Contents
5. Culture: Aligning Purpose, Strategy and Organizational Behavior
Overview
This section sheds light on how purpose and culture must come together for companies to embed best-in-class sustainability practices into their DNA. Because culture remains an elusive and highly complex concept, this section outlines key foundational aspects for fostering the culture the “right” way: behaviors at scale, bolstered by proper congruence within a company’s operating system.
In our last paper on ESG in the mining industry, From Risk to Reward, we argued that “A culture of purpose should be core to the organization’s strategy and effectively disseminated throughout the organization. Companies should create frameworks through which to navigate a clear purpose, which builds ESG directly into an organization’s core strategy and business model.”
In our section on “Leadership for a Sustainable Future”, we illustrated how Vale and BHP embarked on their respective journeys of cultural transformation, and there are numerous other examples of mining companies that are seeking to effect culture change with a much greater emphasis on ESG. Not surprisingly, these changes are often initiated by a change in leadership. While Vale and BHP had different starting points, in both cases it was the respective CEO who commenced or re-invigorated this process of transformation and change, particularly with regard to driving an ESG and sustainability “consciousness” more assertively throughout the organization.
Developing a culture that is conducive to sustainable growth and prosperity demands a clear purpose as the underlying guidepost for employee behavior and a raison d’être for the company’s existence more broadly. While purpose provides the company with its core reason for being, culture are the behaviors at scale that will take it forward and give actual meaning to its purpose.
Christoph Lueneburger, our former Egon Zehnder colleague and leading thinker on cultures of purpose, defines purpose in the following way: “A purpose goes beyond profitable growth, shareholder value or any other measure of whether you are doing things right. A purpose, instead, is a pledge to do the right things. Audacious and bold, a purpose inspires a meaningful number of people to take action.”41
If there is a misalignment between purpose and behaviors, then cynicism, mistrust and disengagement among employees and the broader public may be the result. On the other hand, when there is alignment between purpose and a healthy culture, strong performance, employee retention and motivation are the most likely outcome.42
Although the concept of purpose has long been discussed among those passionate about sustainability, it entered the mainstream of management discourse only relatively recently. A critical moment in this regard was when Larry Fink, in his 2019 annual letter to CEOs, argued that “Purpose unifies management, employees, and communities. It drives ethical behavior and creates an essential check on actions that go against the best interests of stakeholders. Purpose guides culture, provides a framework for consistent decision-making, and, ultimately, helps sustain long-term financial returns for the shareholders of your company.”43
Over the past years, we have seen numerous mining companies think deeply about and express eloquently their purpose. On BHP’s purpose to “bring people and resources together to create a better world,” Henry shares that “part of this relates to the essential nature of the commodities we supply, for example, to the energy transition. And part of it is also about the way we operate, and through that, how we create more opportunity in local communities for small and medium sized businesses, make contributions to public revenues and so on.”
In 2017, Rio Tinto refreshed its purpose “to produce the materials essential to human progress”. The same year, Anglo American reset its purpose to “re-imagining mining to improve people’s lives.” More recently, Vale stated its new purpose is “to improve life and transform the future – together. We believe mining is essential to the world’s development. We only serve society when we generate prosperity for all and take care of the planet.”
While not all mining companies demonstrate such bold ambitions in their purpose statements, the vast majority stress a deep appreciation of their responsibilities regarding society and the need to create a sustainable business that benefits all shareholders and stakeholders alike.
Aligning purpose with culture is perhaps the most critical and complex undertaking mining companies face to truly embed sustainability into their DNA and move ESG beyond compliance and risk mitigation – and create true commitment to sustainable business conduct. Yet it is also arguably the most critical challenge companies face in the next decade if they are to be successful. Research and experience have taught us that alignment of strategy, structure and culture—along with a clarity of purpose and values—are a powerful driver of company prosperity and success.
Source: Egon Zehnder Culture Profile
There is a clear correlation between organizational culture and a firm’s performance. Therefore, understanding the organization’s culture is a crucial starting point for any major company transformation—what are the most characteristic behaviors currently? This is followed by aligning and working towards a desired culture—how desirable are the current behaviors for your ideal organization? Which behaviors should the organization focus on to drive greater alignment between strategy and culture?
Bartolomeo strongly agrees that culture makes all the difference, and shares that this is a key area they have been focusing on at Vale. “We did a cultural diagnostic and this gave us hard evidence on what Vale’s culture was, what is needed to change that culture, and which behaviors are either blocking or promoting that culture. Next, we started to measure our Environment, Social, and Governance gaps and began to see that we are far from everyone on each of those ESG pillars. But the most distance we had was in social.”
