(Submission to Human Relations Journal, Tavistock Institute)

The Evolution of Corporate Cultures: A Grounded Theory

Dr Rory Ridley-Duff

roryridleyduff@tiscali.co.uk

Contact: 4 Rosehill Close Penistone Sheffield S36 6UF South Yorkshire England

Sheffield Hallam University, Faculty of Organisation and Management

June 2006

Abstract

Internationally, there has been increasing use of multi-stakeholder models in response to the crisis in corporate governance triggered by Enron and Marconi, but in the UK and US there has been a tightening of management control and adoption of ‘enlightened shareholder interest’ as a guiding principle. This article examines a model of communitarian governance that requires social values and behaviours to be agreed by the whole workforce. The study finds that public and private discourses develop in the aftermath of conflict. Formal culture evolves out of ‘official’ learning and is propagated through management policies and practices. Informal cultures evolve in intimate relationships and remain highly influential, even when suppressed. The findings suggest that multi-stakeholder governance and pluralism, by keeping competing discourses in the public domain, contributes to good governance.

Dr Rory Ridley-Duff is a writer/consultant/lecturer whose doctoral research established how friendship, courtship and parental interests shape entrepreneurship and systems of governance. His interest in enterprise governance evolved out of directorships in two employee-controlled businesses combined with 15 years consultancy work in the social economy.

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1. Introduction

Contemporary governance thinking is divided over how to balance interests. While Sternberg

(1998) rearticulates Friedman’s (1962) arguments for strict adherence to shareholder primacy,

others argue that a post-modern society should accept the validity of multi-stakeholder

approaches (Montagna, 1997; Vinten, 2001; Wieland, 2005). In the UK, support for a

‘pluralist’ framework (Company Law Review Steering Group, 1999) was dropped in favour

of ‘enlightened shareholder interest’ (Company Law Review Steering Group, 2000). In the

US, the Sarbanes-Oxley legislation echoed investor demands for disclosure, audits, and

stronger penalties for breaches of the law.

The language of ‘conformance and performance’ and ‘compliance’ now pervades corporate

governance lexicon (ICAEW, 1999; IFAC, 2003; Monks & Minow, 2004). Interest in

pluralism, however, continues to develop through continued interest in stakeholder ownership

(Major, 1996; Gates, 1998; Tam, 1999; Brown, 2006), the emergence of social enterprise

(Borzaga & Defourny, 2001) and a vibrant debate about the ‘business case’ for democracy

(Johnson, 2006). Johnson examines the confluence of arguments that hierarchical

organisation inhibits knowledge production. The ‘business case’, therefore, is not simply

about economic efficiency, but draws on an epistemological argument that democracy

contributes to the creation and distribution of more reliable knowledge (compare Giddens,

1984, 1990; Habermas, 1984, 1987; Tam, 1999; Rawls, 1999; Lutz, 2000; Gaus, 2003).

This article investigates the development of corporate culture at Custom Products and makes a

contribution to knowledge by elaborating how emancipatory and oppressive cultures develop.

The workforce and shareholders voted in 2004 to reconstitute the organisation. The legal

board now comprises two elected representatives, the Chief Executive and one co-opted board

member. Power sharing is achieved through appointed managers and a four-person

Governing Council elected from an assembly of ‘permanent’ employees.

In section 2, I examine the culture management literature. In section 3, I describe the study’s

methodology before presenting empirical data (section 4) and a grounded theory (section 5).

In section 6, I summarise the implications for management and governance practices.

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2. Culture Management

The claim of “culture management” is that it can effect changes in employees’ commitment

and productivity (Willmott, 1993; Thompson & Findlay, 1999). As a strategy, it involves

shaping employees’ values during recruitment and induction instead of relying on reward

management (Peters & Waterman, 1982). Managers carefully regulate ‘strong cultures’ that

support ‘core values’.

This style of management can be traced back to the Hawthorne experiments (Mayo, 1933). A

series of studies informed new behaviour modification techniques now commonplace in

human resource management (Buchanan & Huczynski, 1997; Robbins, 2001; Wilson, 2004).

Critics, however, argue that findings were compromised when ‘uncooperative’ participants

were replaced (see Swartzman, 1993; Wilson, 2004). This makes it harder to establish

whether productivity improved as a result of the human resource techniques or fear of

dismissal.

The underlying debate is over the impacts of pursuing ‘shared values’. On one side are

resurgent culture gurus (Pascal & Athos, 1981; Deal & Kennedy, 1982; Peters & Waterman,

1982; Collins & Porras, 2000) who evangelise the deconstruction of formality and

bureaucracy so that ‘subtlety’ can evolve out of an increasingly intimate workplace

experience (Ouchi, 1981; Collins, 2001). This has, to some extent, found favour amongst

communitarian thinkers in as much as normative control techniques that work through

self-discipline are considered preferable to intimidation and coercion (see Etzioni, 1988,

1998; Tam, 1999).

While some regard culture management as an emancipatory discourse (see Kanter, 1983;

Collins, 2001), others critique it as a form of “subtle tyranny” (Kunda, 1992) “managerialism”

(Parker, 2002) or obstacle to liberal democracy (Johnson, 2006). Others question when

democratic rhetoric is a ruse obscuring the development of totalitarian social control (see

Michels, 1961; Willmott, 1993; Kasmir, 1996). In support of these views are empirical

studies suggesting that social engineering is insidiously oppressive and gives rise to silent

despair, cynicism, distrust, group-think, poor decision-making and high levels of staff

turnover (see Whyte, 1956; Janis, 1982; Kunda, 1992). A more productive solution, it is

argued, is governance thinking grounded in a pluralist perspective that accepts diversity and

heterogeneity (Kotter & Heskett, 1992; Watson, 1994; Turnbull, 1994, 1995; Griseri, 1998).

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In the next section, I describe how critical ethnography and grounded theory are deployed to

examine culture development.

