Building A Culture That Works: The CEO As The Cultural Epicenter

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Editor’s note: Peter Levine is a partner at Andreessen Horowitz. He has been a lecturer at both MIT and Stanford business schools and was the former CEO of XenSource, which was acquired by Citrix in 2007. Prior to XenSource, Peter was EVP of Strategic and Platform Operations at Veritas Software, where he helped grow the organization from no revenue to more than $1.5 billion, and from 20 employees to over 6,000. Follow him on his blog and on Twitter @Peter_Levine.

As a former CEO and senior executive, there was a time when I did not quite understand the profound impact a CEO has on the culture of a company, even though I always knew culture was important.

The organization reflects the behavior and characteristics of the CEO, and that establishes the culture. Foster an environment of open communication and the organization inherits a culture of open communication. Operationally detailed? The organization becomes operationally detailed. Political? The organization becomes political. Curse a lot? The organization curses. Angry? The organization gets angry. Have a big office? Everyone wants a big office. It doesn’t matter what’s written on a coffee mug or on a “culture” slide, what you do as a CEO, day in and day out, and how you behave will define your company’s culture.

Dysfunction

Despite the best intentions, companies often become culturally dysfunctional. This occurs when leadership has a perception about the culture that conflicts with reality, or leadership behaves differently than what might be written down. 

The organization reflects the behavior and characteristics of the CEO, and that establishes the culture.

One of the most studied examples of cultural dysfunction occurred at Enron, the former energy-trading giant. The CEO (Ken Skilling) and several top executives were arrested for a pattern of deceit, dishonesty and illegal financial practices. They promoted a culture of dishonesty, self-dealing and self-enrichment that destroyed the company. Ironically, the Enron code of ethics outlined four key principles: communication, respect, integrity and excellence… So, yes, culture matters and the CEO defines it.

Cultural dysfunction is not limited to large companies. When I arrived at XenSource, which was a 50-person company, the culture was dysfunctional, despite the fact that the founding team believed the culture to be awesome and supportive of innovation and collaborative thinking. There were two telltale signs: 1) Employees painted a very different cultural view from the founders; and 2) The responses were inconsistent with each another, indicating that the culture was a free-for-all with very little leadership. One clear example of the inconsistency resulted in the organization having two engineering efforts that competed with each other. Here was a company with a supposedly “collaborative, non-political” culture that had engineering teams pitted against each other to see who would win. The competitive activity turned out to be corrosive and undermined the intended culture of the company.

Stemming dysfunction

I often talk about CEO self-awareness as one of the key attributes of corporate success. In the case of XenSource, the leadership espoused and verbalized cultural “intent,” but practiced and allowed something very different in the company. The company almost failed due to a highly dysfunctional culture. Make sure what you believe is what is truly happening in the company. 

Stemming dysfunction requires leadership and taking some simple but important actions: proactively define cultural attributes important to the organization—write them down and let people know what they are, and “walk the talk.” You must practice and exemplify your culture and have a mechanism to review culture deep within the organization. Ask the following questions:

  • Is the organization’s culture consistent with the defined attributes?
  • Where are the differences?
  • What are we doing right or wrong to keep a strong and consistent cultural backbone in the company?

The Cultural Paradox: I can’t change the culture because that’s not part of our culture

Culture is formed — whether intentionally or not — in the early days of a company’s life. Activities and behaviors are repeated and these become the elements that shape the culture of the company. Examples of such early practices might be: 1) The founding team always interviews all new people applying to the company; or 2) a product-oriented focus in everything the company does. The accepted and repeated practices become the culture and define how the company operates.

However, what has worked in the early days might not be as effective as the company grows up. As a result, you might be forced to choose between two conflicting cultural attributes.

Take the attribute “the founding team must always interview new people”—a great cultural practice intended to ensure new employees are a perfect fit. Is there a point where growth is hampered because the company can’t interview fast enough and candidates go elsewhere? What part of the culture do you change? Limit growth or change your hiring practice? Changing either impacts culture.

One of the most difficult aspects for technical founders is hiring outside the comfort zone of the founding team. This is evident when hiring sales, marketing and finance people. A good example of this is how a technical founder might apply engineering hiring techniques to a sales organization, which my partner Ben Horowitz recently blogged about here. The fear here is that bringing on non-technical people will destroy the company culture. Do you put engineers in all the non-engineering functions and continue to only hire technical people, or do you augment the culture and integrate new and different organizations into the company? Here again, sticking to the past practice/culture of only hiring technical people might be counter to building a great finance or sales organization.

Steering change

Existing culture can get in the way of future growth and company leadership must steer the transition. Changes to practices and culture should be done by first asking why something is done a certain way and what’s the intended outcome. Preserving the intended outcome should trump the practice. 

A strong culture is the backbone of any organization, and the CEO is the standard-bearer and the agent of change.

Let’s go back to the example, “the founding team shall interview all new applicants.” The intended outcome is to make sure that all new employees are of the acceptable caliber and intelligence, and understand the culture and origins of the organization. The problem is the system does not scale, particularly as candidates are hired around the world and at a pace that far outstrips the capacity for the founders to handle.

A change to the practice might be to empower key employee “ambassadors” who act as a proxy for the founding team. Alternatively, maybe just one of the founders meets all new candidates as opposed to all founders meeting all candidates. If part of the intended outcome is for a candidate to meet the founders and get a feel for the company, then have all new employees meet the founders at a lunch or dinner after they join the company. Developing a strong and scalable interview process and on-boarding/mentoring system will ensure that the intended culture is preserved while steering change from an operational perspective.

Managing culture

The concept of managing culture may seem a bit heavy-handed, particularly in tech companies that pride themselves on being free from overbearing rules and bureaucracy. However, not managing culture can be likened to not managing growth, or not managing expenses, or simply not managing and certainly not leading…

Remember:

  1. Self-awareness. If you can’t accept self-awareness, you should not be CEO.
  2. What are you trying to accomplish? What’s the end game?
  3. Translate energy to the areas you are least comfortable understanding.

A strong culture is the backbone of any organization and the CEO is the standard bearer and the agent of change. In a recent Fast Company article, GitHub Co-founder and CEO Tom Preston-Werner shares his perspective on how he and his cofounders have thought about and managed the company culture from 10 people to 160. Regardless of age, background and experience, culture is something that evolves with the CEO and the process of creating a great culture requires leadership to routinely and consistently assess and exemplify the core values of the organization.