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Organizational culture: Recognizing signs of a toxic culture

On the board’s agenda

Welcome to the new issue of On the board’s agenda, a publication where we focus on topical issues of importance to directors.

Understanding an organization's culture

Obtaining a clear understanding of an organization’s culture and mitigating its culture-related risks isn’t easy. James L. Goodfellow, a director of Canadian tire corporation and co-author of Integrity in the Spotlight: Audit Committees in a High Risk World and of Disclosure and Certification—What’s at Stake?, and Vernoica Melian, Deloitte’s global CulturePath leader, examine the challenges organizations face when assessing their culture and its potential risks, such as:

  • The culture spectrum: Organizational cultures can range from good to toxic. In this issue, we identify some warning signs of cultures at risk of becoming toxic.
  • Cultural indicators: We identify some of the key organizational statistics and other sources of information that together can help provide organizations with a picture of their culture.
  • Considerations for the board: Boards have an important role to play in guiding their organizations’ culture. Learn some of the practices for directors to consider to ensure their oversight of culture is effective, and how they contribute to the organization’s “tone at the top.”
On the board's agenda | May 2017

The culture enigma

Culture is a system of values, beliefs, and underlying assumptions that shape behavior both in the workplace and the surrounding environment in which the organization operates. However, obtaining a clear picture of an organization’s culture isn’t easy.

A survey Deloitte conducted for its 2016 global human capital trends report highlights the challenges organizations face when addressing culture. While the survey found that 86 percent of respondents rate culture as either important or very important, and 82 percent agree that “culture is a potential competitive advantage,” just 12 percent believe their organization is driving the right culture.

There are many reasons why assessing culture is a challenge. Since most organizations consist of multiple subcultures that vary from one operating region, business unit, or working team to another, a picture of the organization’s overall culture is much like a mosaic. Because of these different subcultures, the “tone at the top” may be much different than the “tone in the middle” in each business unit or location. Even when organizations gain a snapshot of their culture, it isn’t static—culture evolves.

Furthermore, an organization’s culture is shaped by a number of factors, many of which cannot be controlled by or even known to the organization. For example, an organization’s culture is impacted in part by people’s individual values, attitudes, and behaviors, which may widely vary in today’s increasingly diverse workplace.

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The culture spectrum

When organizations proactively focus on culture, they often do so from one of two perspectives:

  1. Organizations strive to build the type of culture that would best support and help maximize their ability to achieve strategic objectives. For example, an organization’s desired culture may be one that is highly innovative or production oriented.
  2. Organizations examine the potential risks associated with their culture that might undermine their ability to achieve strategic goals and growth plans, and then focus on implementing processes and controls to mitigate those risks.

While both of the above objectives are important, they need be considered together because culture is a continuum. Organizations may have strong positive cultures, highly toxic cultures, or cultures that are somewhere in between.

While organizations may want to proactively shape a desired culture, changing cultural habits often takes considerable time. On the other hand, organizations need to mitigate the risk of a positive culture “tipping” into a toxic one, since a good culture can decay quickly.

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