Cultural and reputational risks are becoming more and more common for enterprises today. As companies across business sectors find themselves suffering reputational damage over some form of toxic behavior or unethical business decision, a growing number of executives are starting to see culture as a direct contributor to the bottom line. While the increasing awareness around these issues is encouraging from a social standpoint, many executives are still unsure how to tangibly improve their company culture. According to Deloitte’s Human Capital Trends Report, 82% of executives say that culture is a potential competitive advantage, yet only 12% believe they’re driving the “right culture.”
How is it possible that only 12% believe they’re driving the right culture? In part, it’s because the processes that executives and board members have in place aren’t giving them the signals they need. Despite the fact that information is essential to understanding and managing culture risk, especially in a digitized and media-driven business environment, 65% of CEOs and 62% of board members today say they lack a process for identifying signals of potential culture risk. This leaves companies prone to a range of negative consequences ranging from consumer backlash to a spike in turnover.
How can there be such a lack of process for identifying signals of potential culture risk? At its core, the reason we’re not sure whether or not we are driving the ‘right’ culture is because many of the processes that we use to obtain relevant information rely on good intentions. Specifically, many of us rely on self-reporting and the moral character of leadership to improve organizational culture and reduce corporate risk. But as the research around organizational psychology and leadership suggests, neither of these approaches are enough to help businesses get the information they need.
Many companies use surveys and other self-reporting mechanisms to help manage cultural risks. According to organizational change leader Tatyana Mamut, mechanisms are self-enforcing systems and tools that don’t make culture rely on good intentions. However, in her discussions about culture risk, Mamut suggests that leaders talk to direct reports about whether they sense any growing risks, and use surveys to help assess if any of these risks are present. Important as these techniques are in creating a healthy culture, self-reporting relies heavily on the existence of good intentions. When toxic behaviors are present, especially in company leadership, it becomes far more difficult for this method to succeed.
Other companies look to moral character as an antidote to organizational risk. According to Chuck Saia, CEO of Deloitte Risk and Financial Advisory, the most important component in organizational risk management is making sure management has the courage to “ask the tough questions.” While Saia’s emphasis on moral character gets at an important dynamic in toxic work environments—namely, that much of culture risk stems from the decisions and conduct of company leaders—an emphasis on moral character rests on the assumption that good intentions, once again, will carry the culture.
The research shows just how rare it is for good intentions to produce positive results. According to a study by corporate philosopher Roger Steare, executives and board members are more susceptible to narcissistic behaviors than any other group in the company. This further supports the notion that when a culture is going south, humans are some of the least likely people to give you the information you need.
Self-reporting can be a helpful tool for improving certain aspects of corporate culture, and moral character can be a powerful antidote to a toxic work environment. But unless we have signals that can help keep people at all levels in an organization accountable to one another, both of these mechanisms risk being stuck in the realm of good intentions and leaving your organization at risk.
What kind of information are you relying on to protect your culture? Are you relying on industry definitions and self-reported information from your workforce, or are you tapping into the signals that bring you closer to creating the right culture, in the moments you need it most?