Your Company Culture is Who You Hire, Fire, and Promote

Use the Performance-Values Matrix to build an Outstanding Culture

Dr. Cameron Sepah
Mar 3, 2017 · 11 min read

The actual company values, as opposed to the nice-sounding values, are shown by who gets rewarded, promoted, or let go.

Netflix Culture: Freedom & Responsibility

Every time I walk into a new company I’m advising, I invariably encounter a set of noble values prominently displayed on the walls. The first thing I’ve trained myself to do is to not take them as gospel, and instead carefully observe how people really behave, which will tell me the actual values I need to know.

It’s not that most companies are disingenuous about the values they espouse. One of Enron’s “aspirational values” was integrity, which may have genuinely expressed who they wanted to be at the beginning. But over time, this proclaimed value didn’t reflect their “practiced values” which were revealed when they committed fraud.

The gap between aspirational and practiced values is diagnostic of how much your company’s culture needs to improve. The actions you take to bridge the gap is prognostic of whether it will.

Why Behaviors Persist (Do As I Do, Not As I Say)

Though most employees care what leadership thinks of them, they are actually quite astute at paying attention to what leadership does, not what they say.

According to the theory of behaviorism, no behavior will persist long term unless it is being perpetuated by either a positive reinforcer (providing a reward, such as a promotion or praise) or a negative reinforcer (removing a punishment, such as a probationary period or undesirable tasks). Thus, when companies start, leaders set the company’s values not by what they write on the walls, but by how they actually act. For example, do they stay late and burn the midnight oil? Or do they leave early to be with their families? According to social learning theory, these behaviors become socialized, and rank-and-file employees who take their cues from these leaders act, and react, accordingly. These are what’s called trickle-down behaviors.

As the company grows and senior leadership is not always readily observable, employees begin to act according to what their managers either actively reinforce through praise and promotion or passively reinforce by allowance. Over time, employees become aware of which colleagues are being hired, fired, or promoted, and why. Did Joe get hired because his references praised his incredible work ethic? Did Jill get fired because she wasn’t considered a team player? Did Jamie get promoted because he spent a lot of time socializing with company leadership? Hence, employees quickly learn the “rules of the game” to survive and thrive at their company, and act accordingly, which may have nothing to do with what aspirational values are plastered on the walls.

Your company’s employees practice the behaviors that are valued, not the values you believe.

How to Assess Values During the Interview Process

First, you must ensure that all final candidates live up to your company’s values. For example, I’ve created an interview template to evaluate candidates on seven key traits: grit, rigor, impact, teamwork, ownership, curiosity, and polish. (I recommend you replace these with your own company’s aspirational values.)

Another key trait (or the lack thereof) has been popularized by Professor Bob Sutton at the Stanford Graduate School of Business. The “No Asshole Rule” dictates that no matter how great a candidate may be, being an asshole is an automatic deal breaker. The way this can be implemented is through what I call the “One Red Flag Rule,” which is based on the observation that pathological traits are sporadically, not continually, expressed — except in severe cases.

For example, a narcissistic candidate may not act arrogant all the time, but may express arrogant comments 10 times more, on average, than someone who doesn’t have this issue (e.g. a few times a day versus a few times a month). Thus, if a candidate can’t suppress making an arrogant comment during a 30–60 minute interview, they are likely to do this even more often when employed full-time.

Drawing on best practices espoused by a leading investing firm, Andreessen Horowitz, I conduct up to six reference checks per candidate to evaluate “values fit.”

Nevertheless, evaluating these traits during a brief interview can be challenging and lead to an inaccurate assessment. This is why I recommend conducting thorough reference checks, based on research findings dictating that the best predictor of future behavior is past behavior.

A 300-employee San Francisco startup, Weebly, goes so far as to invite job candidates to work an onsite trial week, paid at fair market value. The reason is simple: It’s very hard to suppress values-incongruent behaviors when working closely with others for that amount of time. As Weebly’s CEO David Rusenko said:

Assholes can hide it in interviews, but for whatever reason, they cannot hide it for a whole week. I don’t know why, but it all comes out within a week.

How to Reward (Values During Performance Management)

The major issue that I’ve seen with startups is that even if they claim to have a “No Asshole Rule,” they hardly ever practice it. Rationales I’ve heard include: “We’ve decided that we’re not going to fire him because he’s a high performer” or “for that one bad trait, he has four good traits going for him,” and, of course, the “[data scientists/engineers/product managers] are hard to replace, so we’ll make do.”

