Organization Design

Culture as Whatever Behavior Gets Rewarded

Read your own culture off the record of what you have promoted, tolerated and paid for, and stop trying to fix with a document a thing that is produced entirely by decisions.

  • Advanced
  • 14 min total
  • 14 chapters

What decision this helps you make: Which behaviour you are currently rewarding that you would say you do not want, and whether the repair belongs in the reward, the measurement, or the promotion committee.

What this topic is

Culture is the set of behaviours people in your company have learned are safe and profitable. It is produced by three things and nothing else: what gets rewarded, what gets tolerated, and what gets punished. Every one of those is a decision somebody made: a promotion, an exception, a quiet renewal of a contract with a person everybody complains about. The values statement is a claim about the culture. The decision record is the culture.

Why it matters

Because the gap between the two is where your best people leave from. A stated value that has never once cost anybody a promotion, a bonus or a client is not a value; it is a preference, and everybody working for you has already worked that out. Meanwhile the behaviour you actually pay for propagates without any help from you. New hires learn it in about six weeks by watching who wins.

Who should learn it

Founders past the point where they can set the tone by being in the room; managers who inherited a team with a reputation; and anyone about to run a values exercise who wants it to change something.

What you will understand

  • The three levers that produce culture, and why only one of them is usually examined
  • How to audit your own promotion record for what it reveals rather than what it claims
  • Why the tolerated exception is more informative to your staff than any announcement
  • Where the culture-as-incentives view runs out, and what selection and belief actually add

Prerequisites

Common misconception

"Culture is what we believe, so it is changed by stating it more clearly." Almost the reverse. Belief follows the pattern of consequences people observe, so a restatement that is not accompanied by a change in who gets promoted reads as noise at best and cynicism at worst. You have now told people that the leadership either cannot see the gap or does not mind it. The second misconception is that culture is soft. Guiso, Sapienza and Zingales found that the values a company advertises show essentially no relationship to its performance, while the extent to which its own employees perceive management as honest and trustworthy does.[5] The soft thing is the poster. The measured thing is the behaviour.