Leading With Purpose: How to Revamp Toxic Corporate Cultures in the age of AI

The black swan disruptions of the coronavirus—have put over 1.6 billion people across the globe under draconian lockdowns. As of this writing, the COVID-19 pandemic has killed over 23,000 Americans—equivalent to nearly eight times the death toll of the 9/11 attacks in the U.S. Moreover, many organizational cultures worldwide have been under increasing stress of finding a better response to the coronavirus disruptions. Almost all companies have been taken off guard by the disruptive magnitude of the pandemic. Recent research found that the impact of the crisis in the short to medium term has been felt differently. The private sector seems to have been hit harder than the listed companies worldwide.

Below the public radar, the COVID-19 crisis has laid bare the toxic elements of corporate cultures around the world. As the crisis continues to wreak havoc on the world economy, the ensuing chaos and panic have pushed weak corporate cultures to dangerous deviations from their values and corporate purpose. Our experience suggests that a deep economic crisis has always exposed corporate wrongdoings—such as accounting fraud. For example, on Aprile 19, 2020, it was found that a leading oil trading firm in Singapore—Hin Leong—hid over $750 million in future losses. To be sure, there are many types of corporate cultures out there. Over the years, we have worked with several companies that do not exhibit the kind of behavioral deviations from what they stand for – no matter what happens during the crisis. These leaders have done whatever they can to deal with the morale and rising anxieties within their firms. And their actions constantly mirrored their organizational purposes and values.

However, our recent survey of 987 employees across both sides of the Atlantic suggests that 38% of firms have shown glaring discrepancies between what they say regularly and what they do during this crisis. One employee said, “What the leaders say and what they do is different. And I have been so disappointed.” Another one said, “Words such as integrity, fairness, and professionalism are hung on the corporate wall. But the day-to-day work suggests otherwise.” Another employee from a different firm said, “It seems that we disregard many technical aspects of regulations and adopt the ones that we believe to be correct.” What these employees are saying is called technical deviance across those organizations, which refers to situations where people do not comply with external regulations and their organizations’ policies and rules, and no one is punished.

More troubling still—after the Samsung bribery scandal that wreaked havoc on South Korea, the Wells Fargo’s scandal regarding its aggressive and fraudulent sales culture, and the 2012 Libor scandal comprising the largest banks such as UBS, Deutsche Bank, and Barclays, among others—some companies are still normalizing and standardizing bad behaviors within their corporate culture. Above all, by embedding corrupt practices as the operating model of the companies, the leaders are assuming that the likelihood of being caught is very slim. Thus, there is no need to bother in the first place—given that they believe it is just another little thing. Therefore, the problem does not need to be addressed at the top of the organization.

Make no mistake: norms impact individual or collective behaviors in two ways. The first is called the injunctive social norms—where people do what others expect them to do in a given situation. The second one is called the descriptive social norm—where people begin to engage in behaviors, they see others doing at work. As a result, this combination of behaviors over time embeds itself across firms to become the so-called automatic social norms, where people automatically behave in ways without a second thought – given that they subconsciously believe the behaviors are the right things to do regarding the expectations of others within the organization. Unfortunately, when toxic behaviors get entrenched across firms, it becomes very hard to repair the culture. The longer bad behaviors exist, the harder the detoxification process becomes, according to our experience.

Given that many core elements of organizational culture are unseen, our experience suggests that executives can look at what their firms reward, punish, and tolerate as a guideline in uncovering the manifestations of their values, beliefs, assumptions, and norms. Challenging as repairing an unhealthy culture may seem, we believe revamping a toxic workplace culture is doable when firms follow the proper steps.

Ascertain the Level of Toxicity Across the Firm

Our work with organizations suggests that bad and destructive behaviors embedded within a firm can hinder its purpose if they persist. Some ramifications can range from corporate scandals—such as the Theranos blood testing debacle in 2015 and Volkswagen’s emissions cheating scandals that cost the German giant over $25 billion in fines—to employee revolt (strikes) to publicly show their discontent with a rotten culture. Also, it can result in high employee turnover and poor reputation, ultimately leading to poor corporate performance over time.