Looking ahead, the aspired behaviors central to Vale’s transformation include: obsession with safety and risk; open and transparent dialogue; empowerment with accountability; ownership for the whole; active listening and engaging with society.
Demystifying Culture
We believe that organizational culture needs to move to the very top of CEOs’ agendas if they are to be successful in truly embedding their companies’ purpose and ESG practices deep into their employees’ behaviors.
Yet to many, culture still feels like a “fluffy” and abstract concept. There is a need to make it more tangible, measurable and easy to understand. At Egon Zehnder, we have worked at the very heart of organizational culture over many years. There are numerous ways of describing organizational culture, but a simple definition is “the way things are done around here” or “behaviors at scale in an organization that are highly valued and widely held by employees.”
Through our collaboration with Stanford Graduate School of Business Professor Charles O’Reilly, we have developed Culture Profile, a proven model that measures culture across eight behavioral norms, encompassing a total of 24 measurable behaviors. Our Culture Profile model makes it possible for companies to:
- Focus directly on a set of norms that are strategically important to the organization.
- Identify enablers and barriers to these norms.
- Understand the positive and negative implications (“polarities”) of each cultural norm for the organization.
- Communicate desired behaviors in a more coherent and modern language using a common frame around culture.
- Engage the senior team in how they are living or not living these.
- Diagnose and compare subcultures within the larger organization.
- Manage “patterns of behavior” as the company transforms its culture.
Source: Egon Zehnder Culture Profile
Photo courtesy of Anglo American
Culture Change and the Sustainability Agenda
Thinking of culture as behaviors allows companies to understand how much internal alignment exists on culture, as well as measure the current culture against the desired culture. This allows for a starting point to drive both culture change and culture alignment across the organization.
While it is beyond the scope of this paper to prescribe which type of culture is most conducive to embedding ESG practices within a mining company, or what type of culture should be espoused by organizations, it is important to highlight that there is no such a thing as a “right” or “wrong” culture—culture needs to align with the purpose of an organization, and when the purpose changes, companies need to ensure that culture is aligned accordingly. As a general rule, however, companies can dial up or down specific behaviors to achieve their purpose. These then need to be reinforced by relevant incentives and processes, such as performance measures, KPIs, recognition, trainings, communication, hiring practices, sanctions, etc.
Having supported numerous organizations with our Culture Profile, we have developed some core principles that we believe are critical for successful culture change:
- This is a leadership topic: Leaders need to demystify culture and align on what they stand for before asking others to follow.
- There is no right or wrong culture: Culture needs to align with the strategic intent of an organization. If your strategy changes, ask if your culture needs to evolve to achieve the new strategy.
- Role modelling becomes critical fuel: Leaders are the biggest amplifiers!
- What you reward vs. what you don’t is the biggest reinforcer of culture.
- Who you hire, promote, or fire needs to be congruent with your desired culture.
- Less is more: Focus on the top two to three items that will be critical to achieving your vision culturally (e.g., collaboration, agility, innovation).
- Evolving core governance rituals can have the highest ROI: But it is often the most overlooked.
- Working on a few “key symbols” builds momentum quickly for transforming mindset and behavior.
- Change has to be agile – “sense and respond” – intervene, see how system reacts, then refine.
Perhaps the most critical aspect to ensure that a particular culture is reinforced and has credibility is through creating “congruence” in the system (i.e., by creating consistency among behaviors and the various operating pillars within an organization). By “congruence” we describe the most important operational pillars of the desired operating system that support, reinforce and strengthen the desired behaviors/culture. This will ultimately become the nuts and bolts of the culture change initiative and the key enabler for success.
Source: Egon Zehnder Culture Profile
Hiring for sustainability is not enough – ESG board members, the CSO, sustainability experts – at best they will be champions who can role model desired behaviors, at worst the existing board and organization culture sets them up for failure. However, these leaders must uphold the idea that sustainability is important and inspire employees to want to actively be involved in caring for the planet.
Photo courtesy of Anglo American
Footnotes
41. “Interview: Christoph Lueneburger – How to develop a culture of purpose,” Reuters Events, 10 June 2014
42. “Culture: 4 Keys to why it matters,” McKinsey & Company, 2018; Global Human Capital Trends, Deloitte, 2019
43. “Larry Fink’s 2019 Letter to CEOs: Profit & Purpose,” BlackRock, 2019