3. Methodology

Martin (1992) argues that exploring cultures from multiple perspectives can assist in

appreciating their complexity. Managers adopt integrationist perspectives: a belief that an

organization-wide culture affects all members. Team members, however, adopt a

differentiationist perspective that reveals differences between subcultures. Lastly, newcomers

(and those on the margins) have a fragmentation perspective that evolves through contact with

many different subcultures.

Ethnography uses participant-observation, interviews and document analysis to access

perspectives in various subcultures (Hammersley & Atkinson, 1995). Triangulation, multiple

sources of data, and mixed methods facilitate the construction of plausible and authentic

accounts. This article adopts a critical ethnographic approach by also considering power

relations and political processes (Agar, 1986; Clough, 1992; Swartzman, 1993; Alvesson &

Deetz, 2000; Gill & Johnson, 2002; Dey, 2002).

Discourses are constructed, then articulated through ethnographic characters to express views

associated with particular gender/status combinations within the company (see Ridley-Duff,

2006). The ‘participant’ element of the research experience is reported through Ben’s

character (by combining journal data with the accounts of three actors with similar working

roles/experiences1). The ‘observer’ element is articulated through Andy’s character. The

following fictional characters, each constructed from the authentic ‘lived experiences’ of

participants, describe the culture:

Andy Age: 40, male, married, two children, junior consultant (XYZ Consultants) Ben Age: 32, male, single, no children, Support Services Officer Brenda Age: 35, female, divorced, no children, Director of Finance Carol Age: 29, female, divorced, no children, Production Worker Charlie Age: 31, male, married, two children, Production Worker Diane Age: 45, female, married, two children, Support Services Manager Fiona Age: 33, female, married, no children, Operations Manager Fred Age: 38, male, married, two children, Operations Manager Harry Age: 41, male, married, two children, Managing Director John Age: 39, male, separated, four children, Sales Director Larissa Age: 27, female, single, no children, Purchasing Officer Tanya Age: 50, female, married, three children, Salesperson

Theoretical ideas were developed using grounded theory (Glaser & Strauss 1967, Partington

2000, Locke, 2001). These were authenticated in four ways: by comparing them against

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newly summarised journal data; by searching for inconsistencies and consistencies with

comparison cases; by testing theoretical propositions with members of the primary case

company; by testing theory in interviews at two comparison companies.

4. Case Study

Custom Products is a 17-year old company established at the end of the 1980s. In 2004, the

founding shareholders sold their equity stake to an employee trust to establish an

employee-owned “social enterprise” (DTI, 2002). This fulfilled the founders’ aspiration to

establish a “community” company. This study was conducted in the period immediately

before democratisation proposals were implemented.

From 2002 to 2004, the company grew from 100 to 130 permanent staff. Using a number of

recognised economic measures, the company would be regarded as successful. In 1999, it

was listed as one of the UK’s fastest growing companies. In 2002 and 2003 it won awards

from a Chamber of Commerce for customer service and staff development. In 2002, profits

approached £1m (on an £8m turnover). By 2005, after becoming an employee-owned

company, it re-entered a list of the fastest growing companies in the UK.

Integrationist Perspectives

Harry, the Managing Director, believed that a strong culture attracting “people with shared

goals and values” would result in a workforce “inspired, respected and appreciated”. The

development of a company vision statement, a product of company-wide consultations

throughout the 1990s, resulted in the incorporation of ‘core values’ and ‘community pillars’

into contracts of employment. Values such as “fairness”, “support”, “equality”, “respect” and

“consistency” pervade company documents.

Recruitment and Induction

Recruitment processes evaluate desirable behaviours. A high level of proactivity and candour

is expected from applicants: they are asked to talk in detail about personal and work

experiences, culminating with questions about personal philosophy, strengths and

weaknesses. The following themes are scored:

• First Impressions

• Working/Learning in Organisations

• Personal and Professional Development

• Socialising

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• Team Player

• Cultural Fit and Philosophy

• People Skills

• Motivation, Resilience and Honesty

Upon employment, a series of socialisation processes occur: an intensive induction week;

monthly meetings; an annual company outing and formal dinner (called ‘Development Day’

and ‘Presentation Evening’); ad-hoc and formal parties (nicknamed ‘socials’); an annual

training programme (nicknamed ‘culture classes’).

Ben’s description of a ‘social’ captures the collegial atmosphere:

Larissa is very sincere and friendly. When I found it was her birthday we had a drink, and I gave her a birthday kiss on the cheek. These are little things. People are letting each other into their life a bit. This opening up is not just within our team - we had a drink after the culture class. We were all chatting away and talking about Diane’s son and the great battle she has over his schooling. John was also there, and he opened up about the past. He and Harry [as well as other directors] all have physical education degrees. They have this common bond between them through an interest in athletics. Lots of people opening up and getting to know each other better, talking about themselves and their past.

The induction processes emphasise ‘shared goals and values’. The principle forum for

communicating these is the annual series of ‘culture classes’. Andy reports Fiona’s views:

Fiona [now a manager] talked about when she joined. She thought it would be just like another place of work, that it would all be words, but she said it really is terrific. I talked about working in a co-operative, that initially it was very good, but that it slowly ebbed away over the late 1990s. There was general consent around the table that the company works extremely hard to maintain its positive culture and that the culture classes are a very active part of it.

While some participants expressed confidence in the culture, and appreciated the ‘socials’,

Andy quickly found evidence that many did not share the perspectives Fiona propagated:

I had a chance to chat to Carol in the canteen, and there were a few of her colleagues as well. We’d seen each other at the culture classes and on the Venice trip, but I’d not spoken with her properly. She was forthright and nosey about my work (which was fine) and then asked if I was a management “spy”. I quickly laughed this off because it seemed so bizarre. I told them all round the table that I was not a ‘spy’, but the fact that she asked this question in front of all the others probably indicates that ‘management spy’ is a term familiar to the whole group.

