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10 warning signs of a dysfunctional culture and what to do about it


An organisation's culture is a critical element for its success. In that line, a dysfunctional or toxic culture can be its downfall.

In light of the #MeToo movement and pay inequality, a new report from Marsh & McLennan Companies (MMC), tapping the insights by WomenCorporateDirectors (WCD), interviewed top corporate directors from around the world to reveal 10 red flags of a toxic organisational culture. The report also highlighted actions directors can take to spot the warning signs from the top of the house.

Susan C. Keating, CEO, WCD, said: "The workload for board members continues to grow, and insights from fellow directors are critical to helping them address the most challenging and sensitive issues that arise in organisations."

Patricia Milligan, Global Leader of the Multinational Client Group at Mercer, a division of MMC, added: "The costs of dysfunction threaten the very foundation of an organisation. Not taking a thorough look into how the culture is functioning – or not – places a company at serious risk."

10 warning signs of a dysfunctional culture

  • No clear organisational vision or set of values
  • All information to the board runs through the CEO
  • Fighting amongst leadership
  • Debate and challenge are not encouraged
  • Limited transparency into organisational decision-making
  • Complacency and resistance to discuss culture
  • Bad news is not shared and employees do not feel comfortable reporting incidents
  • Strong focus on individual results or a "get it done at all costs" attitude
  • High employee turnover rates by business unit, race, age, gender, function, etc.
  • Limited transparency on factors for promotion or success

"These warning signs provide a starting point for discussion, and can provide context for looking at the culture as a whole," said Kapila Anand, a participant in the report, Lead Director of WCD, and Director, Extended Stay America, Inc., ESH Hospitality, Omega Healthcare Investors, and Elanco Animal Health, Inc.

"Ultimately, what is built coming out of this can make the organisation more resilient, more innovative, and more attractive to the talent you want to keep and recruit to strengthen your future," she added.

15 actions organisations can take to sustain and set the right culture

Outside the boardroom

HR can diagnose the culture by:

  • Exploring cultural issues when onboarding
  • Visiting sites to better understand day-to-day operations
  • Building relationships beyond C-suite to get honest feedback
  • Reviewing external feedback on the organisation (eg. on social media, on Glassdoor)
  • Apply experience and judgement to be attuned to culture "warning signs"

Inside the boardroom

The full board should:

  • Consider cultural issues in CEO selection
  • Capture a comprehensive range of information relating to corporate culture
  • Ensure culture is a regularly scheduled board agenda item

The compensation committee should:

  • Ensure compensation structure supports desired culture and ethical behaviour
  • Consider how culture-related elements are factors of executive compensation

The audit committee should :

  • Review compliance updates
  • Review whistle-blower hotline reports
  • Examine deep-dive data from employee surveys

The nominating / governance committee should:

  • Consider culture in director selection and diversity of boards
  • Review succession planning and process for senior executive officers

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