further in understanding the relationships between values and performance, that they are doing a better job of exploiting them, and that their more comprehensive approach to values is associated with superior financial performance. This suggests that, although all companies may be convinced that values are important for avoiding risks, many have yet to discover how to use them to grasp opportunities. It also suggests that there is substantial scope for identifying a set of best practices that may some day enable all companies to better measure and align their values with their strategies.

So the next set of imperatives is for business leaders to move from talking about values and viewing them defensively to embracing them in order to drive corporate performance and change — and for executives at companies that have figured out the linkages to do a better job of demonstrating their success. Consumers, investors, and other constituencies become leery of corporate imperatives that don’t deliver demonstrable results, and corporate values are no exception. A commitment to corporate values may be in vogue, but the public will remain suspicious until corporations both understand and can demonstrate that they are committed to using values to create value.

 
 
 
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Resources

  1. Mitchell Pacelle, Martin Fackler, and Andrew Morse, “For Citigroup, Scandal in Japan Shows Dangers of Global Sprawl,” Wall Street Journal, Dec. 22, 2004
  2. Anne M. Mulcahy, Keynote Address, Business for Social Responsibility annual conference, New York, N.Y., Nov. 11, 2004
  3. Daniel Yankelovich, “Making Trust a Competitive Asset: Breaking Out of Narrow Frameworks,” a report of the Special Meeting of Senior Executives on The Deeper Crisis of Trust, New York, N.Y., May 15–17, 2003; Click here.
  4. CFO Thought Leaders: Advancing the Frontiers of Finance, edited by Rob Norton (strategy+business Books, 2005)
  5. Lynn Sharp Paine, Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance (McGraw-Hill, 2003)
 
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