Corporate culture refers to the shared values, attitudes, standards, and beliefs that characterize members of an organization and define its nature. Corporate culture is rooted in an organization's goals, strategies, structure, and approaches to labor, customers, investors, and the greater community. As such, it is an essential component in any business's ultimate success or failure. Closely related concepts, discussed elsewhere in this volume, are corporate ethics (which formally state the company's values) and corporate image (which is the public perception of the corporate culture). The concept is somewhat complex, abstract, and difficult to grasp. A good way to define it is by indirection. The Hagberg Consulting Group does just that on its Web page on the subject. HCG suggests five questions that, if answered, get at the essence:

  • What 10 words would you use to describe your company?
  • Around here what's really important?
  • Around here who gets promoted?
  • Around here what behaviors get rewarded?
  • Around here who fits in and who doesn't?

As these questions suggest, every company has a culture—but not all cultures (or aspects of them) help a company reach its goals. The questions also suggest that that companies may have a "real culture," discernible by answering these questions, and another one which may sound better but may not be the true one.


The concept of corporate culture emerged as a consciously cultivated reality in the 1960s along-side related developments like the social responsibility movement—itself the consequence of environmentalism, consumerism, and public hostility to multinationals. Awareness of corporate culture was undoubtedly also a consequence of growth, not least expansion overseas—where corporations found themselves competing in other national cultures. The U.S. competition with Japan, with its unique corporate culture, was yet another influence. So was the rise to prominence of management gurus the dean of whom was Peter Drucker. As corporations became aware of themselves as actors on the social scene, corporate culture became yet another aspect of the business to watch and to evaluate—alongside the "hard" measures of assets, revenues, profits, and shareholder return.

Corporate culture by definition affects a firm's operations. It is also, by definition, something that flows from management downward and outward. In many corporations, the "culture" was set very early on by the charismatic activity and leadership of a founder. But as major tendencies become deeply institutionalized, corporate culture also becomes an institutional habit that newcomers acquire. In actual practice "reinventing" the corporation from the top down, therefore, is difficult to achieve, takes time, and happens only under strong leadership.

Observers and analysts of the phenomenon tend to subdivide culture into its various expressions related either to major constituencies (employees and workers, customers, vendors, government, the community) or to methods or styles of operation (cautious, conservative, risk-taking, aggressive, innovative). A corporate culture may also, by overstepping certain bounds, become suicidal—as the case of Enron Corporation, the energy trader, illustrates. In the Enron culture an aggressive, creative, high-risk style led to fraud and ultimate collapse. Analysis is helpful in understanding how a corporate culture expresses itself in specific areas. However, the concept is social and culture, as the phrase itself implies. It does not lend itself to reorganization by a rearrangement of standard building blocks.


Culture can be a particularly important consideration for small businesses. A healthy company culture may increase employees' commitment and productivity, while an unhealthy culture may inhibit a company's growth or even contribute to business failure. Many entrepreneurs, when they first start a new business, quite naturally tend to take on a great deal of responsibility themselves. As the company grows and adds employees, however, the authoritarian management style that the business owner used successfully in a very small company can become detrimental. Instead of attempting to retain control over all aspects of the business, the small business owner should, as consultant Morty Lefcoe told Nation's Business, strive to "get everybody else in the organization to do your job, while you create an environment so that they can do it."

In a healthy culture, employees view themselves as part of a team and gain satisfaction from helping the overall company succeed. When employees sense that they are contributing to a successful group effort, their level of commitment and productivity, and thus the quality of the company's products or services, are likely to improve. In contrast, employees in an unhealthy culture tend to view themselves as individuals, distinct from the company, and focus upon their own needs. They only perform the most basic requirements of their jobs, and their main—and perhaps only—motivation is their paycheck.

Since every company is different, there are many ways to develop a culture that works. Following are several main principles that small business owners should consider in order to create a healthy corporate culture:

Prevailing corporate culture begins at the top. Entrepreneurs need to explain and share their vision of the company's future with their workers. "Let your vision for the company become their vision for the company," stated John O'Malley in his article "How to Create a Winning Corporate Culture." He goes on to say that "a company without a vision is reactive in nature, and its management is seldom confident addressing competitive threats and stepping into the future." In addition, small business owners should be aware that their own behavior and attitudes set the standard for the entire workforce. Small business owners who set poor examples in areas such as lifestyle, dedication to quality, business or personal ethics, and dealings with others (customers, vendors, and employees) will almost certainly find their companies defined by such characteristics.

Treat all employees equally. Entrepreneurs should treat all employees equally. This does not mean that business owners can not bestow extra rewards on workers who excel, but it does mean that interactions with all employees should be based on a foundation of respect for them. One particular pitfall in this area for many small business owners is nepotism. Many small businesses are family-owned and operated. But bloodlines should be irrelevant in daily operations. "Successful '¦ businesses constantly place 'you are no different' expectations on family members they employ," noted O'Malley. "Doing otherwise quickly undermines employees' morale'¦. Showing favoritism in the workplace is like swimming with sharks—you are destined to get bitten."

Hiring decisions should reflect desired corporate culture. The wise small business owner will hire workers who will treat clients and fellow employees well and dedicate themselves to mastering the tasks for which they are responsible. After all, "good attitude" is an essential component of any healthy corporate culture. But entrepreneurs and their managers also need to make sure that hiring decisions are not based upon ethnic, racial, or gender issues. Besides, businesses typically benefit from having a diverse workforce rather than one that is overly homogeneous.

Two-way communication is essential. Small business owners who discuss problems realistically with their workforce and enlist employees' help in solving them will likely be rewarded with a healthy internal environment. This can be an important asset, for once a participatory and engaging culture has been established, it can help propel a small business ahead of its competition.

On the other hand, problems with the corporate culture can play a major role in small business failures. When employees only perform the tasks necessary to their own jobs, rather than putting out extra effort on behalf of the overall business, productivity declines and growth comes to a halt. Unfortunately, many entrepreneurs tend to ignore the developing cultures within their businesses until it is too late to make needed changes.

In an article for Entrepreneur, Robert McGarvey outlined some warning signs of trouble with the company culture, including: increased turnover; difficulty in hiring talented people; employees arriving at work and leaving for home right on time; low attendance at company events; a lack of honest communication and understanding of the company mission; an "us-versus-them" mentality between employees and management; and declining quality and customer satisfaction. A small business exhibiting one or more of these warning signs should consider whether the problems stem from the company culture. If so, the small business owner should take steps to improve the culture, including reaffirming the company's mission and goals and establishing a more open relationship with employees.


Barrier, Michael. "Building a Healthy Company Culture." Nation's Business. September 1997.

"Corporate Culture: Telling the CEO the Baby is Ugly." Hagenberg Consulting Group. Available from Retrieved on 2 February 2006.

Grensing-Pophal, Lin. "Hiring to Fit Your Corporate Culture." HRMagazine. August 1999.

Hindle, Tim. Field Guide to Strategy. Boston: Harvard Business/The Economist Reference Series, 1994.

McGarvey, Robert. "Culture Clash." Entrepreneur. November 1997.

O'Malley, John. "How to Create a Winning Corporate Culture." Birmingham Business Journal. 11 August 2000.

Phegan, Barry. Developing Your Company Culture: The Joy of Leadership. Context Press, 1996.