Core value statements: the corporate compass

Business Horizons, Sept-Oct, 1991 by Richard L. Osborne

In the privately held company, the organizational culture is determined largely by the owner's attitudes. Yet in our work with dozens of owner-managed businesses, we have observed that the entrepreneur's values are sometimes vaguely articulated, seldom published, and often ambiguously communicated. The result is that employees are left to an intuitive reading of organizational values.

The pattern is different in publicly held companies. In recent years, many such public companies have created statements of their core values to regulate and drive their businesses. These core value statements are displayed in annual reports, communications to suppliers and customers, and, of course, internal policy manuals. In some instances these statements are inspired by the well-publicized consequences of corporate and employee misconduct. More frequently, companies form core values as a mechanism to create a foundation of attitudes and practices that will lead to the enhanced long-term success of the firm.

The process of developing and implementing core value statements can also increase performance levels of employees in the privately held company, including the entrepreneur's own capacity to lead. A core value statement functions like a corporate compass, providing reference points for shaping and building the owner-managed business.

We contend that privately held firms should go public with their beliefs, standards of practice, and values. Contacts with 100 privately held companies, however, found only two that had articulated and communicated statements of their core values. To assist firms in developing and promulgating core value statements, we describe the ways in which some companies have benefited from such statements and suggest some factors for success.

USES FOR CORE VALUE STATEMENTS

Our research focused on three of the ways that publicly held companies have derived benefit from their core value statements: crisis management; the management of strategic change; and growth management. Each of the three ways is examined below.

Values and Crisis Management

The rewards of adhering to core principles are sometimes immediate and dramatic. Perhaps the most visible case study is Johnson & Johnson's response to the Tylenol tragedy.

Most recall that in 1982, someone (not an employee) laced Tylenol capsules with cyanide, resulting in seven deaths. Before the tragedy, Tylenol, Johnson & Johnson's workhorse profit-maker, was the market leader with a whopping 37 percent share of all analgesic sales. Within weeks, this market share plummeted to 7 percent and the company's common stock price declined 10 percent.

Johnson & Johnson's management was faced with a crisis of immense proportions. Its nature required an immediate reflex response that depended on existing corporate attitudes, culture, and managerial inclinations rather than a studied plan. So Johnson & Johnson acted on its beliefs without regard to profit:

* The danger was not minimized. Consumers and medical professionals were aggressively alerted.

* Production was halted and the Federal Drug Administration was notified.

* The company told the media everything and cooperated fully with requests for information.

* Tylenol capsules, all 22 million, were immediately pulled from retailer shelves.

Johnson & Johnson's instincts turned out to be a classic model of crisis management. In five months, Tylenol's new tamper-resistant product had regained 70 percent of its previous market share and, by 1985, market share was fully restored.

How did Johnson & Johnson achieve this remarkable comeback? According to its senior executives, they simply followed the deeply inculcated precepts of the company's 40-year old corporate credo (see Figure 1), a statement of core values inspired by Robert Wood Johnson, son of the company founder and chairman from 1938 to 1963.

"Crisis planning did not see us through the tragedy nearly so much as the sound business management philosophy that is embodied in our credo. It was the credo that prompted the decisions that enabled us to make the right early decisions ......" was the way David Clare, Johnson & Johnson's president at the time, characterized the company's crisis response. Chairman James Burke added, "Later we realized that no meeting had been called to make the first critical decision. .. Every one of us knew what we had to do. There was no need to meet. We had the credo to guide us" (Foster 1983).

Values and Strategic Change

The value of a corporate statement of fundamental beliefs extends beyond crisis management. Such a statement can influence the behavior of employees at every organizational level, as illustrated by the recent experience of the General Electric Company.

The strategic transformation of General Electric during the 1980s from a sluggish, diverse set of businesses into a lean, cohesive market leader is well known. The chief strategist and change agent at GE since 1981 has been its chairman, John E. Welch, Jr. Beginning in 1986, his focus turned to energizing the 300,000 people responsible for sustaining Ge's technological and marketplace superiority.