Later, Tanya and Fred (neither of whom knew Carol) made similar comments. Tanya

commented that “the place is riddled with management spies, managers themselves know they

are acting like ‘spies’ for the directors”, while Fred talked of the company becoming like a

“communist state”.

Differentiationist Perspectives

Participants in ‘culture classes’ are encouraged to learn the organisation’s vision statement

and core values by heart. Even when staff became familiar with them, however, debates arise

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over interpreting values. In the extract below, Andy reports the confusion over “respect” and

“fairness”:

When my group was discussing company values, they said it was a show of respect that people were not forced to go to Development Day – they regarded this as an example of ‘fairness’. This surprised me because I thought it was compulsory to go. I asked them whether the Development Day was compulsory and some people said ‘no’. I checked with Diane later and she said this was only the case this year because it was abroad. The test of people’s commitment would be whether they go the following year. Certainly it would be noted on their file if they didn’t go and didn’t have a good reason. They would not kick them out for one year; they would look for a pattern first.

Diane’s comments about excluding people for non-attendance at Development Day were

sincere. Irene, an employee of seven years, was offered a severance package after she

repeatedly refused to attend. While employees felt that it was an example of fairness and

respect if they were not compelled to go on Development Day, managers took the reverse

view that non-attendance was disrespectful.

Experienced directors taking culture classes were adept at answering criticisms and

controlling debate. When a less experienced manager called Fiona took a class, however,

vigorous debate developed. In one session, she described five approaches to

decision-making:

A1 – Autocratic, with no consultation on how to implement decisions.

A2 – Autocratic, with leaders consulting and accommodating feedback on implementation.

C1 – Consensus, with leaders framing questions for group discussion.

C2 – Consensus, with leaders guiding group members in framing questions.

G1 – Group-based, where any member frames both questions and answers.

After this, she claimed Custom Products made decisions using a combination of A2/C1

approaches. As Andy reports, this view was not shared by class participants:

Charlie suggested that the desk clearing policy that came down from Harry was an A1. Fiona, at this point, started defending managers, that it had been discussed by them, that it was not just from Harry. Charlie perceived it differently, that Harry had told people to clear their desks, and that when they did not, it became a directive.

Fred piped up and said what is an A2 to a manager, was an A1 to a worker. Carol raised how a business unit had been closed: this was an A1 for the workers, but an A2 for the managers. It was given as a directive: there was no chance for workers to discuss or reverse the decision. Fred said this was a “fait accompli”, that people were not really consulted. Others then argued with him and said they were given a chance to feedback. But Fred kept stressing it had come down from the top and was a “fait accompli”.

Debate focussed on the boundary between A1/A2, not the A2/C1 originally suggested by

Fiona. Senior managers were aware of resistance to ‘the culture’ and explained it to each

other using the psychological concept of cognitive dissonance (Festinger, 1957). As Harry

elaborates in hand-written notes for one culture class:

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When thought/feelings are not consistent with actions/words i.e. when an individual feels he/she is having to act in a manner that is different to how they really feel, this is called cognitive dissonance. This is an uncomfortable condition for most people that afflicts (rather like emotional haemorrhoids). Eventually most people will revert to behaving in a manner consistent with their thoughts/feelings. Sometimes people come for interview and, because they really like a lot of what they see and hear in terms of the rights enjoyed by people…they withhold their real feelings about some of the responsibilities that people have to take on board. For example, people may really like the idea of the right to a share of the community’s profits, but not the responsibility of full contribution to the community effort which may involve working some weekend days through the summer months.

Harry constructs cognitive dissonance as a conflict between thought and action. Andy, based

on familiarity with the concept in the academic literature, interpreted it differently as a range

of cognitive processes triggered by any contradiction. While Harry believed that “most

people will revert to behaving in a manner consistent with their thoughts/feelings”, Andy

interpreted cognitive dissonance in the social psychology literature as a theory that accounted

for the way people changed their thoughts and feelings to justify their actions (the reverse of

Harry’s assumption).

Harry’s construction of cognitive dissonance, however, fed through to a particular rationale in

recruitment, induction and socialisation. Brenda, a director with responsibility for human

resource management, spoke of the way that processes encouraged people to “deselect”

themselves if they were not willing to accept a culture based on “fairness, respect, support and

consistency”. Harry, however, later revealed that a director resigned in protest when

psychological manipulation techniques were agreed at board level. It must have been known

(at least by those redesigning human resource processes) that cognitive dissonance would be

used to deliberately induce changes in people’s commitments (see Schein, 1961; Kelman,

1961; Petty & Cacciopo, 1986; Kunda, 1992; Aronson, 2003).

Harry presented cognitive dissonance to staff as evidence that employees may not be ‘on

board’ company values. Andy, however, found frequent and substantive cases where staff felt

that managers were less ‘on board’ community values than themselves. In these cases,

cognitive dissonance did not derive from employees’ failure to support community values, but

from their perception that they could not persuade executives to support them. The impacts of

this are discussed in the next section.

Fragmentationist Perspectives (Conflict)

The views expressed in this section are contrasted with the integrationist perspectives of

Harry and John. Opinions came from disaffected employees as well as those popular within

the company. Motives for speaking up, therefore, are not uniform. Permanent staff outside

the directors group respond to Harry’s view with their own ‘lived experience’ of conflict.

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Harry took the following view:

My experience within Custom Products is that conflict is most likely to occur where individuals are struggling to live with the responsibilities conferred as part of their membership within the community. When this occurs extensive dialogue takes place between the individual, their line manager and HR with a view to seeking a resolution that all parties buy into willingly.

Tanya, however, felt that executives operated a double-standard with regard to ‘open and

honest’ debate:

Even if you are trying to uphold the philosophy by speaking openly and honestly through the right channels, they make out that you are not. They take you into an office, get you to explain things and then attack you. They attempt to disprove you – tell you that your way of thinking and feeling is wrong. How can anybody think or feel in a ‘wrong’ way?

