An organization’s cultural capital is a type of asset that impacts what an organization produces and how it operates. Cultural capital is analogous to physical capital, like equipment, buildings, and property, or to human capital, like the accumulated knowledge and skills of workers, or reputational capital, like franchise value or brand recognition. In an organization with a high level of cultural capital, misconduct risk is low, and its organizational structures, processes, formal incentives, and desired business outcomes are consistent with the firm’s stated values. Unspoken patterns of behavior reinforce this alignment and drive corporate outcomes.
By contrast, in an organization with low levels of cultural capital, formal policies and procedures do not reflect the way things are really done — that is, the stated values of the organization are not reflected in the behavior of senior leaders or the actions of the organization’s members. Misconduct then results from norms and pressures that drive individuals to make decisions that are not aligned with the values, business strategies, and risk appetite set by the board and senior leaders. Rules may be followed to the letter, but not in spirit. All of this increases misconduct risk and potentially damages the organization and the industry over time.
As with other forms of tangible and intangible capital, an organization must invest in cultural capital or it will deteriorate over time and adversely impact the organization’s productive capacity.
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