What is culture?

In 2018, I wrote a 33-page document about our company culture.

Around the same time, we won a Best Workplace award.

Meanwhile, sales were down, and money was leaking

I have had a love-hate relationship with the word “culture” ever since.

There is a whole industry of books and consultants who will take your money to teach you about culture.

They will tell you something like:

“Culture consists of group norms of behavior and the underlying shared values that keep those norms in place.”

Sounds great.

For my first few years running Princeton, I believed it. So I also believed that one of my core jobs as CEO was to define and enforce our culture. So I went to work. Essays. PowerPoints. Trainings. Then I got more sophisticated, switched from “Culture” to “Principles,” wrote it all down, and tied compensation to culture fit. I built elaborate performance reviews around Our Values. I wrestled, on paper, with the differences between Culture and Principles and Values and Objectives and Goals and Mission and Purpose.

Things were not terrible. But we still had drama. People still quit. We still made bad hires. People still complained about their managers.

But we had the awards. So whenever something cracked, I knew the move. We just needed to focus more on Our Culture.

Which turns out to be true.

But only when you truly understand what culture. is.

And what I just described above is not culture.

Every company in this industry will tell you it has a great culture. Which is strange, because when the cost to make a loan keeps climbing, and the margins are thin, and everyone is mad at underwriting, and half the industry is waiting for volume to come back and bail out an expense base, nobody stops to look up the mission statement or brand purpose.

So what is culture, and what does a good one actually look like?

Let me start with the mistakes, because I made all of them.

The problem isn’t what culture is.

Every honest answer to “what is culture” is true.

The problem is who is charge of those definitions and how they enforce them.

Is it how people behave?

Sure.

Chase behavior too hard, and you get a performance full of people who say the right things and cannot deliver a result to save their lives.

Is it a “results-based culture”?

Yes.

Worship results alone, and you get people who run everyone else over to get them. Effective for a quarter, gone by the next, leaving a trail of wreckage.

Is it integrity?

Sure. But if you protect integrity the wrong way, you manufacture mediocrity.

We defined integrity as doing what you say you will do. Which is great in theory. In practice, it gets weaponized into playing it safe. For example, if I set an aggressive deadline on something hard, I miss it because it is hard. Now I “lack integrity.” So next time I sandbag. The thing I could do in a week, I quote at three. Multiply that across a company, and everything slows to a crawl, because good work needs a real deadline and not quite enough time to hit it.

Is it empathy?

Yes, you cannot have a culture without empathy. But try to enforce empathy, and the whole company is held hostage to its most neurotic person, with every decision held up over someone’s feelings.

Is it helping people hit their goals?

Yes, until it curdles into rescuing them, because in the end, people are responsible for their own results.

Is it collaboration?

Yes, but collaboration is also the easiest word in the world to weaponize. Nothing gets done until ‘everyone is on board’ and then the right, unpopular decisions never get made.

Is it security?

Sure. Until you start calling it “a family.”

The branch manager, whose whole identity is wrapped up in being the protector and provider for his or her team, does things like overstaffing, carrying people he or she doesn’t need, doing 10 loans a month with 3 support people, and being proud of it.

Three full-time people are 480 labor hours a month. Ten loans. That is 48 hours of labor for every funded loan. He or she will tell you, in the same breath, how hard his team works and how much he protects them. But he or she is not protecting them. He or she is protecting his image as a family man, and in the end, they are the ones who pay for it when the cycle turns, and he finally does what he should have done two years earlier.

Because when the market turns, “we are a family here” is exposed as a promise nobody can keep, and people feel lied to.

I do not say that above him or her. Because in a way, that branch manager and I are the same person. His thing was the family that my culture document said was important. But we were both protecting an idea of ourselves and calling it taking care of people.

Every definition of culture is true. But none of them is enough because once you build a company on any single one, you get the opposite of what you wanted.

Because when you turn culture into a system or a process, every one of the above words gets perverted, and especially by the person reaching for it. Because the people quickest to inject culture, empathy, team, trust, and family into a conversation are very often using those words as tools to get you to do what they want.

And it works best when people are scared. Because when anxiety goes up, people get more dependent on a leader to soothe them, and a certain kind of leader is happy to oblige, because being needed feels a lot like leading. And an anxious system organizes itself around its most reactive member, but the leader’s job is to stay close enough to understand people without getting absorbed by their panic.

And when the anxiety rises, we reach for a painkiller. And that painkiller could be another meeting, policy, dashboard, consultant, accommodation, or a document about the importance of culture.

And growth cannot fix this problem because growth cannot fix what is broken. Yet how often have you heard “more loans solve all problems?” In fact, it does the opposite. It multiplies it. One comfortable underperformer is a management problem. A hundred comfortable underperformers is a toxic culture

And toxic cultures get addicted to painkillers,

I know, because I was the addict.

Worse than that, actually, I was both the addict and the drug dealer.

The 9,384-word document the painkiller.

All of which makes culture a wonderful place to hide when you would rather not talk about the math.