Andy wanted to follow this up through theoretical sampling (Glaser and Strauss, 1967) by

selecting people on the basis of the insights they might contribute. Brenda objected, arguing

that the sample should be ‘random’. Later, it emerged that Brenda did not want Andy to

interview Irene, a woman who had made complaints against several managers (including

Brenda herself). To avoid bias in the theory development, Andy chose to test his model of

culture development informally with people both inside and outside the management group.

The following responses were collected via telephone interviews and e-mails in the period

April/May 2004, and then contrasted with Harry’s and John’s views.

Male Informant: A lot of people won’t question [the culture] because they are too scared.

Andy: Are they scared because of their experiences before they came to Custom Products, or as a result of being at Custom Products?

Male Informant: I think people start with optimism and if you play ball then it can work. But if you disagree with the culture or the philosophy, that does not work, you get shot down in flames. Sometimes I discussed things with friends and we would all agree, then we’d go into a meeting and I’d make the point we discussed. They did not back me – these are my friends – they did not back me. After trying that a couple of times I thought it was not worth fighting.

Similar views were expressed by female informants.

The culture will work with certain groups of people, but the majority are “playing the game”. They are saying only what Harry wants to hear and it is widespread that “you keep your mouth shut as you know what it’s like here”. Don’t get me wrong, there is a lot of good here and I love my job, it’s just the crap that goes with it that sucks. It really feels to me that we have autocratic management and not democratic management a lot of the time. To quote [another informant] “they make us feel like naughty schoolchildren if we try and say anything”.

An example of staff “keeping their mouths shut” occurred during fieldwork. Managers

wanted a change in policy to delay increases in sick pay entitlements for 6 months after a

worker increased their hours. Andy’s reaction to the proposals were unambiguous:

I feel it is unfair. I pointed out that increases in hours lead to increases in pay/holiday entitlements immediately. Why not sick pay? When there is a decrease, sickness decreases immediately. I felt this was inconsistent, that the company seemed to want it both ways. Brenda said she was articulating managers’ perception that this was unfair to the company [by making it pay twice over for sickness].

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Diane independently reached the same view as Andy, but Brenda insisted on drafting and

putting the proposals desired by managers to staff teams. Interested in how staff would react

to this proposed policy change, Andy attended all department meetings to listen to the debate.

There was none. Of 130 staff, only one asked a question about the inconsistency. Nobody

was prepared to challenge the proposals.

After one meeting, Andy talked to Fiona and found that proposals going to teams were

marked either “for discussion” or “for information”. The policy to change sick pay was

marked “for information”. In other words, Brenda did not intend to solicit opinions. In light

of this, Andy suggested to Fiona that she might couch the issues differently when she

presented the material to another team (to see whether staff reacted any differently). Fiona,

however, reported that:

When I used examples to make the differences clearer, everyone seemed to be fully on board with the fairness of the policy. I was able to have 'live' examples from within the team. Larissa, who could feel as though the policy treats her detrimentally (due to the 6 month clause) was fully on board and said she wouldn't expect anything more. Charlie was more than happy that his [reduced] pro-rata'd benefits kick in straight away. All in the team took the company perspective and were more than happy that the policy was fair.

One male informant, however, described why team members do not object to policy changes:

[Executives] ask people if everything is all right, and in the back of their minds they’ll be wanting to say ‘no’, but they’ll say ‘yes’ to avoid getting bollocked by Brenda. If you raise any issues, then the next thing you know Brenda will say ‘I want to see you’. There is instant fear. I once got summoned to a police station and I was afraid all day long. When Brenda says ‘I want to see you’ it feels the same. There is an in-built fear.

Occasionally, longer serving members resisted proposed changes in terms and conditions of

employment. In these cases, the conflicts were sharp and the chasm between executive and

non-executive views was stark. In the extract below, Andy reports a group conversation

about executive attempts to end the self-employed status (and commission payments) of

salespeople with many years of service:

Tanya began to say how the place had treated them really badly. She said “Harry came to my home and offered me only half what I was earning in commission payments”. Terry opened up. “It was a bitter pill to swallow”, he said. Ben then said he’d been through an experience where he’d challenged something and it had affected him so much that he’d lost three-quarters of a stone and found it difficult to eat. Tanya stopped in the street. I could see tears in her eyes. "That’s what happened to me,” she said. “When I challenged something, John totally destroyed me. I think about it everyday."

Tanya said it was like a breath of fresh air to talk about it. She claimed there were lots of others who feel as she does but they have to be careful because there are "spies" who will take it back to the management team. "Spies" was her word, not Ben’s word. She carried on talking to me about how there were all these people with happy faces. The young ones coming into the company think it is okay. Brenda and John act as a pair. Harry gets manipulated into doing things. Anybody with a thinking brain who knows what is going on gets pressure put on them.

Later, Tanya reported that Terry was leaving the company:

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Terry will be a great loss. He has been very disillusioned for a long time and a situation arose whereby he felt he had no choice but to resign as he felt he could be sacked on the spot without any notice or pay! He is such a nice gentle man. I’m going to miss him dreadfully.

Staff Turnover

A number of staff talked about their fear of getting sacked. It is, therefore, worth considering

whether levels of conflict are apparent in staff turnover figures. Ben spotted that the average

turnover figure was 20% (based on data between 1999 and 2003) immediately after a new

computer system produced staff turnover reports.

Leavers during 2000 were particularly high (approaching 30%). In that year the company had

to close down a business unit. While technically only two people were made redundant, there

was the largest exodus of people in the company’s history. The story propagated by directors

(that the unit’s closure did not result in any redundancies) is – at the very least - economical

with the truth. As Table 1 shows, level of conflict doubled leading to a substantial increase in

staff turnover.

