How to spot corporate rot

After Antony Jenkins took over as Barclays Bank PLC chief executive in 2012 following the Libor scandal, he moved quickly to axe the bank’s structured capital markets unit, responsible for controversial tax avoidance strategies.

“I felt (the division) was clearly inconsistent with the values we were trying to set,” Jenkins, who now runs financial technology company 10x Banking Technology Services Ltd., told the Financial Times. Describing the culture you seek is not enough on its own, he explained. The next step must be to use the values to guide decisions.

Although Jenkins was himself ousted in 2015, the values he set — respect, integrity, service, excellence and stewardship — are still in place at Barclays. He remains convinced good culture is not simply a way of avoiding bad outcomes, but a force to improve performance: “Values should save you money, but they should also make you money,” he said.

Corporate culture — how to improve it and how to stop it turning bad — is back at the top of the boardroom agenda after the Confederation of Business Industry (CBI) was rocked by rape allegations from two women who worked there.

In an open letter to members this week, president Brian McBride said the United Kingdom business lobby group had “failed to filter out culturally toxic people during the hiring process” and admitted some managers had been “promoted too quickly” without enough training on values. The group had “paid more attention to competence than to behaviour.”

Values should save you money, but they should also make you money

Antony Jenkins

The CBI scandal has encouraged other leaders to examine their own organizations. But it is only the latest in a series of crises of corporate culture. These include allegations in 2021 that leaders at BrewDog PLC, the brewer, fostered a “culture of fear” and misogyny; in 2019, Ted Baker’s founder departed after accusations of “inappropriate behaviour” including “forced hugging”; two years earlier, Uber Technologies Inc., the ride-sharing app, faced allegations of widespread gender discrimination and harassment.

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Tone at the top

Bad cultures are often created by senior leaders.

“It’s really easy to spot what a culture’s going to be like in a business: you look at the CEO and the chair,” said one seasoned retail director. “You can have many people saying different things (on the board and in senior management), but if the CEO believes in a way of behaving, that’s what will happen, unless a chair stands up and says that’s not acceptable.”

Even if the chair is uncomfortable with behaviour in their organization, the temptation is often not to disrupt the business if it is doing well financially.

“The challenge is that if a business is performing, who wants to be the chair standing up and saying ‘I’m not happy with the culture, things should change’?” Too often, “they’ll look after themselves… and just get on with life,” added the director.

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But as the CBI president admitted in his letter, hiring the wrong people, or failing to weed them out, can have catastrophic consequences.

“A business can do very well financially with a sh***y culture … but at some point it falls over,” the retail director warned.

A business can do very well financially with a sh***y culture … but at some point it falls over

retail director

Leadership adviser Roger Steare said “employers should have the legal responsibility to screen out those potential leaders who display what psychologists call dark triad traits” — narcissism, Machiavellianism and psychopathy.

Signs of trouble

Senior managers and leaders concerned about the culture in their businesses can start by examining existing information for traces of rot, including data on sickness and staff turnover. Engagement surveys are useful too, although staff will not fill them out if they fail to see action taken as a result, said Pam Loch, founder of Loch Associates Group, an employment law firm and consultancy.

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Findings from comprehensive exit interviews and return-to-work meetings when an employee has been off sick can also help. “People take days off to avoid encountering a bully,” added Loch. “You can elicit information that (helps) identify if you have a problematic employee.”

Ben Wilmott, head of public policy at the CIPD, the professional body for HR and people development, said human resources “leaders should be talking to the board about (significant trends) on a regular basis.”

Reporting procedures, such as whistleblowing and “speak up” systems that offer employees a confidential hotline to report concerns, are a vital tool. One chief executive of a U.K. company, said: “The biggest red flag would be that we stop getting speak-ups and the numbers go down.” David Rodin, founder of ethics consultancy Principia, which works with companies to apply ethics to organizational culture and conduct, agreed: “If you have no calls to your speak-up line, it’s almost certainly not because you have no issues.”

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Too often signs get missed because people report problems informally, according to Kathleen Heycock, employment law partner at Farrer & Co., “so aren’t all known about by one manager.”

“This means there is no one with knowledge of everything who could identify a consistent pattern of behaviour. If small things are missed (or) ignored then larger issues are often not dealt with,” she added.

Some organizations are addressing this with tech tools, such as Vault Platform’s Go Together app, which allows employees to log anonymous complaints that will surface when other complainants come forward.

Other useful mechanisms include scanning the free-text elements of employee engagement surveys and Glassdoor, the jobs review site. Research by Harvard Business School used an algorithm to scan Glassdoor reviews looking for words including “discrimination,” “trouble,” “favouritism” and “unethical.” It identified an increase in use of the terms to describe bank Wells Fargo & Co. between 2009 and 2013, a period that corresponded with fraudulent financial activity by employees. Researchers found the algorithm could identify misconduct before whistleblower claims emerged.

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Overlooking the obvious

Misconduct by an industry peer is a signal for companies to examine their own culture. Rodin said: “In some ways it’s easier (to act) when something has happened that’s so egregious and public that it almost becomes existential.”

A near-miss in an organization should prompt further investigation. “My general experience of business is that where there’s one problem, there are usually others: your antennas are up and should be up,” said Jenkins.

After-the-fact investigations often show bad behaviour has been openly tolerated or even encouraged by senior management. An external review of workplace culture at miner Rio Tinto PLC in 2021 found that “bullying is systemic, experienced by almost half of the survey respondents,” while sexual harassment and casual sexism “occur at unacceptable rates.” It said harmful behaviour was often “an open secret” with employees believing there was little accountability, particularly for senior leaders and “high performers.”

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This is a scenario Loch has seen too often: “You get people deliberately overlooking (bad behaviour) as it suits their purpose. A lot of bullies are highly manipulative. They can persuade you that it’s not them but it’s the other person. I’ve worked in organizations, where someone was generating huge sums of money, (that) turn a blind eye, despite a churn in their teams and tribunals.”

High performance is no excuse for bad behaviour

Joe Garner

This view is shared by the United States’ National Association of Corporate Directors, which found corporate culture “does not get the level of boardroom attention it deserves until a problem arises.”

Joe Garner, a former chief executive of broadband infrastructure company Openreach and Nationwide Building Society, stressed that “high performance is no excuse for bad behaviour.” “Sometimes a bully can get results in the short term…so those more distant (eg boards) might see the positives, but be understandably unaware of the negatives,” he said.

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Once an organization has uncovered behaviour that needs changing, reform can be relatively quick, according to Frances Frei, professor of technology and operations management at Harvard Business School, who went into Uber to fix the culture in 2017. “A lot of organizations make the mistake of (thinking) this is really big, so it’s gonna take a long time, and it’s simply wrong … We did at Uber. The culture was turned round … completely in nine months and you would never hear of the problems that they had again.”

But even when the clean-up is done, it is clear the task of improving and maintaining a positive organizational culture is never-ending. “You can never turn your back on it and say ‘I’ve done culture and I’m going to move on and do something else,’” warned Jenkins. “It’s a constant battle.”

© 2023 The Financial Times Ltd.