Thus, the first order of business in repairing a toxic culture is ascertaining the degree of toxicity, which refers to the degree of technical deviance across the board. It may include many of the abovementioned behaviors, such as normalizing deviant behaviors regarding external and internal rules without actions. Other misbehaviors—which have ruined many organizations that we believe must be brought to the leaders’ attention—are the problems regarding blames and Machiavellianism (silo mentality-enabled turf wars). In other words, firms must make sure that their organizations do not become a blame culture, where people blame each other for whatever, even things beyond employees’ control. In contrast, making sure that the silo mentality of power-hungry people is uprooted.

Instead, businesses need to strive for a culture of learning from employees’ mistakes to provide better assistance to them, such as tools, techniques, and training. Failure to do so may turn an organization into an expert culture, where everyone pretends to be one because, for fear, they will pretend to be making no mistakes or errors. The apparent consequences of this can be hiding mistakes and what is going wrong within the firm. Unfortunately, when the top management knows about the brewing troubles on the horizon, it is too late to correct the bad behaviors regarding their performance implications for the entire organization.

Change Systematically the Organizational Structure and Incentives

While incentives are good in pushing employees to deliver their very best, the way they are structured in many organizations has produced the opposite of the anticipated outcome. While ambition alone is not bad, overwhelming corporate ambitions for becoming an industry leader or setting unrealistic targets can dangerously affect an organizational control mechanism and its power structure. Above all, the incentives for reaching these unrealistic targets can compound the level of toxicity within organizations, no matter the size.

As such, in reviewing the level of toxicity, companies need to check the explicit and implicit assumptions behind these incentives, such as pay packages, bonuses, and promotions. Because an overly aggressive culture can destroy interpersonal relationships between employees and departments, for example, one employee told us that his firm culture is so competitive that even asking for basic help seems to project incompetence. We are not saying that a healthy dose of competition between employees is bad. Still, when it reaches the level of tearing each other down for promotions or bonuses, the culture becomes dangerously toxic.

Address the top Management at the Organization

The basic tenets of organizational management call for control. Thus, when leaders are too busy or disregard what is going wrong across the firm that they have been entrusted to manage, something is going wrong. The worst case we have witnessed is that some leaders contributed to the toxicity of the key elements of their corporate cultures by allowing rotten practices to be standardized or normalized. For example, before the scandal at Enron, the word integrity was hanged in the corporate lobby while the company was engaged in its deceit. Thus, If the evidence gathered suggests that they are involved in normalizing corrupt behaviors—they need to be punished accordingly. In other words, the leaders of Enron were the chief enablers of corruption within, wanting to deceive the shareholders and the SEC with the word integrity.

In situations like these, depending on the severity of their damages, they need to be sacked to enable the firm to push the refresh button. Indeed, these patterns of behaviors are very common across dysfunctional boards with terrible group dynamics where a dominant leader such as Carlos Ghosn—the former CEO and Chairman of Nissan—is in charge. Thus, groupthink, lack of constructive dissent, and withholding of crucial information have led to troubles at the companies. As such, shareholders revolt or boardroom coup may be the last option to oust the dominant leaders.

In other cases, gross negligence may have blindsided the leaders. Hence, the top management may not be aware of the extent to which his firm’s culture has been compromised. In such situations, working with them to repair it will be necessary while involving the board of directors—given that many of them, in our experience, do not have the crucial information for doing their job effectively. This is where good information architecture can be very important for an organization’s governance.

Address the (Middle) Managers and Employees

To make the detoxification process a success calls for engaging employees within the firm. Empowering them will be crucial for resisting peer pressures and intimidation while breaking the chains of conformity. That is, falling back to the old yet rotten norms embedded within for years. In other words, the managers will need basic psychological safety during the transition. Many of them need to champion the change aggressively for a long time to strengthen the new practices that the organization badly needs — to perform as desired during the coronavirus crisis. They must strive not to be distracted while normalizing the new and rejecting the old and toxic norms.