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When Culture Goes Wrong (And How to Avoid It)

The five most frequent signs your company might be toxic and how to act before it's too late.

By Gustavo Razzetti

June 26, 2020

The five most frequent signs your company might be toxic

“Don’t f@ck up the culture,” Peter Thiel famously said to Airbnb founders after investing $150 million in the company.

Everyone was caught by surprise by those words – especially CEO Brian Chesky. Thiel didn’t just invest in Airbnb because of the business model; he also did so because of the culture. He was cynical that most companies, as soon as they reach a certain size, “f@ck it up.” Those words struck a chord; Chesky knew that he had to turn culture into his number one priority.

Most leaders are not as lucky to get an early wake-up call; they focus on growing the business and expect the culture to take care of itself. That’s the paradox of toxic cultures: usually, the most successful ones go wrong – they fail to read the signals.

Pay attention to the signs of toxicity

“People don’t leave jobs; they leave toxic work cultures.” – Dr. Amina Aitsi-Selmi

All organizations are toxic (and not), as I wrote here. According to professor Robert Quinn, failing to reconcile the good and bad that lies in any company is the root of toxicity. The author of The Positive Organization recommends developing the skill of holding two opposing ideas and integrating them.

The same way culture is co-created by all employees, anyone at any level can contribute to workplace toxicity. Senior leaders, managers, or employees alike can spread toxic behaviors. Usually, it’s a combination of all – toxicity is a cultural problem, not an individual one.

Enron wiped out $1.2 billion in shareholder equity. Theranos’ CEO was indicted in a fraud scheme, costing investors hundreds of millions of dollars. Why did no one see it coming?

We use the word “toxic” a lot to characterize harmful behaviors in the workplace. However, we fail to understand that it’s a cultural issue, not an individual problem. When leaders continually let people get away with murder, they reward toxicity. Just like a virus, if you don’t contain it early on, it will spread so fast, it will become unstoppable.

The signs are usually evident, but we tend to minimize the risk. By being in denial, rewarding toxic behaviors, or looking the other way, leaders become complicit of a toxic culture.

Applying the Culture Design Canvas as a lens to review organizations, here are five of the most frequent signs for you to watch.

1. Your Values Are Meaningless

Core Values guide the behavior of an organization; they are meant to define what’s expected of people and what should be rewarded. Unfortunately, companies define their values without a real commitment. They care more about how they sound and feel rather than the implications.

Take energy giant Enron, for example. The company was driven by arrogant leaders who wanted to make money by whatever means possible. Enron made its money with smoke and mirrors. Hidden losses, inflated revenues, and off-the-books partnerships to take debt were some of its dubious practices. Plus, one of the big five auditing firms turned a blind eye.

Ironically enough, Integrity and Respect were two of Enron’s four core values. Those were not chosen purposely but to make the company look good. Those values should be taken as a given and promoted by senior management.

In my ongoing research of multiple cultures, those organizations that call out basic, fundamental values are usually the first to betray them. Take Boeing, for example. Integrity, Trust, and Safety are part of the aerospace company’s values. It sounds ironic for an organization that, according to internal memos, had “clowns designing its airplanes.”

If crashing two 737 Max airliners – Boeing’s newest and flagship jet – wasn’t enough of a problem, internal documents revealed something more disturbing than a poorly designed plane. One senior executive referred to the aircraft as “a joke” and another employee revealed a troubling culture, “I honestly don’t trust many people at Boeing.”

Most companies use their values to create an attractive employer brand, but forget actually to act on those beliefs. Google faced employee protests for being in the business of war. It doesn’t make any sense that one of the tech giant’s values is, “You can make money without doing evil” while their technology can be applied for military purposes.

Choose your values wisely; get feedback from your employees. Are your values action-driven or just good intentions? Are your core values authentic and meaningful? Do we make decisions based on our principles and beliefs?

2. You Reward Short-Term Wins Over Long-Term Vision

Leaders usually see the early signs of toxicity spreading in the company. So, why don’t they stop the virus before it spreads across the entire organization? They don’t want to sacrifice short-term profits generated by unethical behavior for the long-term benefits of stopping such action.

