A company's culture tends to reflect the values that guide the company's actions. Intel's honest discussions and healthy debate were adopted early in its history. The directive to communicate straight-forwardly and to confront conflict openly was presented in new employee orientations, published on the walls in "values posters," listed in the employee handbook, and inscribed on employees' laminated ID cards. In these ways, management left no doubt that the company expected employees to live up to this policy in all their interactions.

Of course, Intel managers also had to model these values in their behavior; otherwise, the message would have been meaningless. Remember, when we use the word values, we're talking about the organization's "real" values, which may or may not match the values printed in the mission statement or the employee handbook. You can always tell what an organization's real values are by observing the behavior of its management, especially in times of crisis.

We know of a company whose founder did not believe in layoffs. From its inception in the 1940s, management held this value as official policy—and more important, rigorously adhered to it. During business downturns, the company would go to great lengths to avoid releasing employees—even having executives and professional staff sweep parking lots to keep them busy until business improved. Not surprisingly, the employees were fiercely loyal to the company, and turnover was consistently low.

When the founder died, his son took over as CEO and promised to maintain his father's benevolent personnel policies. However, when the business took a downturn a few years later, he quickly laid off 20 percent of the workforce. This large and unexpected layoff resulted in plummeting productivity and souring morale; not surprisingly, when the economy turned around, talented employees left in droves. Eventually, a competitor took over the debilitated company, which by then was only a shell of its former self.

How does a viable organization with nearly a half-century of history crumble to nothing in less than a decade? Although the son had promised to uphold his father's values, he did not "walk the talk," as his father had done, and the shift in the organization's real values helped bring down the company. When employees realized from their new president's actions that the "real values" of the company meant putting profits before people, they adjusted their behavior to fit the new paradigm. Once they knew their hard work and loyalty meant little in terms of job security, they wisely decided to jump ship.

Management behavior is an indicator of company values, and employee behavior will always be a reflection of those values, whether they are the stated values or the real values. It comes down to trust and, as our parents told us, trust must be earned. If there is congruence between what you, as a manager, say and what you do, people will trust what you say. If what you say and what you do don't match, employees will soon see the discrepancy and punish you for it.

Employees base their beliefs about organizational values on what they see and hear rather than on what management tells them. If you, as a leader, want to create a culture where people feel free to speak their minds and act with integrity, you'd be wise to repeatedly declare your beliefs regarding those values and, more important, behave in a manner that reflects them.

For example, John, the CFO of a company we work with told us about Randy, a young accountant he'd recently hired. The first quarterly report Randy submitted showed that revenues and profits were in line with the projections top management had supplied to the Wall Street analysts who followed the company. As Randy prepared his second quarterly report, he told John that profits were going to fall far short of expectations and asked what he should do.

"What do you mean? 'What should you do?"' John asked.

"Well," said Randy, "Should I transfer some expenses to restructuring, or capitalize the development software we expensed, or what? How would you like me to handle it?"

"I want you to report the truth," John responded. "Anything else would fly in the face of our company values of honesty and integrity. Frankly, I'm surprised you would even suggest taking another tact. Didn't we cover this stuff during your orientation?"

Bewildered, Randy replied, "Well, yes—several times. But at the last two companies I worked for they talked ethics all the time but at the end of the quarter we were still expected to do whatever it took to make the numbers match projections. In fact, that's why I eventually left them both. I didn't like the pressure to be dishonest."

John told us that this conversation was a lesson for him that regardless of how many sermons you preach about company values, employees will apply their own prejudices and perceptions to what they hear—and it's only when your values are backed up with action that the message sinks in.

To establish or change the values of a culture, leaders must first clarify what those values are and then publicly declare their belief in them. From that point on, they must consistently behave according to those values. This can be especially challenging when an organization proclaims honest communication and healthy debate as key values. As we've said, leaders and managers must be willing to model the behavior themselves and encourage it in their employees. Keep in mind that employees will need a great deal of encouragement and support: Few acts are more daunting than arguing for an unpopular cause, confronting one's coworker, or disagreeing with one's boss. For honest communication and healthy debate to occur, employees must trust that the environment is safe to express themselves. If a manager tells people to speak up and then "executes" someone for doing just that, employees will trust what they see, not what they hear, and they will act accordingly.

We recently witnessed a healthy display of speaking up at a weekly staff meeting for one of our clients. While the group discussed a particularly difficult customer, Tom, the manager, joked, "Don't worry, if he gives us too much trouble, we'll just sic Lisa on him." Lisa's job involved approving or denying computer system changes requested by internal customers and her tough, no-nonsense attitude has earned her such nicknames as the "System Cop" and, not so kindly, the "Wicked Witch of the West."

When Tom made the offhand remark, Lisa responded in a clear, nonaggressive, but very firm voice. "Wait a minute, Tom. When you refer to me like that, even jokingly here in the group, it really puts me in a difficult position. You and I have talked about customers perceiving me to be a 'witch,' and comments like that only make it worse."

For a few awkward seconds, no one said anything, then the group continued with its discussion, although a heavy tension hung over the room. Then Tom, much to his credit, interrupted. "Just a minute, everyone. Before we go any further, I'd like to address what Lisa just said." He turned to Lisa. "You're right—we did talk about the issue of you being perceived negatively by customers. My comment was out of line. I apologize."

Instantly, the tension dissolved, and the group moved on to the business at hand. Afterward, in our role as consultants/observers, we discussed what had happened. When we asked Lisa why she felt comfortable confronting Tom, the rest of the team laughed. "That's Lisa's style!" someone volunteered. "She'll speak up to anyone, at any time, about anything—even her boss." (Small wonder that she is cast in the role of the "cop" who delivers bad news to customers!)

Lisa, however, gave Tom credit for creating an atmosphere where team members feel free to speak their minds without fear of retribution. Even with her naturally forthright manner, she said that she had worked for other managers to whom she would never have spoken up about anything. In other words, if Tom had been a less open manager and prone to punishing employees for their honesty, Lisa would have kept her mouth shut. (Of course, her resentment toward Tom would have festered and manifested itself as indirect complaints to coworkers or a Dilbertesque attitude of cynicism and mistrust.)

After hearing Lisa's explanation, we complimented Tom for his willingness to admit he was wrong. We asked him if his response to Lisa was part of an intentional effort to maintain the open atmosphere he aspired to. "I suppose," Tom modestly replied. "But mostly, I apologized to Lisa because I was wrong, and the apology was appropriate." He then also pointed out: "Had I truly felt I was right, I would have told Lisa so with the same forthrightness she had used with me." If he always apologized, or said he was wrong, even when he believed he was right, Tom knew his graciousness would be perceived as weakness. "The key to nurturing an open culture," he explained, "is to simply express your views honestly and respect everyone else's right to do the same."

In the final analysis, employee behavior reflects company values, but managerial behavior creates those values. In other words, it's what you do to model, reinforce, and reward open communication and healthy debate that really counts.