Toxic Culture:How Does the Board Know Before Disaster Hits?
by Mark Goodridge
The great thing about sitting on a board is that most of what you hear and get to know is curated and crafted by those who want you to have a good impression of them.
We want our board to think the best of us, we don’t want them to get the wrong idea. With our focus on performance, success is rewarded and failure often punished so no wonder I want the board to only hear of my successes. My failures are ‘work in progress’, ‘challenges’ and downplayed in this highly incentivised world of executive management. Boards by their nature are the furthest away from the ‘coal-face’, ‘the shop floor’ and the real dynamics of the organisation.
A toxic culture is often associated with corporate failure but only after the event. We rarely see the claim that the toxic culture at XYZ Corp will lead to its downfall. More often we read “XYZ Corp’s audacious bid for…”
Lehman Bros collapsed on the cusp of the 2008 crisis. Enron and RBS, like Icarus, flew too close to the sun but had the excuse that everyone else was doing the same – they were just unlucky ones to hit the storm first.
The Volkswagen emissions scandal was more subtle. Over many years it had become acceptable for this high quality engineering company to steer around legislative requirements without the board recognising it for what is was, fraud.
In the aftermath of these failures, people came out of these organisations and spoke up, they had seen the problem but no one would listen or perhaps they didn’t feel confident at the time to speak up. Their cultures were described as “toxic”. The problems were known but accepted by those of power and influence. Data was not the issue; its communication, interpretation and significance were the problem.
As a board member how do you know what the company culture is and whether it’s toxic and why? There are two questions for boards. Firstly, how, from our elevated position, can we get a sense of the true culture and secondly, how do we calibrate the information we get? Is it “toxic”?
“As a board member how do you know what the company culture is and whether it’s toxic and why?”
The Board’s Role in Assuring a Productive Culture
There are three responsibilities of the board to assure a productive culture:
- Set the expectation for the culture
- Measure the culture
- Constantly test the reality.
1. Setting the expectation
The board’s role is to set the values and culture of the firm. The corporate governance code says:
- The board should establish the Company’s purpose, values and strategy…
- The board should assess and monitor culture…
Through sponsoring the values, the board establishes the tone and style within which they intend business to be conducted.
Culture is a wonderfully vague term, a fat word with a multiplicity of meanings. In fact, I sometimes question whether it has any common meaning at all. It is a collective noun that describes stuff that we don’t understand, nevertheless we have strong impressions of positive and negative cultures. It’s an object that we all feel we know and whose symptoms we all experience but we struggle to know what it is.
Through articulating our values and illustrating the behaviours that support those values we set a compass direction, an expectation.
2. Measure the culture
Most board’s have the culture of their organisation on their annual calendar of issues to be reported and discussed. Finding out the lived experience of both customers and staff through regular surveying of staff and customers has become commonplace. Satisfaction is the core criterion along with some form of internal and external Net Promoter Score (a measure of the proportion of respondents prepared to recommend the company or service to others).
These tools are becoming increasingly sophisticated and give a pretty comprehensive picture; they can spot the trends and industry norms. But like the GP diagnosing a human condition, there is rarely just one definitive symptom, it is a range of indicators that come together to build a picture from which the diagnosis is derived.
I’ve always sought to triangulate data on an issue. In other words, if three different data sets or sources of information are indicating a problem then you, in all probability, have a problem. Surveying ‘satisfaction’ is one data source but let’s explore what the other two might be.
There is a range of other indicators that help colour the culture picture:
- Staff turnover trends, exit interviews, are we building or exiting talent?
- Internal promotions give an indicator of the success of talent building
- Grievance and whistleblowing incidence. Often reported as zero as if this is necessarily a positive indication – it may not be, the fear of speaking out maybe too great
- Measures of culture. OE Cam uses a range of diagnostic tools to measure culture. Refer to our earlier article in ‘Fit For the Future’ for an in-depth look at measuring organisational ‘health’.
For the board to effectively assess and monitor culture, it needs access to a basket of data points in order to reach a conclusion as to how the organisation really behaves.
3. Constantly test the reality through your own interactions with the organisation
Great data is important, but so too is the board members’ feel for the organisation. I know Non-executive Directors that go out of their way to feel and touch the business without undermining their executive colleagues.
- How does reception treat you? Do all visitors get the same treatment? Arrive early, sit in reception, watch and listen.
- Rotate the location of the board meetings. Visit different sites, seek out opportunities to informally interact with staff
- Non-executive Directors undertaking exit interviews of key staff
- Understand the payment systems – could this be encouraging negative behaviour?
- Become a mystery customer – experience the customer journey, call the helpline.
You will soon build up a picture you can share will colleagues. But a word of caution. Dynamic, creative organisations may be quite uncomfortable organisations. We celebrate innovation and transformational change so we have to ask whether compliant and content staff are necessarily the stuff of a vibrant, creative, can-do culture?
“Dynamic, creative organisations may be quite uncomfortable organisations. We celebrate innovation and transformational change so we have to ask whether compliant and content staff are necessarily the stuff of a vibrant, creative, can-do culture?”
Toxic is on a Scale
In a recent board meeting, a colleague challenged the CEO; politely but firmly, he said no, he disagreed and proposed an alternative course of action. The CEO bristled, became defiant and the issue was dropped. Both parties said afterwards to me “what’s up with the other?”.
They both felt that the other had been hostile. As an outsider, I witnessed an exchange which was explicit, assertive, not well resolved but on my scale not ‘toxic’. On my scale, the exchange was not particularly hostile either, but on theirs, it was. So if we can’t agree on this when all are present how can we scale and judge the culture of our business? We have to be careful that ‘difference’ is not interpreted as ‘toxic’. A positive culture explores, not avoids, difference.
The so-called snowflake generation has often been accused of hyper sensitivity. But sensitivity is not confined to any particular age group. Just because someone disagrees with you, that does not mean you’re being bullied. A performance management conversation that highlights areas of improvement doesn’t necessarily mean you are being discriminated against.
A core element of culture is how disagreement is handled. In this world that claims to celebrate diversity, are we really able to handle difference? A strong and positive culture does not shy away from resolving difference and disagreement – but that may come at a cost to the happiness scores.
To avoid disaster the board needs to have culture firmly on its agenda, devote time to exploring both the hard and the soft data, be prepared to come to a conclusion and act before disaster hits.
Mark Goodridge
Mark Goodridge leads major transformation projects in both the private and public sectors leading to business realignment, organisation and culture change. He advises organisations at board level in the food, retail, media, telecommunications, and government sectors in the UK, Continental Europe and USA.