Table 1 – Leavers 1999 - 2003

Year Category Total %

1999 Left after conflict 2 3 21% (Incomplete year)

Neutral 11 79%

2000 Left after conflict 12 41%

Neutral 17 59% Increasing

2001 Left after conflict 8 40% levels

Neutral 12 60% of

2002 Left after conflict 9 50% conflict?

Neutral 9 50%

2003 Left after conflict 3 60% (Incomplete year)

Neutral 2 40%

Caution is needed with turnover figures as they are highly responsive to economic conditions.

In good economic times, turnover figures tend to be higher. Nevertheless, the national

turnover figures for 2000, 2001 and 2002 were 26.6%, 18.2% and 16.1%3. Across all three

years, Custom Products figures are in line with the national average. Within Custom

Products’ industry, however, lower turnover is the norm (13.5%) with around two-thirds

leaving voluntarily4 so concern about high turnover figures, and conflict levels above 40%

appears justified.

An unpublished paper by Herman and Brignall (2005) claims that turnover rates in

“corporates” are lower5. While there are differences in company size and industry, Custom

Products (with two CIPD qualified staff) would, according to Herman, be expected to have

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staff turnover rates between 3%-5%. Certainly, they should bring them down below industry

norms (i.e. below 13.5%). This being the case, the turnover figures at Custom Products do

not just look high, they appear to be twice (and perhaps four times) higher than might be

reasonably expected.

Management Reactions

When Andy sent his theoretical model to illustrate the impacts of co-operation and coercion

on cultural values and outcomes (see Figure 2), Harry and John felt it did not reflect the

situation at Custom Products. Harry commented that:

Where conflict exists, the main responsibilities of line-managers and HR is in ensuring that consistency is applied in respect of every individual having access to their rights, upholding their responsibilities and maintaining the values embedded within the community. This responsibility is undertaken on behalf of the community, and to protect the interests of all its members. I see this as leadership not coercion.

John added:

It doesn’t really seem to resonate with what happens, particularly the parts relating to coercion and resistance…The understanding of these values has been embedded through the common working practices that have evolved here. Generally speaking managers do not coerce people, they reinforce the values that are shared by a significant number of people at all levels within the community.

Harry declined the opportunity to examine the analysis of staff turnover. He did, however,

offer the following comments when turnover figures were first raised:

Analysis of staff turnover may require more detailed analysis than focusing purely on the 'headline' figure (if you are intending to interpret the data as an indicator of "tensions"). Whilst the headline data may reflect our being slightly below the national average overall, I suspect that leavers with under 12 months service would be above the national average, whilst leavers with over this would be well under the national average.

This supposition was tested, and – on the basis of the information available – not supported.

By inference, turnover amongst probationers was calculated as marginally lower than other

staff in 2001 and marginally higher in 20026.

Harry and John’s integrationist view, therefore, cannot withstand close scrutiny and exists

only as a rhetorical discourse. Moreover, the governance model based on upholding agreed

values (introduced in 1999) appears to be contributing to conflict and higher staff turnover. If

the company were succeeding in its goal of “cultivating a caring and rewarding environment

where people feel inspired, respected and appreciated”, would we expect these findings on

staff turnover? Only differentiationist and fragmentationist perspectives appear to reflect the

‘lived experience’ of participants.

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5. Developing a Theory of Culture Development

The data provides evidence of communitarian values in the formal statements of culture.

Custom Products takes a liberal communitarian position on rights and responsibilities.

Fulfilling responsibilities is believed to protect the common good so that individuals can

pursue choices and have their rights protected. In this sense they are a realisation of the

position advanced by Etzioni (1995, 1998) that rights are dependent on responsibilities.

Rights and responsibilities are expressed throughout the culture. In materials presented to

potential recruits, particularly in induction sessions and culture classes, ‘community pillars’

are emphasised repeatedly. Staff learn the rhetorical forms expected and use these in

meetings with managers. While accepting that cognitive dissonance (Festinger, 1957) is used

to induce changes in attitude, at the level of public testimony many people report positive

feelings about the workplace. These expressions of support are convincing in many cases.

The way executives consult staff over major proposals provides evidence that they solicit and

act on feedback. Although democratic practices typical of co-operatives are absent (Berry &

Robert, 1984), and some members are strongly critical of proposals being ‘sold’ to them, the

directors have a definite conception of their own democratic accountability and put it into

practice faithfully (compare Schumpeter, 1942).

Policy discussions, however, are initiated and controlled by managers and directors. This has

been characterised in the literature as anti-democratic managerialism (Kunda, 1992; Parker,

2002; Johnson, 2006). Nevertheless, the perception on the ground generally runs counter to

this. Compared to previous employment experiences, Custom Products increases

opportunities for employees to voice their opinion. The acceptance of democratisation

proposals by 75% of the staff indicates that commitment is more than symbolic.

Against this, there are concerns about the way values are upheld. Words such as “fairness”,

“support”, “respect”, “consistency”, “democracy”, “equality” and “tolerance” are in evidence,

but executives tightly control how they are applied in practice. It may be that opposition to

the directors’ proposals is not voiced because others are too afraid of being “shot down in

flames” publicly (by John), and “getting bollocked” in private (by Brenda).

In observing ‘action groups’ discuss changes to sick pay entitlements, it seems particularly

odd that a policy proposal which two of three people inside the human resources department

felt was unfair triggered no opposition whatsoever in nearly a dozen departmental meetings.

The level of passivity is extreme.

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Even in the case of democratisation, Harry does not give employees the option of rejecting

proposals completely, only the option to insist on redrafting until they are acceptable. As he

comments in a company newsletter:

If we achieve the necessary majority, arrangements will commence to put the new structure in place by the autumn. If we don’t, further time will be dedicated to redrafting the proposal in a manner that does gain enough support. Ignoring the issue and doing nothing is not an option.

