Sunday, September 16, 2012

Oxygen: How Is Your Corporate Culture Breathing? (Part 1)

How often do you think about oxygen? Me, hardly ever. Why? Well in part because I am healthy but I think another big part is because I cannot see, feel or taste oxygen. But I do know that I need it to live. You can lose more than one limb and still survive but without oxygen it's all over. And what happens when the oxygen levels deteriorate and the air you breathe becomes more and more toxic to your body i.e. carbon dioxide retention. You don't need to be a genius to work out that is not going to end positively.

This is the same way I feel about corporate culture which is often referred to as the character of an organisation. What does your culture look like? Can you touch your corporate culture? Edgar Schein (1996) defined organizational culture as the “shaped norms, values and assumptions” of how organizations function (p. 229). Quite simply corporate culture is the oxygen of an organisation.

When there is the right amount of oxygen (corporate culture) the outcome is quantifiably positive. Research by CBE found "there is a strong correlation between business performance and a strong ethical culture: stronger ethical cultures were found to deliver higher shareholder returns over a 10-year analysis period." However when the oxygen levels decrease a harmful environment is created. Likewise a corporate culture can be toxic. Think I am being melodramatic. The facts suggest not.

By interviewing "several thousand managers and employees from a diverse range of U.S. companies" authors Christine Porath (Assistant Professor at USC’s Marshall School of Business) and Christine Pearson (Professor at the Thunderbird School of Global Management) summarised the responses as follows:

Decreased their work effort
Decreased their time at work
Decreased their work quality
Said their performance declined
Lost work time worrying about the incident
Lost time avoiding the offender
Said their commitment to the organization declined
Sources: The Cost of Bad Behavior: How Incivility Is Damaging Your Business and What to Do About It and  How Toxic Colleagues Corrode Performance

I find these numbers staggering. Whether you are in a large organisation or a small business, having nearly 1 in every 2 employees decrease their effort or time at work, will have an effect on the bottom line.  The authors detail the efforts of Cisco Systems to analyze the cost of incivility in their company. Cisco found that "the organization wide costs for potential time lost by targets who worried about additional uncivil incidents and future interactions with offenders totalled nearly $2 million per year. With estimates for the costs of weakened commitment (also calculated as lost productivity value) and job changes (calculated on the basis of cost per hire) added in, the total topped $8 million." For a company that does around $6Billion in net income annually, $8mil is a small number. However make $8mil cumulative over 5 years and you have a $40mil cost (obviously no NPV has been applied). It all adds up very quickly.

On a significantly larger scale you can look at the effect the toxic corporate cultures have had on the collapse of Enron, Tyco, WorldCom and HealthSouth. Multi-billion dollar companies ruined along with many employee reputations. Author David R. Lease (Norwich University) noted, "The executives at Enron, WorldCom, and HealthSouth independently built their toxic organizational cultures, while the greed-crazed executives at Tyco were facilitated by an established board and management structure. Nevertheless, the results were the same: toxic leaders created organizational cultures that, up until the end, effectively masked their personal and the organizations’ unethical behavior, ultimately destroying the viability and reputation of their organizations and the public image of their employees (if only by association)."

In part because it is impossible to wrap your arms around corporate culture or look at it on a spreadsheet, conversations around the concept of corporate culture are often emotive yet vague in their ability to convey a bottom line benefit. Perhaps this is a reason so few financial analysts seem to focus on corporate culture although Stephen Sadove, chairman and chief executive of Saks articulated it brilliantly when he said in a New York Times piece, "When I talk to Wall Street, people really want to know your results, what are your strategies, what are the issues, what it is that you’re doing to drive your business. They’re focused on the bottom line. Never do you get people asking about the culture, about leadership, about the people in the organization. Yet, it’s the reverse, because it’s the people, the leadership, the culture and the ideas that are ultimately driving the numbers and the results."

In summary the right oxygen levels equals a healthy body, the wrong amount can lead to oxygen toxicity which ultimately can lead to a religious experience. Just ask former Enron COO, President and CEO Jeffrey Skilling who was quoted in the immediate aftermath of Enron’s bankruptcy filing as saying, “We were doing something special. Magical. It wasn’t a job – it was a mission. We were changing the world. We were doing God’s work.


Part 2 will focus on identifying what defines a toxic corporate culture and its broader effects