Sloan School of Management Working Paper 4553-05 August 2005 On the Origin of Shared Beliefs ( and Corporate Culture )

Since organizational homogeneity may reduce or eliminate agency problems, understanding its sources is important for the trade-o between firms and markets and for organization design. This paper shows that a firm’s members will develop homogenous beliefs through shared experiences. Organizations with a long and successful history and high employee involvement will have the most homogenous beliefs. I relate this also to the notion of corporate culture as shared assumptions and beliefs. The model confirms a pattern of ‘facts’ that has been informally suggested by the management literature. Similar organizations may develop very dierent cultures, which can persist even when all the original members are gone and even when the culture is almost surely suboptimal. The organization’s culture is heavily influenced by the founder’s beliefs and by early experiences, and is more likely to change under an outsider-successor to the CEO than under an insider. The paper also studies the impact of the rate of learning and questions the received interpretation of the correlation between culture and performance.

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