Corporate culture is a powerful dynamic in a company. It is the set of beliefs and attitudes about the way things are done, and so is a key component of many corporate functions.
We often think about corporate culture being driven by the top – the board. The board sets the tone of the organisation and that tone filters down through the management and employees. Getting corporate culture right can be a powerful tool for any company and an important dimension for firm value. It also shapes the internal environment of a firm and influences the behaviour of both management and employee decision-making. Ultimately, this is seen as a driving factor on the success of an organization – it will give employees confidence in their work and their company and keep them motivated to do their best. Whilst it may not be the top item at a board meeting, it will be something on which a board should focus and it is always in the background affecting how things get done.
While intrinsically important for companies it is notoriously difficult to measure. How can you measure how well the corporate culture is embedded through the company? This is not like measuring an objective aspect of the company like sales or % women on the board. One method often used is a company’s employee surveys. These will give an insight into the company, but they are unfortunately not a useful tool for cross company analysis. This is because they are not necessarily conducted annually, their methodology differs between companies, and the results are often not publicly available. Other ways that corporate culture can be captured may be via employee rating sites (e.g., Glassdoor) but this gives more of a view of the happiness of employees and not necessarily the underlying culture of the company.
Here we are using a unique way to try to capture a company’s culture. We analyse conference calls to see if we can capture the strength of a company’s culture via the way management speak.
We then analyse the types of firm attributes that this is related to and whether we can capture stock outperformance by trading on this information.
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