Toxic Company Culture: A Major Obstacle for Corporate Compliance Programs

Introduction

One of the main pillars of an effective compliance program is fostering a suitable corporate environment, and thus corporate culture. Ethical company culture is used as a criterion to measure the efficiency of compliance programs. But how is the culture of ethics measured? Is it possible to differentiate an ethical work environment from a toxic one?

In order to respond to these questions, and to provide you with the guidance to create a tailor-made ethical culture at your workplace, we welcome you to a series of articles, starting with “company culture” to help you to understand “where your company’s culture currently stands”.

How to Define Company Culture

Culture affects people and people affect culture. Where there is a group of people gathered together, we may talk about culture. Companies are no exception to that. Company culture can be defined as the underlying expectations, shared values, priorities, vision and philosophy of an organization, and the ways of expressing these values in the working environment; performing, deciding, interacting, behaving in a common way without having to think about it, even when no one is watching. All companies have culture, regardless of their size, operations, or geographical location.

There is no specific way of defining company culture, it is as broad as its components, vision and values, however, it surpasses them all. Identifying company culture with company “values” is too narrow because culture does not consist of a set of ornately written rules; on the contrary, it is the demeanour that all members of a company feel themselves voluntarily bound to, even when there are no written rules or policies. When we talk about company culture, we mean a common perception, a specific tendency to act and behave in a similar way when confronted with changeable situations and events. This may be as small as an employee’s attitude during a busy workday, or as notable as a senior manager’s priorities for a risky project. 

As can be seen, the dynamics of a company’s culture are beyond measure and evolve with the behaviour and conduct of the executives, managers, and employees. There are, therefore, a million ways to express a company’s culture, and to recognise whether it is toxic.

How Can You Recognise if Your Company Culture Is Toxic?

As we have mentioned; “all companies have culture”. However, whether their culture is healthy or not differs for every company.

Your company culture may be too far from responding to your future expectations and business goals. Company culture directs how your employees feel, behave, react, and make choices or decisions in the working environment. Therefore, undoubtedly, it has a significant power and impact on your business’s success, and on the efficiency of any mechanisms you implement in your organization. According to a study in the U.S. by the Society for Human Resource Management[1], 20% of Americans left their jobs in the past five years due to a “toxic workplace culture.” The study calculated that this cost companies more than $223 billion. So, it’s worth understanding, right? The term toxic is used because culture has a contagious effect. Toxic culture may affect even loyal and engaged employees and can even affect employees’ ethical decision making processes.

A culture is considered toxic when stress, lack of safety, reluctancy, and unreliability prevail in the workplace, instead of trust, honesty, integrity, safety and motivation, which are the backbone of a healthy work environment.

Lack of Communication

A clear sign of – and also a reason for – a toxic work environment is lack of communication. Do you depend solely on e-mail communication? Are you being informed about a complication related to a project just a day before its deadline? If employees are not knocking on their executives’ doors to ask for help or just for a weekly catch-up, there is something going wrong.

Ongoing communication is at the heart of solving problems, or even preventing them from happening. If you do not clearly stipulate what you expect, you cannot blame your employees for not behaving as you expect. Have you ever asked your employees what challenges they encounter during the day or whether they need help to deal with them? Do you clearly explain what is required or what they need to know after appointing them for a task? These are simple but effective ways of opening the way for healthy communication.

Employees usually hesitate to communicate when they think that they will receive a negative reaction, or their request will be considered “a waste of time” or they will be refused, or when they believe it is worthless and will not change anything. Healthy and ongoing communication is the backbone of creating a dynamic and transparent work environment, and the key to sustainable growth and success.

Complaints Behind Closed Doors

In a company where there is no healthy communication, there are secrets, gossip and complaints behind closed doors, instead. Stilted and dishonest “problem-checking” questions from managers are usually left unanswered. Complaints and company problems with clients and business partners are heard from third parties, and usually when it’s too late. You can see how it is connected to an efficient compliance program. Isn’t it unrealistic to expect your employees to report misconduct to executives, or for a “whistleblowing hotline” to work efficiently, in a work environment where closed door meetings take the place of transparent communication?

