The CHRO agenda: How the role is evolving
The role of HR – and, therefore, of the CHRO – is rapidly changing. IMD’s Lars Häggström draws out the key themes from a new series of in-depth interviews ...
Human Resources
When good culture turns bad: ensuring a healthy and ethical work environment
Scandals at Deutsche Bank and Rio Tinto are stark reminders for leaders to scrutinize their organizations. Embracing empowerment and implementing continuous assessment are two crucial factors in addressing shortcomings.
Sparked by a series of recent scandals involving well-known organizations, corporate culture has resurfaced as a top priority in boardrooms. A noteworthy example is the revelation that employees at Deutsche Bank were for years pressuring small and medium-sized Spanish firms to acquire intricate foreign exchange derivatives, falsely presenting them as safe and cost-effective. While these activities yielded substantial profits for the bank, they also placed clients in jeopardy, resulting in severe financial setbacks.
This and other high-profile incidents serve as stark reminders for leaders to critically examine their organizations and proactively address cultural shortcomings. Among the most detrimental practices that can erode a company’s culture is the retention of individuals who blatantly disregard stated values or act badly, even if these are not violating explicit company values. For example, in the case above, the bankers were bringing in significant financial gains for Deutsche Bank – despite honesty, integrity, and high ethical standards being among its stated values.
Such employees may contribute to short-term financial gains. However, their actions send a demoralizing message to the workforce, suggesting that the organization’s values are merely window dressing or not present at all. This maycreate a toxic environment, which can severely impact the morale of employees who genuinely embrace and abide by these principles.
For example, research by Murray Barrick and colleagues shows that over time, a team’s behavior will orient itself to that of the worst player in the group, multiplying the insidious effects of one person. From work by psychologists Mark Leary and Roy Baumeister, we know that bad behavior always has more influence on the environment around the actor compared to good behavior. Negative emotions, like anger and feelings of injustice, often pervade a team’s atmosphere when a bad apple is allowed to exist in a group.
A prime example of this situation came to light in a workplace culture review at mining company Rio Tinto in 2021. The review exposed the prevalence of harmful behaviors, which were known as an “open secret” among employees. The lack of accountability, especially for senior leaders and high performers, was singled out as a major concern. The company has since taken steps to address this issue, including mandatory training programs, ongoing communication, and explicit procedures to flag behaviors that are contrary to the company’s values.
To foster a strong and healthy culture, organizations must hold all employees accountable for it, regardless of their financial contributions. As performance and results are so critical to organizations, this is not always so easy to do. On several occasions, I have witnessed leaders’ hesitancy to take action with these employees, as they worry about how it will impact their team’s performance, and how that might subsequently affect their standing in the organization.
While understandable at an emotional and self-preservation level, when leaders take a more cultural perspective, the insidious effect of “bad apples” is difficult to ignore. But “taking action” does not necessarily mean parting ways with star performers. Rather, it might mean implementing transparent and fair systems to identify cultural violations and providing these people with the tools and training needed to improve their conduct. If this still doesn’t change behavior, then termination might be a necessary last resort.
Value statements: empty words?
In the corporate world, value statements are commonplace, prominently displayed on websites and office walls. However, the sad reality is that many employees, especially those below top management, remain largely unaware of these guiding principles, often rendering value statements nothing more than platitudes. This lack of awareness stems from inadequate communication, a lack of emphasis on values during onboarding, and the inability of leaders to bring these words to life through their everyday actions. Leaders should effectively communicate the organization’s values by living these values aloud. Explicit discussions about values during meetings and interactions can significantly contribute to strengthening their importance throughout the company. For example, in their quest to strengthen their values-based culture, leaders at a chemicals company I collaborated with began to infuse their statements with a core value. For instance, a leader might say, “Because we strongly value integrity, we must share this error immediately with our client.” Additionally, values may hold different meanings and implications at different levels within the corporate hierarchy. Therefore, leaders should provide clear explanations for what each value means for staff across different roles and responsibilities. For instance, empowerment for an assistant could involve allowing them to make autonomous decisions about selecting a supplier for a company event, whereas, for a Chief Human Resources Officer, it might mean gaining the trust of the CEO and board to redesign some reporting roles.Collaboration and ownership
To reduce the abstractness of values, leaders don’t always need to be the ones who define the behaviors that accompany a value. They can leave this task to their employees. Empowering staff to be active contributors to the organization’s culture is a crucial aspect of fostering a healthy workplace environment. Granting employees the autonomy and authority to take the initiative and influence the company’s direction builds engagement and commitment, rather than relying solely on top-down directives.Leaders should effectively communicate the organization’s values by living these values aloud.
One approach, known as “freedom within a frame”, strikes a balance between autonomy and structure. In this model, organizations or leaders provide guiding principles, such as aspiring to become a more inclusive company. However, rather than dictating specific behaviors to achieve this, employees actively define the behaviors. When staff feel ownership over specific actions, they are more likely to embrace, internalize, and embody the values.
For example, one of the banks that I collaborated with aimed to empower their front-line retail employees. The bank provided these employees with a set of broad guidelines, which included aligning their actions with personal banking objectives and working closely with the rest of the team. The remaining choices were left to the employees, allowing them to exercise autonomy within the framework provided.
The power of continuous assessment
Creating a strong organizational culture is not a one-time endeavor. Once organizations identify areas that require change and take steps to improve, continuous assessment becomes essential.
Companies have at their disposal a range of assessment tools. Engagement and culture surveys offer valuable insights into employee morale and satisfaction. For instance, the Denison Organizational Culture Survey, developed by Dan Denison, a Professor Emeritus of Management and Organization at IMD, is widely used to assess and measure the cultural health of organizations.
Another valuable assessment method involves conducting exit surveys when employees leave the organization. Traditionally, these polls mostly focus on understanding the reasons behind an employee’s departure. However, since the COVID-19 pandemic, a greater emphasis has been placed on employee perceptions regarding their purpose and well-being within the company.
Exit surveys therefore present a unique opportunity to gather candid feedback from departing employees. As they have less to lose and are more willing to be open about their experiences, the surveys tend to provide solid insights into leadership and the work environment. These candid responses can uncover hidden issues that may not otherwise be apparent.
Through continuous assessment, as well as embracing empowerment and holding all employees accountable for upholding values, leaders can identify the source of cultural deterioration and take proactive steps to address it.
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