While this can be seen as a form of democracy, it falls far short of the models used in

commercial contexts elsewhere (see Cornforth, 1988; Ellerman, 1990; Oakeshott, 1990;

Whyte & Whyte, 1991; Morrison, 1991; Cheney, 1999; Ridley-Duff, 2002).

Enforcing strong cultural norms (and presuming that managers have the legitimacy to enforce

them) influences patterns of conflict and withdrawal. At Custom Products, staff turnover

was found to be at least twice, and possibly four times, as high as would be expected in a

comparable company. Combined with descriptions of dispute resolution from the

perspective of the employees, this suggests that managers’ control over decision-making and

cultural values creates a workplace environment that is not characterised by two-way dialogue

and consent.

Indeed, directors see themselves as having to take responsibility for interpretation of the

culture “in accordance with previous workshops and shared practices”. While they may

believe they are doing this, the counter-perspectives of those who tried to stand up for the

organisation’s values (as they perceived them) show that their efforts quickly floundered.

They quickly complied to deflect directors’ anger or “resigned due to culture mismatch” (a

euphemism human resource officers used when ‘difficult’ employees left the company after a

dispute).

At the surface level, there is an impression that the workplace is relatively free of conflict.

Given high staff turnover figures, however, it seems clear that conflict is not only present, but

more acute than is admitted (or perhaps even realised). There is support, therefore, for

Kunda’s (1992) theoretical conclusions that individuals subjected to culture management

techniques become wary of contradictions, hide their ambivalence, and leave organisations

more frequently. The picture is not of a culture that embraces diversity and tolerance, but one

that promotes intolerance and conformity.

Reactions to Cognitive Dissonance

Those with the power to take decisions and define meanings respond to cognitive dissonance

in a different way. Perceptions change when coercive behaviour is being contemplated or

14

practiced (Davis & Jones, 1960; Gibbons & McCoy, 1991). One party derogates the other to

reduce cognitive dissonance and construct a moral justification for disciplinary action. If no

quick resolution or compliance is achieved, managers construct further rule breaches to justify

exclusion (compare Ackroyd & Thompson, 1999).

The language of “thinking errors” indicates the influence of mainstream cognitive

psychology, and is part of the disciplinary process when employees resist managers

perspectives. As Gough and Mcfadden (2001:32) comment:

Often this work ‘demonstrates’ various ‘errors’ or ‘biases’ in human thinking which social psychologists attribute to ‘cognitive heuristics or information-processing ‘rules of thumb’ which we access to make decisions.

Critical psychologists question whether such errors exist and seek explanations of strange

behaviour “in terms of relationship, communication and cultural factors” (Gough &

Mcfadden, 2001:38).

Critically Reviewing the Data

Conflict results in variety of outcomes. Dialogue between Fiona and Fred, and later Ben and

Tanya, shows how public and private debate can encourage disclosure of previously hidden

feelings and bring them into forums where they can be debated openly. While it may be

inaccurate to claim shared values arise out of such debate, it is the case that shared

understanding – an understanding by each person of the other’s thoughts and feelings on a

particular issue – is possible.

When relationships become more intimate, plurality reigns as listening, learning and debate

thrive. Personal commitments deepen, emotions are positively affected, positive character

attribution are made. Self-images and views of others improve; openness and honesty

increases.

If we consider Tanya’s experience, however, we can see the long-term impacts of imposing

(or even attempting to impose) new social arrangements. She repressed her feelings and

chose to reveal them only when others present could understand and relate to them. In

reviewing the background, I found that changes were prompted by a government initiative to

move self-employed people onto a Pay-As-You-Earn (PAYE) tax system. At Custom

Products, this found favour in the Human Resource department where personnel officers felt

self-employed salespeople were earning too much. Their ‘fairness’ agenda was to bring the

15

salaries into line with pay levels elsewhere in the company. Policy changed so that new sales

staff went straight onto a fixed salary within the PAYE system.

At the macro level is a government seeking to raise tax revenues by ending a ‘loop-hole’ in

employment law. At Custom Products, the discourse of ‘fairness’ and ‘consistency’ (with

other employees) was used. It should be noted, however, that the result of this policy lowered

employment costs, cut salaries for some staff, with the result that capital growth and share

prices rose (thereby benefiting directors/shareholders far more than any other group of

workers).

Tanya experienced this in two ways. She (and her colleagues) had been persuaded to

establish businesses selling the company’s produce. Tanya was originally regarded as an

entrepreneur (indeed, she and her colleague talked about themselves using this word) but later

felt forced into employment. This was not simply a breach of trust. Others were not expected

to forfeit their entrepreneurial rewards to benefit the ‘community’ (Harry, John and Valerie

and other founders joining after Tanya later sold their equity holdings for approximately

£5m). Tanya, therefore, felt this was not just a double-standard but akin to having her

business stolen from her.

The learning from this is that when parties feel devalued or threatened, they start to break

confidences, withdraw, become judgemental and change the interests they take into account

during decision-making. In extreme situations, stress leads to weight loss and sleep loss.

Relationships become less intimate, inflexible outlooks grow, listening stops, personal

commitments loosen, hurtful character attributions are made, and openness and honesty

diminish. Self-images, however, are protected.

Social Influence

Five types of relationship influence conflict:

• formal networks (e.g. departmental colleagues, project groups)

• informal networks (i.e. friends inside/outside work)

• family networks (particularly spouses/partners and children)

• relationships with leaders (i.e. line managers, informal leaders, HR staff, directors)

• regulators (i.e. lawyers, unions, professional advisers, legal bodies etc.). �

People vary their accounts in different contexts. The explanation offered is that discourses are

based on the impact and likelihood of participants repeating information to other parts of a

social network (compare Goffman, 1969). In some contexts (and particularly when we have

no personal life to protect), we accord importance to relationships that can help us achieve

16

career and social advancement. But when we have strong private commitments to families, or

friends and colleagues at work, these become more important.

