SPECIAL REPORT
Oxford Review Research Briefing

How to Repair Deviant, Toxic Corporate and Organizational Cultures

 Toxic corporate culture is bad for society, bad for employees, bad for a company’s corporate image and, ultimately, bad for shareholders. Changing toxic cultures takes time and a united effort from the top down to make change for good. But it can be done. Understanding the nature of corporate culture is important when considering how deviant, toxic organizational corporate cultures are created.

A study of deviant toxic organizational cultures found that a number of factors cause a toxic culture and acceptance of deviant behaviour. The study found that to effectively turn around such a culture, there are five stages to consider:

1. Assess the toxicity of the culture
2. Change organizational structures to disrupt toxic power and control mechanisms, incentives and rewards for deviance
3. Address the organizations’ senior leadership and management team
4. Address the middle and lower management and the organizations’ employees
5. Adopt a top-down approach to culture change

This special report looks at how corporations can make company-wide changes to ensure organizations operate above the line and nurture a positive culture that employees will want to be part of and industry peers will aspire to recreate in their own organizations.

Introduction

Usually, following a major corporate scandal or ethical wrongdoing by an organization, the focus tends to shift towards individuals who are deemed to be responsible. However, it’s rare that corporate offences or unethical behavior is perpetrated by one individual. A number of studies over the last 20 years have shown that, in almost every case of organizational bad behavior, the offending occurs within the context of the internal organizational culture that legitimised the behavior.

For example, scandals like the Deepwater Horizon oil discharge in 2010, Volkswagen’s emission scandal in 2014 and the Wells Fargo fraudulent practices scandal in 2016 were all the result of toxic, deviant corporate cultures.

In 2017, a report about the Wells Fargo fraud concluded that, “The root cause of sales practice failures was the distortion of the community bank’s sales culture and performance management system, which, when combined with aggressive sales management, created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorized accounts” (Independent report to the directors of the board of Wells Fargo, 2017).

As a direct result of the negative publicity around these corporate wrongdoings, organizations are now paying greater attention to the impact of organizational culture on leader, manager and employee behavior, thinking and practices.

Research on deviant toxic cultures and how to repair them was recently published by a team at the School of Law, University of California, the School of Law, University of Amsterdam, and the School of Criminology and Criminal Justice, Arizona State University.

External Deterrence

Studies over the past 40 years have shown that external deterrents, including harsher legal punishments, tougher laws, increased sanctions and other punishments, have little impact on offending at any level.
A 2014 study concluded that “the evidence fails to show a consistent deterrent effect of punitive sanctions and punishments on individual offending or company level offending”.

In fact, a study published in 2015 showed that stronger punishments tend to lead to organizations investing more and breaking more laws to avoid being caught and legal proceedings being taken. For example, when Volkswagen discovered that US regulators were investigating their vehicle emissions tests, the organizational response was to enhance the emissions testing software to conceal and obscure the false results and cheating.

Corporate Culture

Understanding the nature of corporate culture is important when considering how deviant, toxic organizational corporate cultures are created. The first thing to understand is that culture really consists of shared interpretations within a defined social group and is based on the “shared values and beliefs, myths, interpretations and meanings within an organization and actions and behaviors, including customs, practices, norms, rituals, and implementation of control systems” (Schein 2010).

These days, culture is seen in terms of tangible and intangible factors. Tangible factors include things like the style of leadership and organizational structure. Intangible factors refer to the values and beliefs that are shared within the group. Current thinking sees organizational culture as having three distinct levels:

1. Artefacts – these are the visible structures, processes and observed behaviors that can be seen occurring in the organization. Artefacts are considered to be the visible surface manifestation of the culture and include things like documents, websites, logos, etc

2. Espoused values and beliefs – whilst espoused values and beliefs cannot be directly observed, they can be discerned by talking to members of an organization. They are the goals, values, ideals, aspirations and desires that are shared within the organization, either overtly or embedded within other messages, behaviors and policies

3. Underlying assumptions – these are the taken-for-granted beliefs and values that tend to “determine behavior, perception, thought and feelings” within an organization. The underlying assumptions are rarely, if ever, articulated and are considered to be at the deepest level of organizational culture.

Automated Situational Norms

These normalized behavior patterns, together with what we believe others think we should do, create what are known as automated situational norms. That’s when people within the organization respond automatically and predictably to events and situations around them without really thinking. In essence, social norms frequently drive normalized automatic unconscious behavioral reactions within the organization.

Discrepancies

In cultures where people perceive that there is a “do as I say, not as I do” attitude to laws and norms, this starts to create a culture of deviant behavior. Studies have found that where bad behavior is apparent, there is a significantly greater chance of it spreading across the population. So, if deviant behavior is displayed across an organization, it’s more likely to create a company-wide toxic culture. It appears that discrepancies between behavior and rhetoric increase the likelihood of the deviant behavior spreading.