Culture is the behavior that we reward and punish.

Uber’s cutthroat culture––evident in Travis Kalanick’s motto, “Always be hustling”––enabled toxicity because it rewarded growth at any cost.

What’s more ironic is that the company’s leadership was completely aware of its toxic culture. Uber’s IPO provided an unfiltered look at how bad it was. Summarizing the risk factors, the company admits, “Our workplace culture and forward-leaning approach created significant operational and cultural challenges that have in the past harmed, and may in the future continue to harm our business results and financial condition.”

The IPO filing also showed how allowing discrimination, mismanagement, harassment, and other toxic behaviors put the long-term financial prospects in danger.

Wells Fargo’s desire for infinite short-term growth created enduring damage for the company. Even though the bank has tried to turn things around, employees are skeptical about the progress made. The financial institution set aggressive goals for cross-selling, firing those who didn’t meet them, thus, forcing employees to do anything to survive. Over 5,000 Wells Fargo employees were caught opening millions of fake accounts.

Organizations must relentlessly focus on the long-term, even over short-term wins.

Airbnb’s leadership prioritizes difficult choices that favor the long-term. They call them Plan B Decisions — ones that you execute following your values and purpose, rather than short-term wins. Plan-B Decisions are always harder; they help Airbnb take the right path when Plan-A becomes unacceptable.

3. You Promote Silence and Secrecy Over Psychological Safety

Psychologically safe cultures promote participation; toxic ones want people to remain silent.

Elizabeth Holmes wasn’t just an inspirational and persuasive CEO; she also mastered how to keep its teams silent. The most important enabler of Theranos’ scam wasn’t people, but secrecy. Holmes used the notion of confidentiality and protecting trade secrets to keep investors and partners into what was really going on.

Theranos’ CEO arranged the company so that everyone was purposely siloed. By not allowing them to speak to each other, she created the illusion of protecting the business while actually making sure no one could uncover her dirty secret: her invention was all a scam.

Holmes built a culture that went beyond micromanagement. Not only did she control people, but she also didn’t want to hear their opinions. As a former employee, Ana Arriola said on the “The Dropout” podcast, “I think that anyone who told Elizabeth no and disagreed with her perspective and point of view, you were immediately terminated.”

Toxic leaders don’t want to listen to what people have to say. They don’t pay attention to early signals and just want people to obey. Not surprisingly, Holmes’ leadership was described by many employees as typical of a “South American dictatorship or a drug cartel.”

Fear is not okay; organizations need participation, not silence. Here are 7 ways to promote Psychological Safety in your organization.

4. Feedback Is Used to Judge People, Not to Help Them Grow

Performance reviews are not only expensive and time-consuming; they also focus on the wrong thing. Rather than encouraging people to learn and grow, they focus on judging people’s performance (usually against others).

Stack ranking – the practice of ranking teams into neat little bells whereby 20% of people are cited as the most productive – was initially developed by GE’s former CEO, Jack Welch.

Though many leaders (Welch included) still support this method, it has helped shape many toxic cultures like Yahoo!, Microsoft, and Uber. The idea that the 10-20% bottom performers will be fired puts people in defense mode. Rather than promoting employees to collaborate, it creates an internal war.

After the 1988 deregulation, Enron became a symbol of dynamism and aggressive performance, encouraging innovation and growth at any cost. Enron’s culture imploded through internal abuse, misconduct, lack of trust, and a winner-takes-all mentality. Its forced-ranking appraisal method deprives people of actionable learnings; it turned feedback into a tool to judge people, not to help them grow.

At Microsoft, performance reviews were so damaging to the culture that new ideas were killed rapidly because no one wanted to risk their job by challenging the status quo.

Microsoft not only got rid of the stack system; the word “feedback” was so loaded that it was banned from the organization. Microsoft replaced the annual performance reviews with a more personal, friendly approach: “Perspectives.” This new system encourages employees to praise and critique each other, encouraging dialogue rather than judgment.

