“Corporate culture is the only sustainable competitive advantage that is completely within the control of the entrepreneur.”

David Cummings, Co-founder of Pardot

“The #1 thing I wish I had done differently? I wish that I had developed clear core values and that I had used them in my recruiting process, to filter out candidates that didn’t fit our culture,” said the CEO of this consumer good company that went through a roller coaster over the past decade. Ten years ago his company had a lot of traction, their products were flying off the shelves, and they were in a hiring spree. Several years later they hit a number of roadblocks that put them in a tough financial position – and the impact of their toxic employees (these high-performing employees, whose values are not aligned with the company values, and therefore create a bad atmosphere within the team – and, when they are in sales, with clients) became extremely painful.

What are core values?

Core values are a handful of non-negotiable behaviors that everybody in your company lives by. Core values establish and protect the company culture: they are a set of beliefs that define the desirable and the unacceptable behaviors in the company. Core values are not aspirational – these are rules that you actually live by on an everyday basis. As such core values are timeless: they will still be the same in 100 years.

Core values in a company work just like parenting values. I learned this from my grandmother, who single-handedly managed to maintain a steady discipline in her house full of grand children during the summer months:

  • Have a handful of rules: not 10 or 20 – just four or five rules.
  • Share and repeat these rules often.
  • Set an example and live by these rules yourself as a role model.

Brad Giles in his weekly podcast The Growth Whisperers compares core values to a themed party. When your party doesn’t have a theme, people “act in whatever way they feel inspired to.” However, if your party theme is James Bond, “people bring the James Bond part of themselves to the party.” Core values have the same impact: they clearly communicate which side of people you want to see at your company. Some people are not interested in their James Bond side – and that is fine: this party, or your company, is simply not for them. The same applied to my grandmother’s house: if we wanted to spend time there, we had to abide by her rules – and sometimes behave differently than at our parents’ house.

Every company has core values – but they are not always documented, or may be documented in an employee handbook that people read once a year. The issue when values have not been formalized or are not alive in the organization, is that “you may have the wrong or disempowering core values – eg whoever yells the loudest wins, or never admit that you made a mistake” as Mike Goldman, the author of “Breakthrough Leadership Team,” points out.

Why you should care about culture – and core values

Goldman highlights how culture impacts profitability and growth: “In 1992 two Harvard researchers examined 200 US companies to determine whether a strong culture that valued employees and customers had any effect on the companies’ long-term economic performance. After analyzing these firms’ financial performance over more than a decade, the researchers discovered that companies with “performance-enhancing cultures” – particularly those that focused maniacally on customers’ needs and empowered all employees to lead the way in meeting those needs – simply killed the competition.

In net income, the firms with strong corporate cultures enjoyed a 756% growth over 11 years, while firm that were indifferent to culture grew at 1%.”

Goldman concludes: “Corporate culture can contribute meaningfully to financial results, and many people do not give this fact enough attention.”

How do you know whether you have the right core values?

Some companies have values that look really cool on a wall, but that don’t mean anything because they are not alive in the organization: nobody in the organization knows what they are and live by them on a day-to-day basis. They can be great marketing but meaningless as a management tool. How do you know that your core values are the right ones, the ones that will anchor your culture? I like to use these three tests with my clients to find out:

  • Is it a fireable offense? Are you committed to firing anyone who repeatedly and blatantly violate your core values, even the best sales person on your team?
  • Are you willing to take a financial hit to uphold your core value? Would you continue to hold this core value if it became a competitive advantage?
  • Is that core value alive in your organization? Core values are not aspirational (because they are non-negotiable).

Brad Giles mentions another test for the CEO and senior leaders: “If you won the lottery tomorrow, would you still continue to live by these core values?” In other words: are these core values genuinely who you are, or is it just a mask?

If the answer to any of these questions is negative, you don’t have the right core values, and you should get back to the drawing board.

Some companies have values like “Innovation.” Are you going to fire someone who is not innovative? Are you going to fire an accountant who is not innovative? Often the answer is no – which is a clear indication that this is not one of your core values. In some companies though innovation is at the very core of what they do – and they expect everybody, including their accounting team, to actively support innovations. An accountant who stands in the way of innovation would clearly not fit in this culture. In this case, innovation is one of the company core values.

Another common core value is “Respect.” Are you going to fire your best sales person if they don’t respect your people? If the answer is no, “you core values become a joke, because you allow your best people to get away with not living the core values,” as Mike Goldman points out. When you don’t apply your core values evenly and fairly, you can just as well stop communicating about them: nobody in your company believes in your core values anymore.

Clashing values?

Coming back to the parenting analogy, I have always found striking how young parents re-assess their friends: It is hard to spend a weekend with friends who have vastly different parenting values. What was supposed to be a good time typically ends up in an open fight or in a passive aggressive atmosphere. The same applies to a company. When people have radically different belief systems, it is a nightmare: it is hard on them and hard on you. Not defining this belief system is therefore not fair to your team.

Core values enable you to say loud and clear the kind of people that you want in your company: You want to stack the team with people with similar values. People with similar belief systems (or core values) enjoy working together more. As Brad Giles describes, “There are a lot of different ways to get results, but you want people who will get these results with a similar belief system.”

How do you bring your core values to life?

 In order to anchor your culture, core values need to be visible and communicated frequently. There is a myriad of ways to do this; at some companies team members are asked at each weekly team meeting to tell one or two recent stories about how a colleague has lived one of the core values in the past few days. Other companies paint these core values on the walls, incorporate them on their websites, and integrate them in their onboarding process for new employees.

Your goal is to create a team that abide by the same core values: testing new candidates for values when recruiting is therefore critical. One of Amazon values is “Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results.” To test candidates for this value they ask a question like: “Tell me about a time when you had to make a difficult short-term decision to make long term gains.” Or, to test someone’s ability to simplify complexity (another one of Amazon’s values): “Tell me about a time when you failed to simplify a process and what you would have done differently.”

Bi-annual employee evaluations are also an opportunity to gauge how people are living your core values. Brad Smart is his book “Topgrading” shares a simple tool to help evaluate your team. Brad Smart would challenge you to honestly rate every team member starting with your leadership team along two dimensions: alignment with company core values and productivity.  This simple tool described in this article helps you clarify who needs to be coached and on what.

Brad Giles shares this method to find out whether core values are alive in your organization: “In the quarterly employee survey ask for three words that best describe the company culture. These words should be highly correlated with your company core value” if the core values are alive in your organization.

Conclusion

 Core values anchor a company culture – but only if they are alive in your organization. If your senior leaders need to check the employee handbook to remember your core values, they are clearly not alive in your organization.

The CEO plays a critical role in bringing the core values to life. Brad Giles in “Made to Thrive” quotes Carl Buehner: “People may forget what you said but they will never forget how you made them feel.” Giles continues: “Effective stories that make us feel something are the ones that we remember the most. Stories about great things that have happened in the business recently, and that illustrate one of your core values. If someone has done something great recently that showcased the definition of one of your core values, who better than the CEO to acknowledge this great achievement.”

As a business coach I work with founders of mid-market companies who are frustrated because their business is not growing the way they want – often because their company has outgrown their management approach. I help them adjust their management approach to get back on track to profitable growth. A lack of clarity around values is often one of their roadblocks, because it generates a weak culture – which slows down the company growth. I would like to learn about your growth roadblocks; contact me to discuss at Xavier@AmbroseGrowth.com.

What about you? Are your core values alive in your company? How do you use your core values in recruiting and employee evaluation?