On the Origin and Evolution of Corporate Culture Preliminary and Incomplete

Where does corporate culture come from? In trying to answer that question, this paper also suggests a new perspective on the relationship between corporate culture and performance. The paper does essentially two things. First, it develops a simple model of corporate culture, based on the notion of culture as shared beliefs or assumptions, as suggested by the management literature. Culture, in this model, evolves from the common experiences of a firm’s members. To partially validate the model, I show that it captures the following stylized facts. The culture of a firm is heavily influenced by the initial beliefs of the founder or early leader, and can persist even long after that founder or early leader is gone. External succession of a CEO is more likely to lead to a change in corporate culture than internal succession. Otherwise identical firms may develop very different cultures. Suboptimal cultures may persist, even if the members of the organization know that their culture is almost surely suboptimal. Second, the paper uses this model to study the key link between culture and performance. It shows that, even without any effect of culture on performance, there will be a positive correlation between the two. This result questions some received wisdom about corporate culture.