Valerie Navarrete

According to a new Yale School of Management study, an extreme wage gap allows an emergent, progressive corporate culture to displace a regressive, outdated one.

Written by SOM professors Gary Gorton and Alexander Zentefis, the latest version of the working paper was published online on Jan. 16. The study examines how corporate culture is determined, why a variety of corporate cultures exist and whether progressive corporate cultures can oust regressive ones.

“We study whether social progress can lead to corporate cultural progress via market forces, i.e. competition,” Zentefis said. “We find that it can under some circumstances, namely when the wage gap between employees is large — which we found surprising.”

Minorities go through socialization, or conforming to the behavior implied by the majority’s culture. To members of the minority, the socialization process may be positive or painful. How they emotionally react to the socialization decides the firm’s corporate culture.

Firms face a trade-off between enhancing diversity and worsening cultural conflict: Electing to hire only members of the majority can reduce conflict, but will lower diversity.

Whether firms can adapt to progressive development in society without external measures such as legal mandates depends on the power of the incumbent corporate culture — which is measured by the difference in pay between the majority and minority at the firm. Extreme differences allow for an emergent, progressive corporate culture to more easily displace a regressive, outdated one. In contrast, a narrower wage gap prevents the firm from changing its culture.

The team found that the more antiquated a corporate culture, the more vulnerable that corporation is to competition. Additionally, if the regressive firm loses many talented employees who feel marginalized, adhering to an outdated corporate culture no longer becomes feasible.

In fact, companies often use their contrasting corporate cultures to compete. Lyft, for example, took advantage of its competitor Uber’s many scandals, including accusations of sexual harassment and gender discrimination, to widen its consumer base. Bumble also positioned itself as a more progressive alternative to the “male-focused and overly sexualized Tinder,” according to the study.

Some firms, however, can be so powerful or well-known that they can afford to maintain an outdated corporate culture because of their name value or lack of serious competition. In this case, other forces — such as product boycotts, public protests, bad press or government legislation — could be a substitute for competition to compel these firms to change.

“Even when firms try to shift corporate culture, cultural change is not simple and could very well face resistance from employees opposed to the change. But sometimes that change must come in order for a firm to survive in the market,” Zentefis said.

According to Claire Bowern, professor of linguistics and chair of the Women Faculty Forum, although universities do not make profits in the same way firms do, academic currency — the university equivalent of profits — can push schools to adopt a more progressive culture.

Research groups that are more diverse and equitable are happier, which is attractive to new members, said Bowern. They are also more productive and produce more publications, which is one factor in rankings and prestige.

Aviva Legatt, an affiliated faculty member in organizational dynamics at the University of Pennsylvania, stressed the importance of inclusion, rather than cohesion, in an organization. This means minorities do not just have a seat at the table but are an active part of the conversation.

“Any large company will say we value diversity and inclusion, but on-the-ground experience may be different from policy choice. So it’s important to distinguish policy and employee experience,” Legatt said.

According to Legatt, Nike, for example, appeared to be becoming more progressive, as it was conducting integral studies about who was getting promoted and striving to recruit and retain minorities. The reality for women at the company, however, was very different — employees spoke of a toxic culture and barriers to career advancement.

Legatt explained that some women in an unfriendly corporate culture may not feel empowered to organize and overcome discrimination. Women in technology, for example, tend to feel marginalized because they are recently entering a traditionally male-dominated profession. If these women are not able to organize, receive support from affinity groups, make anonymous complaints and provide input at all levels of organization, the company cannot be truly inclusive, Legatt said.

Women with the same job and qualifications earn 98 cents for every dollar earned by men as of 2019, according to PayScale.

Eui Young Kim | euiyoung.kim@yale.edu