The importance of values
The evidence is clear. People want to work for companies that are making a difference in the world, and this has important implications for the need for strong corporate values to attract and retain the best talent. At the same time, companies with strong values often find it challenging to change, because the values they are built on can get in the way of their ability to respond to changes in the environment.
Generation Y (born in the 80s and 90s) and Generation Z (born in the late 90s and early 2000s) want to make the world a better place, and believe that business methods are the best way to do so at scale. They see business leaders having a deeper impact on society than religious or political leaders, and they desire organizations to shift from focusing narrowly on generating profit to balancing social and environmental concerns and making a more positive impact.
Additionally, they value individual expression and mobilize themselves for a variety of causes, in search for authenticity. They increasingly expect organizations to “take a stand” and for organizations to have something clear to say about particular causes.
This has important implications for new ventures. In recent years, success stories of entrepreneurs from hubs like Silicon Valley, Hong Kong, Singapore, London and Tel Aviv have inspired young people across the world to set up their own ventures or to join other startups. Yet, the reasons why people decide to launch or join startups has changed. Where people used to have more transactional motivations for choosing which particular organizations to work for, today people are more and more motivated by reasons that go beyond monetary benefits.
The attraction of an organization’s character
In a recent article, we conducted ethnographic research in a social enterprise in London, UK on the way people come to identify with organizations with strong values, and how this limits the organization’s ability to change.
Existing research has shown that organizations become infused with value over time, and that they develop – just like people – a “character”. This organizational character is initially created by founders as they imprint the organization with its core values during founding.
The goal of our paper was to carefully analyze the role of an organization’s character in attracting people to join the organization, and the ramifications this has for the way in which the organization evolves over time.
We found that founders played an important role as they left a deep imprint on the venture and its core values. They established the venture’s character as a purpose-driven organization with the aim to go beyond simply operating profitably. The venture was the embodiment of a utopian idea in the form of a social enterprise.
We were interested in making statements…to generate the ideological return, as well as any kind of momentum (founder).
As a social enterprise, the aim was to solve environmental and societal issues by combining non-profit principles with profit-oriented business methods. The organization thus included values of economic profitability and strong values of social and environmental sustainability.
We found that the values that were imprinted by the founders were instrumental as non-pecuniary incentives to mobilize people to join. As a result of this, the organization became a vehicle to advance a set of causes. People started using it as a platform to advocate about personal beliefs and motivations.
This enhanced the emergence of a collective and shared understanding of the organization’s character, and its underlying values. The sense of community that followed from this led to a strong sense of identification with the organization among the employees as well as the surrounding community who started to feel ownership over the organization.
This feels like being part of a big family, a community of shared values (employee).
Consequently, the employees and the surrounding community had strong opinions about the venture’s objectives, strategy and activities, and exerted a strong influence on the organization’s character to ensure it kept reflecting the initial values of the venture. As a result, the top-down influence that the initial founders (and the management team afterwards) had on the venture became more limited over time. People strongly expected the venture to stay true to its character and required that any of the changes made would be within the boundaries of its core values.
Our findings thus suggest that when people self-select into an organization based on their comfort with an organization’s strong values and mission, then those people come to define the way an organization looks and feels. It is this self-selection mechanism, and the associated identification with the organization and its character, that gives people a sense of ownership over the organization. As such, strong value organizations need to show consistency and continuity as there is an element of authenticity that needs to be preserved. Values thus create a lock in effect as organizations are held accountable for the values they embody, and this creates boundaries within which organizations can move or change.
Values enable but also constrain
So, what does this mean for how we think about strong values and new firms?
Companies increasingly realize that they must embrace wider objectives, in particular, inclusivity and sustainability, for both ethical and practical reasons. The trend towards the idea of “stakeholder capitalism”, “Environmental, Social and Governance” (ESG) or “Sustainable Development Goals” (SDGs) is driven by mounting evidence that the most successful and long-lasting organisations are those motivated by a purpose beyond mere profit. In line with this, the World Economic Forum recently proposed a set of metrics that can help organizations report on performance against ESG indicators and track their contributions towards the SDGs.
Companies also become aware of the need to attract and retain a new labour force that is increasingly reluctant to work for organizations that do not share its 21st century values. This is sometimes overlooked by tech entrepreneurs, as they overly focus on developing their technology, without thinking about the values their ventures stand for. Therefore, strong values are an important part of many new ventures and it is clear that strong values have many positive effects when well managed and authentic.
However, while adhering to values certainly makes new ventures more appealing for young talent, it also has a constraining effect on the organization’s ability to change in ways that are inconsistent with the values. In particular, our study shows that there are important implications for an organization to make essential changes to their strategy or structure, even when not changing threatens the survival of the firm. When strong values become an important part of a venture’s identity, there are strong bottom-up pressures to stick with elements of the strategy and structure that are consistent with the values. Employees and other stakeholders demand consistency and authenticity with the values, making some kinds of change very difficult and requiring the careful development of a way to frame the changes as consistent with the values. Failing to do this will result in resistance and, often, failure.
Lien De Cuyper, Bart Clarysse and Nelson Phillips. “Imprinting Beyond the Founding Phase: How Sedimented Imprints Develop Over Time” in Organization Science 2020. For a free, pre-publication version of the article, please click here.
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