Culture is a pleasant thing to talk about when volume is normal, margins are fat, and everyone is making money. It costs nothing to have great values in a good year.

But when the market turned, and we were getting our teeth kicked in, almost everything I had built went out the window. We stopped talking about culture. We stopped doing performance reviews. We cut pay. We did layoffs. We raised expectations. We stopped managing everyone’s feelings. We took away bonuses. We started sharing the real numbers, including the ugly ones, with everybody. We held people accountable for financial results in a way that had felt impossible a year earlier. We killed the “way to go, good job” awards.

And we started tracking what each person actually cost to fund a loan.

One processor costs $800 on loan. This one costs $400. This underwriter is $1,200. This one is $350. Then we tied compensation to it.

I expected a mutiny. Because when people are treated like numbers, they become resentful and head for the door.

But that’s not what happened. What happened was two things. One of them was expected; the second one was unexpected.

The expected outcome was that we would fix our economic problem.

The unexpected problem was that our culture started to improve.

Morale went up. Drama went down. Retention went up. And results improved.

And there is a reason that worked when the document never did.

Ben Horowitz’s talks about it in his book What You Do Is Who You Are.

Simply put, your culture is not what you write down, or say in the all-hands, or frame on the wall. It is what your people actually do, especially when you are not in the room.

The only way to build a culture is to start using it.

And you only begin to discover what your culture actually is once things get tight.

The values in my 33-page, 9,384-word document were not measurable, so they could not actually run anything. But “Cost to fund a loan” is a number, and a number can be.

But I want to make something perfectly clear.

The reason why the culture got better when we started measuring things is not that we stopped doing all the things you are supposed to do to build a good one.

I walked around almost bemused, saying things like, “Isn’t it interesting that everyone got happier the moment we stopped talking about culture?”

The reason our culture improved after measuring things like performance and Cost per Loan is that we stopped telling people how to behave and started giving them incentives to behave better. And the way we did that was by telling them the truth. We shared all the data. We raised the floor. And out of pure desperation, we built a company with very high transparency and very high accountability.

In other words, we started treating people like adults.

And so the culture evolved from the bottom up rather than the top down.

And the people who didn’t like that, the people who needed to be protected by a family and words like integrity and group dynamics, left.

At the time, it felt like the wheels were coming off. It was the opposite. It was the thing that was working.

A lot of people do not want to be treated like adults. They do not want their performance to be that visible or their work to be that accountable. Some people do not truly want a better culture. They want a culture to hide behind and keep them safe.

So when, under pressure, we flipped the script and started measuring results, we accidentally turned a company that talked about high performance while tolerating mediocrity into one that actually performed. And that attracted and kept the people who wanted to be measured. Everyone had a goal. And with a goal instead of a family, we became a team. And it is the best thing that ever happened to us.

So here is where I’ve landed on culture:

Culture is the agreed-upon level of transparency and accountability in the system.

And that has nothing to do with the values you stick on the wall. Rather, it’s the amount of truth people have agreed to operate with and the degree to which they are held to it.

I need to warn you that it does come at a cost.

And that cost is that when you are honest and clear, you are going to disappoint people. Most of them will respect you for it, because they can tell you are being straight with them. But many people will start trying to convince, manage impressions, and maneuver. And that is a pivotal moment because that is the actual moment when a culture can either turn toxic or terrific. And that moment is not when someone tells a hard truth. It’s when someone cannot stand to hear one.

The hardest part of running anything is not strategy. It is being willing to own the result instead of spreading the blame around. A culture built around soothing its most reactive person ends up being run by them. Stop protecting people from reality. Sometimes the most caring thing you can do for someone is not always to take their discomfort away.

As an originator, you want support. And you should. But you need to remember that support is never free. The best producer in a loose top-down culture quietly subsidizes every person the manager will not confront. You pay it in your pricing, your comp, the overlays, how long it takes to get a yes, the layers of people standing between you and a closed loan. If the support makes you faster, that is great. It means it is a leverage. But if it makes you or the company heavier, it is a drag, and you are carrying it.

So the next time something feels off in your company or even within your own group, start noticing what you and other people reach for. If your and other people’s instinct is about another value, or having another offsite, or another talk about culture, or another accommodation for the person who would melt down if you did not, then you and they are reaching for a painkiller. And whenever you see other people doing that, watch what they do the week after. Watch whether the real number gets said out loud in the meeting, or the comfortable hire gets confronted. Pay attention to who gets protected from a reality that will hit them anyway. Once you see it, you will remember that Painkillers remove the pain. They don’t actually fix the problem. Which means they also do not create a great culture.

The thing that actually creates a great culture is almost never another word or meeting about words. It is creating a mutual goal by raising the level of truth and accountability one notch, and being willing to lose the people who only stayed because it was low and could get away with it.

If this put a name to something you have been avoiding, in your branch or in yourself, write back and tell me what it is. I read every reply.

Happy July 4th, everyone.

Be unleashed.

Rich Weidel
CEO, Princeton Mortgage