cultureeats3

When Will Companies Learn Their Lesson? Culture Eats Strategy for Breakfast.

Enron. Mylan. Wells Fargo.

Three successful companies that experienced significant declines in value because they did not recognize the importance of corporate culture.

At Enron, the prevailing corporate culture was to push everything to the limits: business practices, laws and personal behavior. This culture drove Enron to dizzying growth, as the company remade itself from a stodgy energy business to a futuristic trader and financier. Eventually it led Enron to collapse under the weight of mindbogglingly complex financial dodges. At the end, executives were still trying to protect $100 million in bonuses they felt belonged to them.

At EpiPen maker Mylan, the company put a special incentive plan in place more than two years ago that rewards executives if they hit aggressive profit targets. For example, one goal was to double earnings in less than five years. If the targets ere achieved, the bonus potential was $82 million.

At Wells Fargo, many of the employees felt pressure to sell customers multiple products or services—for example, home-equity lines to certificate of deposit holders—to stay in their jobs or earn bonuses tied to sales goals, according to interviews with current and formerWells Fargo workers. Some branch employees met with their managers several times a day to report their progress on meeting cross-selling targets, they added. Staffers at Wells Fargo allegedly created as many as two million fake email addresses, such as “noname@wellsfargo.com,” to enroll unknowing consumers or people who don’t exist in online-banking services to hit sales goals. CEO John Stumpf claims however, that this behavior  “in no way reflects our culture nor reflects the great work the other vast majority of the people do.” I respectfully disagree.

Unfortunately these are not the only firms that have had such problems as a result of a culture that was so focused on achieving certain financial results that it led employees to make questionable, and sometimes, illegal, decisions.

A favorite saying of mine is that “culture eats strategy for breakfast“, coined by the great management theorist Peter Drucker.

In all three cases noted above, executives created a culture that was obsessed with financial performance, and offered incentives to achieve those high levels of financial performance.

While such incentives often help a firm to succeed, we can see from these three examples that sometimes the incentives go too far and end up creating an unhealthy culture, and poor decision making.

Despite the negative effect of culture in these instances, I think Drucker’s words still hold true. It’s just that the breakfast these companies were eating consisted of excessive bonuses, overly aggressive performance targets, and a healthy side dish of greed.

A combination that has potentially fatal consequences.

 

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Jim Borden

Accounting Prof. at Villanova; happily married for 30+ years; father of 3 outstanding young men; vegan; interests: fitness, creativity, education, blogging, social media.

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