I begin every one of my presentations on organizational culture with a quote: “When we change the way we see the world, the world we see changes.” This means that it is incumbent upon us to change not only how we perceive the world, but how we construct and put together the world outside of us.
Over the past 10 years, there is a set of companies that have outperformed not only the three major stock indexes (Dow, S&P 500, and NASDAQ) but also all of the competitors in their industries. They have done so by changing the way they see the world. These companies have learned that outstanding financial performance and outstanding organizational culture are inextricably linked… and culture comes first. Culture precedes profit. Profit is a result of creating and sustaining an outstanding organizational culture.
These companies are referred to as social capitalism companies. They understand that:
- Outstanding financial performance follows outstanding organizational culture
- Strong organizational cultures must balance the needs of all stakeholders, not just shareholders.
- No one stakeholder should be allowed to profit at the expense of another.
These companies (20 publicly traded, 10 privately held) are identified and defined in a book published in 2006 titled “Firms of Endearment” by Raj Sisodia, who uses financial performance dating from 1995 to 2005. These companies’ financial performances are updated with data from January of 2004 to January of 2014 in my book, “Culture Trumps Everything.”
These companies have been able to change the way they see the world by understanding that culture precedes profit, which has allowed them to adapt to a changing financial environment in a way that lets them to outperform not only their peers, but the three major stock indexes over the past 10 years.
Darwin’s ground-breaking book on evolution, “Origin of the Species,” is often quoted and summarized with the maxim “Survival of the fittest,” which is interpreted as survival of the strongest or most powerful. I believe this to be a misinterpretation of Darwin’s findings. What many interpret as “survival of the strongest and/or most powerful” is actually “survival of the most adaptable.” An organism’s “fitness” is directly linked to its ability to adapt to its changing environment. If it does not adapt, it perishes.
What is true for organisms is equally true for businesses. When we build an organizational culture that values and supports all stakeholders, the business is able to adapt to a changing world and survive, no matter what lies before it. Change is inevitable, learning is optional. When we change the way we see the world, we see things we previously could not see, we understand things we previously could not understand, and we learn to adapt to change as it’s occurring rather than after the fact. This is why culture precedes profit. Social capitalism companies — the companies that have been most successful as a group across industries — have learned that culture precedes profit.