The moment that leaders start weighing values-congruent against values-incongruent behavior, as if they can cancel one another out, is the moment when they have compromised their values.

The best way to avoid this pitfall is to make values-congruent behavior a formal and prioritized part of your company’s performance management process. I’ll share the system I designed and helped implement at my company. It starts with evaluating each employee on the Performance-Values Matrix. Whatever employee evaluation system you use — whether that’s a formal annual review or regular one-on-ones — employees should be evaluated on both their performance-based behavior and values-based behavior. Both should be quantified on a spectrum (e.g. a 1–10 point scale), but I’ve simplified into a 2x2 matrix for illustrative purposes. (Note: I use gender-neutral language throughout this piece, but I use “guys” in the matrix due to space constraints. I also usually use more PC terms, but the colorful language helps me cheekily make my point here.)

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© Dr. Cameron Sepah

1. Incompetent Assholes (Fire Fast)

2. Competent Assholes (Remediate or Separate)

There’s a reason Professor Sutton called it the “No Asshole Rule.” It’s because exceptions shouldn’t be made, otherwise it shows your values are merely aspirational. The solution for competent assholes is a tactic that I call “remediate or separate.” Despite the fact that these folks are strong performers, it should be made clear that value-incongruent behavior is not tolerated and they will need to remediate their behavior in a measurable way within a given period of time.

Thus, competent assholes should be put on what I call a “Values Improvement Plan” (VIP). For this, 360-degree reviews — from an employee’s manager, peers and direct reports — are a great way to assess improvement, or else be separated from the company. The reason I like giving these folks a chance is that sometimes employees that aren’t entirely inflexible (or pathological) can improve when they realize that their job depends on it. Often times, this requires entering therapy or executive coaching with a skilled psychologist, which is worth its weight in gold if the employee is willing to change.

3. Incompetent Nice Guys (Manage or Move)

Incompetent nice guys and gals should be put on a traditional performance improvement plan (PIP), and skillfully managed in order to give them training and feedback to improve their abilities. When their incompetence stems from a fundamental disconnect between their strengths and their current role’s demands (e.g. mediocre social skills in a client-facing role) one solution I’ve seen prove fruitful is to move them into a different role. (The person may be an analytical whiz if moved to a more technical role). Of course, if that is not possible or does not work out, they should also be separated from the company. Encouraging incompetent nice guys and gals find a position that’s a better fit for their strengths is, ironically, the nicest thing you can do for them.

4. Competent and Outstanding Nice Guys (Praise and Raise)

Given how rare these individuals are, founders should go out of their way to attract and retain them. By building this designation directly into the evaluation matrix, outstanding nice guys and gals should be formally recognized and rewarded with raises and promotions. These are the current or future leaders of your company, and need to be nurtured and cherished given that they are the foundation for your company’s performance and morale.

Of note, while I distinguish between competent and outstanding nice guys [and gals] in the matrix, I do not do so for assholes. That’s because I believe it is nearly impossible to be an outstanding asshole. For example, there is a myth of the “10x engineer” in Silicon Valley, where a truly talented engineer is 10 times as valuable and productive as an average engineer. Even if one engineer could possibly do the work of 10, if they are an asshole — especially in a management position — they will decrease the performance of the people around them to such an extent that their team’s net productivity will break even or be at a loss long-term.

Call to Action: Reinforce Your Culture

Culture can only improve when there’s a baseline of openness, where people feel they can come forward and share concerns or opportunities for people and teams to do better. If people don’t trust what happens after they give their feedback, then reviews will be “positive” and not provide any useful information. This requires both anonymous surveys and the promise that aggregate feedback is valued and will be acted upon.

So if you want your company’s culture to be congruent with those noble aspirations written on your walls, you must continually assess how well your employees are behaving compared to those aspirational values, and develop ways to bridge the gap between aspiration and practice. I believe the best way to do this is to directly reinforce value-driven behavior, including making it an integral part of employee’s reviews and weighting it as highly as performance.

As the old saying goes, you reap what you sow. As leaders, you get the behavior that you reward.

Continued in Part 2: Anatomy of a Workplace Asshole

Written by

🤴🏻VC, Magi Ventures. 🤵🏻Professor, @UCSFMed. 🧙🏻‍♂️ Performance Psychologist to CEOs/VCs. 🧝🏻‍♂️ Board man gets paid. 🏀

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