The influences that affect interpersonal behaviour are theorised in Figure 1.

[Figure 1 Here]

We are most influenced by the potential loss of relationships we value. This prospect creates

the greatest cognitive dissonance and inclines us to give some situations more attention (and,

in some cases, increase our attempts to reduce dissonance by simplifying the problems or

ignoring contradictions).

Cultures develop in response to the way we defend relationships. In situations where both

parties choose to engage in dialogue, the discourses of both enter the public domain to inform

an organisation’s formal culture. Dialogue is not necessarily easy – many differences may

emerge – but so long as commitment to the relationship remains, the outcomes are:

• Plurality, Shared Understanding, Value Congruence • Listening and Learning • Openness and Honesty • Increases in Intimacy �

It is always possible, however, that one or other party will not wish to enter a dialogue. In

this case, the discourse of the stronger party enters the organisation’s formal culture, while the

discourse of the weaker party enters the organisation’s informal culture. Coercion and

resistance (one way or two-way) may continue for some time (months or years) until both

parties return to dialogue, or one rejects the other completely. Where coercion or rejection

occurs, a chasm between formal and informal culture develops (as happens with Harry and

Tanya) with the following outcomes:

• Blame, Physical or Psychological Withdrawal • Resignation (emotional or contractual) • Contract Termination • Caution and Dishonesty • Loss of Intimacy �

Figure 2 shows that conflict, in itself, is as likely to lead to closer relationships as not. The

decisions taken in the course of conflict (to engage, coerce or confront ‘the other’) can all lead

(eventually) to shared understanding or complete withdrawal. Unlike other conflict

management models (see Buchanan and Huczynski, 1997, Chapter 21), there is no

presumption that a series of events occur in a particular order or follow a particular pattern. A

17

conflict may last minutes or years and is sustained until both parties co-operate or both parties

terminate withdraw from the relationship.

[Figure 2 Here]

In the aftermath of conflict, different points of views are still held. Some enter public

discourse (myths and legends) while others become embedded in subcultures and private

thoughts. Newcomers pick up public discourses quickly; private discourses are learnt more

slowly and only to the extent that a newcomer is accepted into various subgroups. Private

discourses, because they are retold inside intimate relationships, are particularly enduring and

influential.

Similar findings – at least as far as co-operation is concerned – occurred in another recent

study. Tjosvold found that co-operative conflict resolution leads to greater trust and

confidence in relationships (Tjosvold et al, 2005:356):

…results suggest that managing conflict cooperatively is a practical way to strengthen team relationships. Teams that relied on managing conflict cooperatively and avoided competitive conflict were found to have confidence in their relationships and this confidence in turn predicted team productivity and commitment…Personal relationships…promote mutual exchange and are needed to supplement rules and roles that are often limited and ineffective…

The view that conflict was only productive if focussed on a task was not supported:

…discussing conflict need not undermine relationships and can, when done cooperatively, strengthen relationships. Results of this study support De Dreu and Weingart’s (2003) argument that the cooperative and competitive approach to conflict management may be more useful for identifying the conditions under which conflict is constructive than the type of conflict.

The Theory of Conflict Resolution and Culture Development (Figure 2) was developed

independently of Tjosvold’s work using a different set of empirical data and different research

methodology. My findings, however, are similar: co-operative approaches to dissonance

reduction (conflict) lead to closer and improved relationships. Unlike Tjosvold’s model,

however, the relationship context and each party’s future intentions inform whether people are

likely to approach conflict co-operatively or competitively. This limits the applicability of

Tjosvold’s findings (Tjosvold et al, 2005).

The question turns to the incentive for co-operation rather than conflict. The intentional

behaviours of the people in conflict, as well as context, is critical in understanding outcomes

(compare Blumer, 1969). Based on this theory, conflict can only strengthen social bonds if it

18

is not a strategy to deliberately weaken the relationship. Given that intentions can be hard to

unravel (even to ourselves), the finding that conflict can improve relationships is no guarantee

that it can happen in all cases, but it does add to arguments that restorative justice should

inform the management of workplace conflicts (Braithwaite, 2002; Johnstone, 2002;

Roche, 2003).

Whatever the underlying intention or desire, hierarchical management is more likely to

contribute to conflict and the suppression of alternative discourses because it is founded on a

principle-agent presumption that managers must monitor (and reach judgements) about others,

rather than mediate understanding. This widens the divide between formal and informal

culture, leads to degradation in communication and group performance (compare Kotter &

Heskett, 1992; Kunda, 1992). Alternatives that emphasise diversity, mediation and dialogue,

are correlated with sustainability to offer new ways to construct systems of governance

(compare Whyte and Whyte, 1991; Turnbull, 1994; Cornforth, 1995; Collins, 2001;

Clutterbuck and Megginson, 2005).

6. Conclusions

I have used integrationist, differentiationist and fragmentation perspectives to bring out

cultural contradictions that are frequently hidden from academic gaze (Martin, 1992). In this

study, executives developed culture management techniques (psychological manipulation,

normative control, cultural extravaganzas, rituals) that have been noted in Kunda’s (1992)

study of Tech. Many people in the company profess contentment with the culture even when

the real level of insecurity is unknown. Moves to introduce an Employee Share Ownership

Trust and elected Council are indicative of the current owners’ aim to give more control (and

responsibility) to employees and pass on wealth to people based in the local community.

Employees responded positively to this initiative and the early signs (both socially and

economically) are promising. Given the improvement in financial results following

democratisation, the case for employee-buyouts as a succession and/or entrepreneurial exit

strategy continues to grow (compare Delivering Employee Ownership Network, 2005).

However, there are a number of side effects from normative control that cause both

employees and managers considerable dissonance. The powers to resolve these militate

against employees in favour of managers particularly in deciding the meaning of behaviour.