Lack of a Common Purpose

Regardless of the field of operation, all companies have a purpose for existing, and you are committed to achieve this purpose in a fair, honest, ethical and legal way. Therefore, you should gather your team mates to enthusiastically help you to achieve this purpose. This is not a brief solely for the recruitment process; your commitment should give your employees an ongoing feeling of “involvement”. The more they share the values of, and get involved with the purpose, the more they will interact with each other, including the managers and executives. It is usually apparent when employees are left alone in serving the purpose, which results in loss of trust and of common values. This is when employees stop interacting and split up into groups of like-minded colleagues who share the same ideas - mostly complaints, gossips, and secrets.

Demotivated Employees

Demotivated employees are a result, and also a very clear indication of a toxic environment. How can you recognise “demotivation” in a workplace? If you can recognise an artwork of high commitment and enthusiasm, then you can also recognise involuntary, reluctant work completed imprecisely.

When employees do not meet deadlines, their work is unfocused, they fail to respond to main tasks, they are too reluctant to take on responsibilities, they are unproductive or always “too busy” for new ideas, then there are red flags indicating a toxic company culture. In a toxic work environment, employees’ work is usually perfunctory, the same as an alarm set to ring twice a day, no more, no less. Executives are not satisfied with the work presented, and neither are employees.

Demotivated employees also tend to be reactive rather than proactive. Ergo this could lead to a lack of controls and risk-assessment in the company and may result in misconduct and ethical scandals.

High Employee Turnover:

Among other signs of a toxic culture, high employee turnover is the most apparent. Who likes to lose a qualified employee and see them hired by a competitor company? When there is high turnover there is high risk for business continuity and risk assessment because a company may lose their best performers as well as the know-how of the operation. High employee turnover also creates a risk brought about by new joiners if the recruitment progress is not diligent. Hence the principle “a rotten apple may spoil the whole barrel” is used to define this risk in compliance literature.  

It is actually a good sign when your eager and ambitious employees notify of organizational problems and request for support and remediation. It shows their will and effort to remain as a part of your organization and is a call that should be paid attention to. Silence is usually a sign of giving up and seeking other options, which may be resigning, or “becoming a law unto themselves”, which usually results in misconduct.

Workplace Anxiety

Executives usually become aware of toxic culture when it starts to damage business operations, however, employees are the victims who are exposed to it and have to live with it.

No one wants to fail, not only because they don’t want negative feedback or are too afraid of their boss, but also because they don’t want to fall short in their self-evaluation. However, whether we agree or not, people make mistakes. Anxiety, stress and pressure preclude employees from focusing and making rational decisions. If they are in constant fear of failure, they do not get out of their comfort zone, and even hesitate to take reasonable risks or use any initiative.

As we will emphasize again and again, executives should set the tone in the organization. However, this does not mean displaying extreme reactions or insulting and bullying employees for their mistakes. Punishment and mental anguish are completely different, where the prior is conditionally required, the latter damages your employees and overall business organization.

Conclusion

The first step towards building an ethical culture at work is to identify your company’s current situation and understanding the dynamics of your company’s culture. Toxic culture does not only damage relationships with employees, it also damages the overall business organization, operations and company’s reputation. If the signs discussed in this article are present in their entirety or in some measure, they should provoke you to take remedial actions promptly. However, even after designing and implementing a strong, honest and fair ethical culture, you may still encounter these situations, which will teach you to be more careful during recruitment, and to eliminate employees who resist complying with and being a part of your company’s ethical culture. In compliance literature tone at the top & middle is the backbone of an effective compliance program. Therefore, top and middle management should concentrate on how to analyse and develop company culture.

 

[1] SHRM Better Workplaces Better World 2019 Culture Report