Posted by nyssa on April 14, 2015 in , , , ,

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Culture is a word that continues to confuse and bemuse many people and businesses alike. Leaders strive to create a culture that will set them apart from the pack with terms such as “high performing culture” regularly bandied about on company websites. But what does it really mean? Culture can be loosely defined as a set of ideas, customs and social behaviours found in a particular group of people. So, with that said, what is the cost when these ideas, customs or social behaviours have a negative impact on a business?

The collapse of Enron, the American based global energy business, is possibly the most costly example of what can happen when a business has an unhealthy culture. At its peak in 2000, Enron had a reported turnover of over US $100bn and was named by Fortune Magazine as the most innovative company in the USA for six consecutive years. However, it was a company that was built on the foundation of systematic and creative accounting fraud that saw it collapse and led to the eventual collapse of accounting giant Arthur Andersen.

The culture of Enron was driven strongly from the top. Former CEO Jeffery Skilling actively cultivated a culture of aggression and pushing limits. He had created a culture and an atmosphere where he deliberately stretched the rules and celebrated doing it. They worked hard, pushed hard and reaped the rewards. This culture led to accounting fraud as the executives required inflated profits to support their lifestyle and bonuses. The costs were catastrophic. The business collapsed taking billions of shareholder dollars with it. There were multiple prosecutions and convictions. The fraud led to the Sarbanes Oxley legislation to prevent shareholders from fraudulent accounting procedures.

So the Enron case study shows that poor culture can lead to massive damage. However, there are many more cases where it leads to smaller problems that may not be as obvious to the eye.

Firstly, it is very difficult to attract talent to a business with cultural issues. I have worked in recruitment for a number of years and there have been times where I have been required to work on assignments where there are existing cultural issues. These are very difficult recruitment exercises and often end up with the customer having to pay well above market to attract people to their organisation. You see this regularly in sporting clubs with the Gold Coast Titans being perhaps the best example of this in recent times. They are rumoured to have “broken the bank” (albeit underwritten by the NRL) to attract young half back Daly Cherry Evans back to Queensland. It is rumoured that they were forced to pay over $300,000 per annum more than he would have received from any other club after the cocaine scandal broke out.

The second issue that is not always obvious relates to the retention of talent. Retention statistics can be extremely deceptive and I prefer to measure what the turnover rates are for staff you do not like to lose. Poor performers tend to never leave. I refer to them as barnacles and their survival is often directly linked to longevity, information and “corporate knowledge” acquired along the way. Generally, good people do not last in bad cultures. Valuable people have choice and often have the confidence to exercise that choice. When this happens, they tend to move on and leave toxic cultures behind. I remember an ASX listed company who went through four CEOs in one year and the Chairman was at a loss to explain their poor performance. It was quite laughable to be frank that the correlation was not obvious to him.

So, next time you read about high performing cultures or words to this effect, stop and ask yourself what they are really asking for. What behaviours, customs and norms are you looking to surround yourself with and why? When you are working for a company or a team stop to reflect on what the culture is and what it actually says about you. Finally, beware of toxic cultures – the real cost of them can be catastrophic; just ask Mr Skilling of Enron.

Brad McMahon – Managing Director

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