Company Culture, Reputation and Financial Performance

Michael D. Moberly    January 3, 2014    ‘A blog where attention span matters’!        

This blog post constitutes a respectful summary of what I believe to be very fascinating research conducted by Dr. Sylvia Flatt and Dr. Stanley J. Kowalczyk that conveys enlightening linkages between…

  • company culture.
  • reputation, and a company’s
  • financial performance.

Today, there is, in my view, an absolute necessity for business leaders and management teams to possess – retain a strong sense of personal – professional inquisitiveness in order to stay abreast of trends, and equally important, strategically relevant applied (academic) research.  When the latter is examined through intellectually receptive lens, valuable kernels of contributory value are routinely found which are not merely time bound or ‘buzz word’ trends, rather they often bring operational and nuanced clarity to issues and/or challenges that warrant board, c-suite, and management team attention.

In this regard, allow me to introduce readers of this blog to a comprehensive piece of research related to company culture, reputation, and company’s financial performance which I have taken the liberty of respectfully summarizing and commenting.

As readers know well, ‘company reputation’ is an intangible asset.  However, more company management teams need to devote time assessing various strategies to…

  • leverage their reputation to create (strategic) competitive advantages that will distinguish their company from others which operate in the same sector.
  • converge all intangibles to favorably influence their company’s culture, reputation, and ultimately, it’s overall financial performance and even sustainability.

But first, a broadly agreed upon definition of culture is warranted, i.e., (company) culture consists of…

           a system of shared values (defining what is important) and norms that define appropriate attitudes and behavior (Chatman and Cha, 2003, p. 21). 

Thus, it’s easy to surmise that a strong and well managed (company) culture can actually influence a company’s financial performance because the shared and strongly held norms and values embedded in the company culture, serve to increase behavioral consistency among employees which in turn can, and should lead to…

  • enhanced coordination and control.
  • improved goal alignment, and
  • increased employee effort (Sorenson, 2002, p. 70-72).

Relatively few researchers have empirically tested the relationship between company culture and reputation, as Flatt and Kowalczyk have.  Their research allows them to put forward a very interesting and certainly (business) relevant perspective about how company culture can be an important (intangible) predictor of reputation.  Flatt and Kowalczyk demonstrate this relationship by engaging 104 companies (as part of this research project) in which, among other things, they found that (company) culture…

  • not only enhances financial performance (as indicated by other research), but also is positively related to reputation itself, thus
  • reputation functions somewhat as a mediator between culture and financial performance.

Flatt and Kowalczyk’s paper extends prior research in this arena by…

  • examining the direct and indirect effects of culture and reputation on financial performance, and
  • tests if reputation actually mediates the effect of culture on financial performance.

Please note that financial performance is included as a dependent variable to gauge whether culture and reputation contribute to a firm’s value creation for a competitive advantage(s).

Flatt and Kowalczyk admit however, while there is fairly broad support that financial performance is a predictor of reputation, less is known about what other variables may also be predictors of (a strong, positive, and possibly resilient) reputation (e.g., Sobol and Farrell, 1988; Fombrun and Shanley, 1990; Brown and Perry, 1994; Hammond and Slocum, 1996; Roberts and Dowling, 2002).

Fombrun (1996) states that “a company’s reputation sits on the bedrock of its identity, i.e., the core values that shape it’s…

  • communications,
  • culture, and
  • decisions (p. 268).

A company’s identity, in turn, is closely aligned with its…

  • character,
  • personality, and
  • culture (Fombrun,1996, p. 277).

Therefore, core cultural values, such as…

  • credibility
  • reliability
  • trustworthiness, and
  • responsibility.

                              are at the core of the perceptual representation of a company’ reputation (Fombrun, 1996).

Thus, (company) culture provides the context for how a company’s identity is formed and articulated in relation to its cultural context (Hatch and Schultz, 2000, p. 25).

The continued quest to identify various and key variables that are consist predictors of a company’s reputation is essential, because without this insight, neither academic researchers nor company leadership and management teams will be able to advise companies about strategies to enhance their reputation to achieve competitive advantage and increase their financial performance.

This post was inspired by research conducted by Dr. Sylvia J. Flatt, University of San Francisco College of Professional Studies and Dr. Stanley J. Kowalczyk Department of Management College of Business San Francisco State University in a paper they authored and submitted to the Reputation Institute Conference in 2006.     

This blog post has been researched and written by me with the genuine intent it serve as a useful and respectful medium to elevate awareness and appreciation for a wide range of issues related to intangible assets within the global business community.  My posts are not intended to be quick bites of unsubstantiated commentary or information piggy-backed to other sources.

Comments regarding my blog posts are encouraged and respected.  Should a reader elect to utilize all or a portion of my posts, full attribution is expected and appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance or business transaction.  I always welcome your inquiry at 314-440-3593 or [email protected].


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