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Three ways leaders should shape culture

Effective leadership factors into the bottom line.
By Deloitte
Published Last updated on This article is more than 2 years old.

Every day leaders have the ability to make or break organizations. Through their actions and decisions, leaders set the tone for a company’s culture. But just how valuable is effective leadership as it relates to the success of a company? A leadership study conducted by Deloitte sought to uncover just that by quantitatively measuring leadership in terms of long-term equity to an organization.

To conduct the study Deloitte asked analysts to evaluate leadership through the lens of three core senior responsibilities: setting direction, executing strategy, and creating an environment for innovation. What it found was that the quality of senior leadership had a measurable impact on analyst opinions about whether companies would be successful.

On average, organizations that were perceived to have ineffective leadership were at a 19% equity discount. Companies with effective leadership, on the other hand, exhibited an equity premium of up to 15%. “We look at the management qualities [of the company] and the track record of the people who are leading it and what they have done in the past. I would say they can add another 25-30% to the value of the company,” said one respondent. According to analysts, senior leadership effectiveness was more important than earnings forecasts and ratio analysis. And one of the biggest factors that can hinder a leader’s ability to effectively drive results is failing to align with, act on, or uphold the organization’s values.

On average, organizations that were perceived to have ineffective leadership were at a 19% equity discount.

Culture, leadership, and strategy are the triumvirate that together steer the organization toward excellence—and much like any triumvirate, being in sync is necessary for an effective working relationship. Leadership and culture are the crosshairs that, when coordinated, can give an organization a competitive advantage. Conversely, poor leadership can reinforce the wrong values, behaviors, and attitudes, creating interferences that can shape a toxic culture and create discord between an organization’s image and how it actually operates.

Below are three key areas where the intersection between leaders and culture is paramount:

A leader needs to align with the culture and model desired behaviors. An organization’s culture isn’t always “right,” and a leader’s approach certainly isn’t infallible either. However, the leader’s behavior sets the tone for the organization. Leaders’ values, actions, and the development of their teams need to visibly reinforce the culture of the organization. Through the example they set, leaders shape the culture in their words and actions every day. These actions then gain momentum through structures and policies to shape how employees operate.

A leader needs to understand his or her fit within the culture and use that awareness to drive positive change. Some leaders tend to “go with the flow,” leveraging existing channels to get things done. Others may tend to move outside of traditional processes, leveraging different values or behaviors to achieve results. Leaders aware of their place within the existing culture can more effectively drive change. An effective leader uses this self-awareness to inform an intentional approach toward daily decision-making, recognizing that each action shapes the culture in which they operate.

A leader needs to connect with employees’ hearts and minds, aligning to a common purpose. As discussed in the thought leadership featured on Deloitte’s CulturePath website, emotions are the driving force behind human behavior, more so than rational calculation. To shape and sustain organizational culture, leaders need to connect with the emotional side of the workforce, creating a shared sense of purpose and motivation.

Read more about how leaders can influence workplace culture.

This article was produced by Deloitte and not by the Quartz editorial staff.

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