10 Warning Signs of a Dysfunctional Corporate Culture

by Mike Hunter

The growing spotlight on dysfunctional corporate culture and its potentially devastating impact on organizations has given new urgency around the issue in boardrooms today.

Research shows that 30 percent of M&A deals fail to achieve financial targets due to culture-related matters, and some studies suggest that even workplace incivility can have an average cost of $14,000 per employee per year due to lost production and work time. Investors, employees and other stakeholders are pressing for changes around issues of #MeToo and pay inequality and more. In this climate, directors are taking greater oversight over this area traditionally left to the CEO and the senior team.

To examine how to spot the signs of dysfunctional culture in an organization and how a board can best respond to problems, Marsh & McLennan Companies interviewed members of WomenCorporateDirectors, a global network of top corporate directors serving on public or large, privately held company boards. In the resulting report, these directors shared 10 red flags signaling a toxic culture in organizations as well as actions that directors can take to spot the warning signs from the top of the house.

The report, “Identifying and Responding to a Dysfunctional Corporate Culture”, provides directors a road map for approaching a discussion of culture from a thoughtful, 360-degree viewpoint. They can use this tool in setting out to examine the very things that make up a company’s culture, including the company’s vision, sales goals, decision-making, communications, reporting, employee turnover, HR practices and more.

The costs for an organization in having a “broken” corporate culture threaten the very foundation of an organization, and not examining how the culture is functioning — or not functioning — places a company at serious risk. Given the risks to the company today, looking out for these warning signs is a valuable step in identifying whether the culture itself is in need of even deeper work by leadership and the board.

10 Warning Signs of a Dysfunctional Culture

  1. No clear organizational vision or set of values;
  2. All information to the board runs through the CEO;
  3. Fighting amongst leadership;
  4. Debate and challenge are not encouraged;
  5. Limited transparency into organizational decision-making;
  6. Complacency and resistance to discuss culture;
  7. Bad news is not shared and employees do not feel comfortable reporting incidents;
  8. Strong focus on individual results or a “get it done at all costs” attitude;
  9. High employee turnover rates by business unit, race, age, gender, function, etc.; and
  10. 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. Ultimately, what is built coming out of this can make the organization more resilient, more innovative and more attractive to the talent an organization wants to keep and recruit to strengthen its future.

Susan C. Keating is CEO of Women Corporate Directors Education and Development Foundation, the only global membership organization and community of women corporate directors. A
501(c)(3) not-for-profit organization, the WCD Foundation has 80 chapters around the world. The aggregate market capitalization of public companies on whose boards WCD Foundation members serve is more than $8 trillion. In addition, WCD Foundation members serve on numerous boards of large private and familyrun companies globally.

Lucy Nottingham director of strategic partnerships at Marsh & McLennan Insights. The firm, which works to identify breakthrough perspectives and solutions to society’s most complex challenges, collaborates with industry, government, non-governmental organizations and academia around the world to explore new approaches to problems that require shared solutions across economies and organizations.

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