When disaster strikes, a toxic culture tends to be the explanation of choice. But when an organisation is doing well, it is rarely mentioned. Culture is about inculcating values throughout an organisation and successful cultures are the fuel that drives a business. Most people believe culture comes from the top and, while that has some truth, the reality has always been that interactions throughout the organisation generate what we call and recognise – whether explicitly or intuitively – as authentic organisational values.

Deep dive into the mire of what has caused corporate disaster and scandal in the past and invariably, the key influence is culture. Culture is about what you want to do and how you want to do it. You cannot legislate ‘do the right thing for the right reason.’ You can try, but what is right for you is not right for me – what is right in one situation is not right in another – what employees value in my business might very well be different in your business. Yet when I ask you whether your board, company or organisation does the right thing for the right reason, you probably know exactly what that means for your business, that is culture. It tells us what is important and valuable. The message from studying all of these completely avoidable scandals and disasters is surprisingly simple, they will stop only when everyone is roughly aligned and is actually trying to do what is ‘right’. Official rules and sanctions are necessary, but not sufficient, which is why regulators, shareholders, employees and citizens all have a role to play in supporting this goal. Regulators set the boundaries and can encourage better director education, assessors can ensure that boards measure and discuss their culture, citizens and the media could stop normalising business disasters and so on. We all have a role to play in making these culture-led disasters a thing of the past. Clearly, the culture of company boards, right across the spectrum of private, public and third sectors and many of our institutions, needs to change. At a minimum, leadership teams, senior managers, HR and boards need to learn to act independently and safeguard the interests of all stakeholders. They need to set the tone in promoting a transparent culture that promotes effective dialogues among the staff, directors, senior management and various functional managers. But when board and/or company culture becomes distorted, however, there is a strong risk that the business or institution itself, will become dysfunctional and cease to do its job of monitoring the executive effectively.

In the hundreds of cases we studied for our research, we found six key types of distortion – cultural amplification, diffusion of responsibility, missing key voices, groupthink, overly-controlled cultures and lack of independence from management. These are not exclusive distortions, as many dysfunctional cultures have elements of more than one of these distortions and in extreme cases, it could be all six. To pick an important example, if the key internal voices that can shift the culture dial are to be properly and effectively heard, two things are needed: Firstly, the voices must be ‘brought into the room’ to be heard. Secondly, the culture of the company or institution, needs to embrace them – accept their diversity as something to be sought out – and valued. Recruitment and selection need to focus not just on bringing in diverse staff, but also making sure they are the right people, who have an independent mindset and are able and willing to express that in a way that helps build consensus and coalitions. A robust and positive organisational culture can be a powerful asset. For example, the work of Jennifer Chatman – originally outlined in the Journal of Organisational Behaviour – suggests that companies with a strongly cohesive and adaptive culture outperform those that do not, by about 15 percent. Interestingly, a peer-reviewed study from Harvard Business School also argues that when employees share common values and a common purpose, this results in superior organisational performance. When everyone shares a common identity and believes in the shared values and goals, the organisation becomes greater than the sum of its parts and can drive forward towards its goals. There is a negative side to this as well, sometimes particular elements of the culture start to dominate. T hose elements become amplified, warping and distorting the original culture into a dysfunctional version of itself, Dr Jekyll transforming into Mr Hyde. Amplification happens particularly in cases where the organisation has outgrown its original culture, but has not yet evolved a new one. Instead, the sense-making process continues to assert that the same old things are important and/or that new ideas should be shunned. People cling to the original culture, or parts of it, even after it is clear that the culture is no longer working well. Even worse, the board’s own culture can become infected and, far from challenging amplification, the board becomes part of the problem. As a result, its sense-making becomes restricted and narrow, focusing on just a handful of measures – for example, competitiveness or productivity – and thereby ignoring wider issues, strategic threats and loss of staff and trust. In such an environment – often commonly found despite denials and mission-statements to the contrary – risks are taken without really understanding the nature of the decision or risk. Alternatively, high levels of risk are accepted because the dominant culture cannot be questioned. The board becomes reluctant to look at anything that is not part of its increasingly narrow focus and other issues – bullying and sexual harassment, health & safety issues, EDI, climate change, mis-selling, ESG and corruption, to name but a few possible concerns – are ignored, down-played or swept under the carpet. Of course, sometimes abuses are accepted as being the price of success, a kind of transaction cost of rapid growth. Never mind the long hours culture that is undermining employee health, the logic goes; “this is how we came to be great, so people just need to be stronger”.

Rules-bound cultures often emerge when the organisational pressure to conform becomes so severe that the organisation establishes strict sets of rules and procedures, which must be obeyed. Rules and procedures are of course necessary. Problems begin when the guardians of the rules are invested with near-total authority, including the authority to impose severe sanctions on anyone who breaks the rules. Rules become sacrosanct and this tends to result not only in conformity of action, but also conformity of thinking. Traditional understandings of social identity theory then suggests that people conform in order to gain approval and escape punishment. Conformity then becomes embedded in the roles people play, along with the norms and performance targets they work to. Indeed, conformity itself becomes the dominant norm. Rules and procedure replace ordinary human interaction and individual instinct, knowledge and judgement are no longer sufficient nor trusted. This results in a refusal to meet the demands of the changing world and we convince ourselves that the systems that have worked for us in the past are working now and will continue to work in the future. But how can we break out of this vicious circle of culture going awry and its dysfunction being reinforced – often again and again? Our research found a handful of strategies that have solid research backing as effective means for changing culture. Here are a few suggestions: Measure it – there are effective measures to look at culture, such as whether it is competitive or cooperative. Be pre-emptive – think about your culture before you engage organisational change, will it help or hurt? When culture that was once helpful starts to warp the organisation, proactively seek different perspectives. At a bare minimum, seek to interpret your environment differently. Make sure to gain outside assessment of culture and also embrace diversity of experience, as well as inculcate more collaborative decision-making processes. When staff members have permission, as well as feel trusted and empowered to talk, they then listen better to others and respond to their ideas.

REFERENCES * Utterson confronts Hyde: The curious case of Dr Jekyll and Mr Hyde

FOR FURTHER INFO THEINDEPENDENTDIRECTOR.CO.UK

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