By Sanam Islam

In 2004, the executives at Toronto-based Waterstone Human Capital, a top retainer-based search firm, were curious to know what topics the Canadian business leadership community wanted to learn more about. Their research found that chief executives were increasingly talking about corporate culture, but there was an information gap on the subject. As a result, Waterstone launched the first Canada's 10 Most Admired Corporate Cultures program, which has been running annually ever since.

"The objective of the study continues from its inception four years ago to really understand the asset of corporate culture and the impact that culture has on the performance of Canadian companies," says Marty Parker, managing director of Waterstone.

Executives at Canada's top 500 companies are sent a survey with questions about their company's corporate culture, and asked to nominate Canadian companies whose cultures they admire the most in terms of their effect on performance. This year, 340 companies participated, of which the most frequently nominated were asked to complete employee surveys and a submission package outlining details for Waterstone's board of governors to evaluate.

Companies are judged on five criteria: vision and leadership; cultural alignment, measurement and sustainability; rewards, recognition and innovative business achievement; corporate performance; and corporate social responsibility.

This year, the study found an overwhelming 82% of executives surveyed said culture has a strong, or very strong, impact on their company's performance. But most convincing are the performance numbers: The three-year average revenue growth, as well as the three-year average asset growth, of 2008's top 10 companies was 63% higher than that of the 60 largest public companies in Canada listed on the S&P/TSX 60.

Other positive effects of culture on an company's wellbeing are: lower turnover, according to 53% of executives surveyed, and giving employees a sense of belonging, according to 57%.

"I think [Canada's 10 Most Admired Corporate Cultures] is a great program because it recognizes one of the key ingredients, in my opinion, to the success of business," says Mike Cordoba, chief executive of Boston Pizza, one of the top 10 companies this year and last.

"In today's working environment, which is fast-paced and where it can be difficult to get along, you need to have a great culture to bring employees together."

Who creates that great corporate culture? According to the majority of executives surveyed, it's company leaders. In fact, 90% contend a new leader can change a corporation's culture. With tough economic times ahead, Mr. Parker expects to see more leadership changes. "These changes will have an affect on culture, because people follow what they see. That will have either a positive or negative affect on performance."

Mr. Parker says he has noticed a growing interest in corporate culture in the past several years. One indicator is the number of companies that responded to the survey this year -- last year it was only about 100. Part of the motivation, he says, is recruitment and retention of the best people -- a pressing issue as Baby Boomers, which now make up a large part of the working population, begin to retire in 2012. "They're saying, what else can we do? They look at organizations like Tim Hortons that recruit and retain people well, and they look at their performance, and say, 'Wow, it's incredible. How do we do that?' "

He says some of the most successful companies on the list, such as WestJet and Yellow Pages Group, have created business models around their corporate culture. "There's a lot to be learned from companies who do that," Mr. Parker says. "They realize corporate culture isn't just a nice thing to have -- it's an asset that drives performance."