Three Primary Factors That Foster Unethical Climates:

1. How organizations deal with errors and mistakes. Having an error management culture, as opposed to an error punishment and blame culture, improves the likelihood that employees will admit to mistakes and learn from them. Organizations that understand that mistakes happen tend to foster greater levels of ethical behavior. Organizational responses that foster unethical climates are significantly more likely to create deviant toxic cultures. They tend to respond to errors and mistakes either by:

a. ignoring them
b. failing to evaluate the causes of the mistake
c. failing to learn from the mistakes
d. blaming and punishing people for mistakes

2. Research has shown that organizations that criticize and where small differences in performance can bring about big differences in how employees are treated tend to breed greater levels of unethical behavior

3. Studies have also found that organizations that don’t promote and openly discuss moral and ethical behavior and the moral implications of their actions are significantly more likely to create dysfunctional moral climates. There needs to be both open discussion about moral and ethical outcomes, as well as action and behavior to back up these discussions. Organizations that either fail to act against moral and ethical digressions – known as moral inaction – or who reframe unethical actions to make them more palatable are significantly more likely to develop a deviant toxic culture

Four Primary Lessons About Toxic Cultures:

1. Toxic cultures rarely start with actions that directly oppose the law. What tends to happen is that the social norms and culture:

a. Enable rule breaking by either creating the opportunity to rule break or not dealing with offending
b. Obstruct compliance of the law through internal social norms (lack of support, etc)
c. undermine or demean the authority and legitimacy of positive social norms

2. Deviant toxic cultures tend to occur where there is a convergence of toxic processes, such as strain in the marketplace, high levels of ambition, prioritizing corporate goals over ethical ones or a lack of response to rule breaking

3. By the time organizations are caught and forced to admit guilt

1. It’s too late
2. Frequently remedies won’t be at a cultural level
3. Reoffending is highly likely

4. Toxic cultural processes occur at every level of an organization’s culture and are usually embedded in its structures, values and practices

5. Deviant toxic cultures rarely become so by design or because of one single influence. They are never there just because of one bad apple or CEO, a single senior manager or organizational process. It’s because of a broken system of values, beliefs, thinking, emotional reactions and behaviors. As a result, structural and rule changes are unlikely to have an impact

Dealing With Deviant Toxic Cultures

Previous evidence shows how to deal with deviant toxic cultures. Researchers have analysed what tends to work to change a deviant toxic culture.

Four steps required to detoxify organizational cultures:

1. Assess the level of toxicity within the culture. This requires a deep analysis of the structures, values, beliefs, reactions, behaviors and practices within the organization. Researchers warn that this cannot be achieved solely through a survey or some form of instrument. It requires a forensic, systematic ethnography

2. The next step is to change toxic structures in the organization. This tends to be the most straightforward part. Usually, part of the root cause is the organization’s incentives, rewards and targets. Researchers note that this stage won’t change the level of toxicity or eradicate deviant behavior. This step is needed to disrupt toxic power and control mechanisms by senior, middle and junior managers

3. Next, analyze and address top executives in the organization. This may require the removal and replacement of some executives, particularly ones who have engaged in illegal activities. Beyond that, there needs to be a process where senior executives are helped to understand the culture, be more open and honest and used as a force for change. Senior management must become role models, as well as the driving force behind change

4. Next, managers and employees should be spoken to. From this point on, it’s all about cultural change. A level of psychological safety should be created for managers and employees, so they know that changes are both feasible and achievable. The aim is to create an honest learning culture. Values of honesty, openness, learning and error management need to be rewarded. Additionally, people must have realistic goals. This is often a sticking point, as it feels like productivity might suffer. A key aspect here is empowerment

There Are Four Parts to This:

– Staff need to be actively engaged in the detoxifying process. They have to have a stake in the culture change process, if they are going to support it

– Secondly, employee empowerment is vital for a critical mass to occur in order to resist unrealistic and unachievable targets and overcome intimidation, peer and social pressure to conform to the old norms

– Empowerment creates the conditions for employee voice, so people feel they can speak up against unethical behavior and practices

– Lastly, empowered staff need to be allowed to engage in decision-making and job crafting, particularly around designing internal social work networks

Detoxifying a deviant culture is a slow process and requires constant monitoring, feedback and tweaking. Major studies have recognized that change that’s aimed at moving a culture away from a deviant toxic culture needs to come from the top down. Other large-scale studies have found that, without the buy-in and role modelling of senior management, such culture change and detoxification is unlikely to occur.

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Reference

Van Rooij, B., & Fine, A. (2018). Toxic Corporate Culture: Assessing Organizational Processes of Deviancy. Administrative Sciences, 8
(3), 1-38.

Disclaimer: This is a research review and briefing. As such it contains other studies, expert comment, interpretation and practitioner advice. It is not a copy of the original study that is referenced. The original study should be consulted and referenced in all cases. This research briefing is for informational and educational purposes only. We do not accept any liability for the use to which this review and briefing is put or the research accuracy, reliability or validity. This briefing as an original work in its own right is copyright Oxford Review Enterprises Ltd. Any use made of this briefing is entirely at your own risk.

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