Kunda’s comments about the potential of culture management to intrude not just into a

person’s private life, but also the private domains of thought, are well founded. Conflict

19

resolution based on mediation and restorative justice can help to mitigate the effects of this

(Turnbull, 1995; Griseri, 1998; Roche, 2003).

Cultural development depends on symbolic artefacts only at the most superficial level. It does

have discernable impacts but only over the short term when other sources of information are

in short supply. More important, when a long-term view is taken, is each person’s learning

inside intimate relationships, and the conflict resolution processes that are instituted

throughout an organisation. The more these favour mediation and the development of mutual

understanding, the greater the chance of developing a vibrant co-operative culture. The more

they are rooted in determining ‘correct’ judgements, and disciplining parties judged to be in

‘error’, the greater the chance that authoritarian controls, intolerance and distrust will become

institutionalised.

As Starrat (2001:346) comments:

… culture inescapably reflects relationships of power: not only the power of wealth and control …but [also] the power of defining what things mean in the culture, what is considered natural, normal, acceptable and what is considered deviant, unnatural, and unacceptable. Frequently those powers coalesce into powers of domination, and when such power comes to be accepted by those in power as the natural order of things, their responsibility for the oppression of others becomes invisible to them.

Making domination visible can be achieved through changed management and governance

thinking. Within a pluralist framework, the role (and even the purpose) of managers is

transformed. No longer required to reach a ‘correct’ view on each workplace dispute,

managers are free to develop understanding of all perspectives influencing a situation (or

conflict) and participate in creating solutions that maximise the satisfaction of those interests.

From this perspective, parties affected by decisions need to be included within the governing

bodies that make them.

Balance is not achieved through “independence” or “impartiality” because there is no position

within a culture free from personal, group or political interests. In place of this, the

governance system becomes the vehicle that promotes internalisation of conflict to produce

dissonance within the minds of those deciding between alternatives. By highlighting (rather

than ignoring or avoiding) conflicts of interest, the process of reflection that precedes

decisions has to accommodate those conflicts and the fantasy that one group can unilaterally

perceive the ‘common good’ is avoided (compare Turnbull, 1994, 1995; Cheney, 1999).

20

This has implications not only for executive education, but also for science itself. Linear

(rationalist) thinking, rooted in conceptions of absolute truth, becomes an obstacle to good

governance because it encourages an either/or approach to ‘solving’ social problems.

Multi-stakeholder approaches, however, develop governance thinking so that it can handle

high levels of dissonance and competing perspectives. Pluralist assumptions become the

bedrock on which new decision-making models, and alternative approaches to social control,

find fertile soil and grow strong roots.

Acknowledgements My enduring thanks to Professors John Cullen, Phil Johnson and David Megginson for support and feedback throughout this study. Special thanks also to the participants at the 6th International Management Control Association Conference (Edinburgh) and 22nd International Labour Process Conference (Amsterdam) for providing feedback during the development of this article. Lastly, I wish to acknowledge the financial support of the Management Control Association and Sheffield Hallam University – their assistance enabled me to spend 18 months in the field.

Word Count: 7,916.

1 Ben is constructed from four separate sources of data. Participant-observer data only appears where experiences are comparable to (and authenticated through conversation) with other participants. The full theoretical justification for this approach appears in Ridley-Duff (2006).

2 The leaver categories were initially prepared by John/Diane and discussed by Diane/Ben. The data was prepared by Diane after reading the file of each leaver and discussing with Ben. The data input was checked and revised by Brenda (29 of 86 records were amended). Staff leave and hide the real reason, therefore, if anything, the data understates the level of conflict. Ben decided a "conflict" based on the following descriptions given for database classifications: “Deselect” (Employee leaves voluntarily after conflict without being encouraged to leave) “Mutual Agreement” (Employee leaves after conflict with the inducement of a severance package) “Culture Mismatch” (Staff member leaves after conflict - no severance package required) “D & G” (Staff member dismissed after D&G process)

3 Source: CIPD: Recruitment, Retention and Turnover 2004: A Survey of UK and Ireland, Table 15, p22.

4 ibid: Table 18, p23. Figures only given for one year. Industry figures are below the national average.

5 Unfortunately this correspondence has been lost. The information provided is based on e-mail correspondence with Neil Harman.

6 The probationary period was 6 months. Headcount from Ben’s report is used. Recruited staff calculated by adding the number of leavers in their probationary period to the difference between headcounts in each year. Headcount in 2000 was under 100, but the exact figure is unknown, so the number 99 is used to calculate turnover (i.e. best case).

21

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Figure 1 – Social Influences and Relationship Development

Familynetworks

InformalNetworks

FormalNetworks

Relationswith

Leaders

LegalRegulation

Familynetworks

InformalNetworks

FormalNetworks

Relationswith

Leaders

LegalRegulation

Behaviours

SOCIAL

INFLUENCES

SOCIAL

INFLUENCES

27

Figure 2 – Theory of Conflict Resolution and Culture Development

Shared Understanding andValue Congruence

Plurality, Listening,Learning, Debate

Openness, Honesty andIntimacy

INITIATOR

RECEIVER

Co-operation-

Understanding?

Dissonance(Continued)

DIFFERENCE

Dissonance(Continued)

Dialogue?Dialogue?

Resist?

Coerce?

Reject?

Reject?

Compliance

Confrontation

Physical and Psychologicalwithdrawal

Blame, Resignation,Contract Termination

Caution, Dishonesty, Loss ofIntimacy

O U T C O M E S

H E G E M O N I C M A N A G E M E N T

NoYes

Yes

YesNo

Yes

No

No

NoNo

YesYes

Yes

No

-Protected self-image, reducing commitment levels, feelings of dissatisfaction

Improving self-image, increased commitment levels and feelings of satisfaction

A U T O C R A T I C M A N A G E M E N T

D E M O C R A T I C M A N A G E M E N T

Public / Private Discourses Converge

Public / Private Discourses Diverge

O U T C O M E S