Leveraging Culture in Management Control Systems: Evidence From the Field

Abstract

The accounting literature has extensively examined the role of contracts as a control mechanism for holding agents accountable for their behaviors and performance. However, in most situations of interest, only incomplete contracts are feasible because certain states of the world on which a formal and complete contract would be contingent are difficult, even impossible, to be specified ex ante. Therefore, with the presence of uncertainty, organizational culture as an informal control serves as a relational contract that reduces or eliminates agency conflicts by aligning beliefs and values, increases predictability of other’s actions, and guides the adaptation to unpredictable events. The importance and relevance of organizational culture become even more pronounced as younger generations increasingly dominate the workforce. Using archival and field data, my dissertation focuses on the process of an organization shaping and reinforcing its desired culture and examines: (1) how culture as an informal control is shaped and reinforced through formal control systems, and (2) frictions and inefficiencies that lead to undesired culture. To this end, my first essay studies the discrepancy between the management intended culture and the actual culture perceived by employees within organizations. My second essay investigates how the presence of upward influencing employees affects workplace culture and team performance. My third essay explores the efficacy of a formal control system in promoting a desired culture of continuous learning and development among employees.