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. As such, it is an essential component in any business's ultimate success or failure. "[It] is an unwritten value-set that management communicates directly or indirectly that all employees know and work under," stated John O'Malley in Birmingham Business Journal. "It is the underlying soul and guiding force within an organization that creates attitude alliance, or employee loyalty. A winning corporate culture is the environmental keystone for maintaining the highest levels of employee satisfaction, customer loyalty, and profitability."

Every company has a culture, though not every culture is beneficial in helping a company reach its goals. A healthy corporate culture is one in which employees are encouraged to work together to ensure the success of the overall business. Developing and maintaining a healthy corporate culture can be particularly problematic for entrepreneurs, as the authoritarian practices that helped establish a small business often must be exchanged for participatory management strategies that allow it to grow.


Since the 1980s, several factors have led American businesses to evaluate corporate culture alongside such traditional "hard" measures of corporate health as assets, revenues, profits, and shareholder return. One such factor is the transition from a manufacturing-based to a service-based economy, with the corresponding shift in emphasis from the quality of a material product to the quality of business relationships.

Another factor is the need for American businesses to compete in a global marketplace against international rivals whose corporate cultures are distinct but demonstrably effective. A related factor is the need for many businesses to successfully adapt to technological advances in the marketplace or acquisitions/mergers that require assimilation of previously separate business entities.

Corporate culture affects many areas of a firm's operations. One broad area of corporate culture involves corporate citizenship—the company's relationship to the larger environment. In this area, a company's culture helps determine its overall ethics and attitude toward public service. A second broad area of corporate culture involves human resource management. A company's culture affects a variety of human resource policies and practices, including the nature of interaction between managers and employees, the responsiveness to diversity issues in the workplace, and the availability of flextime and telecommuting options, safety and training programs, and health and recreation facilities. In a smoothly functioning organization, all such policies and practices foster an internally consistent corporate culture.


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 O'Malley. "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.

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. August 11, 2000.

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

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