Organizations need to shift from managers giving feedback to creating a culture of ongoing, peer-to-peer feedback. When practiced as a team, it fosters collaboration and encourage people to improve and focus on the outcomes as one. Collective feedback helps people celebrate team successes and address their failures rather than just individual ones.

5. Your Rules Limit People Rather than Enable Them

Facebook has been racked with one scandal after another. Multiple incidents uncover a toxic culture full of bigotry, racism, hate speech, and more. Most outrages were kept under wraps by tight-lipped employees until, as happens with poisonous cultures, whistleblowers made issues public.

The social media giant flagged part of the United States Declaration of Independence as hate speech, but looked the other way when President Trump promoted hate speech. Facebook also hired a PR company to spread malicious stories about its critics. Employees complain that the company has more Blacks Livers Matter posters than people of color working at Facebook.

After recent hate speech tweets by the United States’ president, 5,500 Facebook employees had a demand for Mark Zuckerberg: “Can we please change our policies around political free speech?”

Most employees questioned whether Facebook was in an “abusive relationship” with those in power. Internal documents show just how widely people’s dissent and discontent has spread about Zuckerberg’s doubling down on allowing unfiltered speech on the social media platform.

Facebook’s rule about freedom and free speech seems to limit positive behavior instead of enabling it. As software engineer Timothy Avenu asked on an internal message board before quitting his job, “What’s the point of establishing a principle if we’re going to move the goalposts every time?”

Toxic rules promote toxic behaviors.

Amid a vast scandal and massive resignations, Mark Zuckerberg announced that Facebook employees looking to leave Silicon Valley for areas with cheaper cost-of-living might be subject to pay cuts. In his own words, “We’ll adjust salary to your location at that point. There’ll be severe ramifications for people who are not honest about this.”

I was shocked by this rule. If Facebook is allowing employees to work remotely, why punish people if they choose to relocate to less expensive areas? The social media cost structure already considers current salary levels. Also, Facebook is printing money and doesn’t have financial issues at all. Most importantly, by having all employees working remotely, the company will save a lot of money in fixed costs.

Limiting rules not only backfire among employees, but also create negative repercussions among more significant players. Corporate social activism is on the rise; big brands are pulling spending as Facebook’s new policy on hate speech fails to convince advertisers. The “Stop hate for-profit” boycott is clear evidence that ugly rules don’t get unnoticed.

Google faced a similar backlash when the company changed its weekly all-hands meeting (dubbed TGIF) into a monthly one. It wasn’t just the frequency of the “Thank God It’s Friday” event that changed––the approach shifted from “ask anything you want” to “limit your questions to product and business strategy.”

This rule switch affected more than a meeting that was a powerful team ritual inside Google; it also ended a culture of openness.

Furthermore, Google fired many workers claiming that they had abused the company’s open culture to access information and spy on colleagues. Many insiders considered this move a slash to silence the rising employee activism.

When Google CEO Sundar Pichai announced the new rule for TGIF, he cited several reasons, including decreased attendance rates and the difficulty of running a real-time gathering across various time zones. However, the most resonant one was that, “Google employees could no longer be trusted to keep matters confidential.”

Your rules shape the expected behaviors of your team. If you treat people like adults – like Netflix does with a “freedom and responsibility” culture – then they will behave as such. However, if you show that you don’t trust them, why will they trust you or your organization?

There are many other signs of a toxic work environment. Disrespect, unreasonable pressure, favoritism, rewarding the wrong behaviors, and micromanagement also feed toxicity.

Toxicity can start in any building block of your organizational culture. Sometimes, it’s in small acts that feel harmless. However, inaction is the best enabler of toxic cultures. Individuals at any level of your organization can start, or allow, small poisonous behaviors until they spread fast.

If you need help identifying signs of toxicity in your workplace culture and want to do something about it, reach out. We help organizations map and assess their cultures using the Culture Design Canvas. Let’s work together, prioritize critical issues, and design ways to neutralize toxicity before it harms your company in the long run.

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