How your corporate culture can impact your reputation and business

THIS ARTICLE IS WRITTEN BY MARLENE JANS AND SUZANNE DE BOER.  MARLENE ([email protected]) AND SUZANNE ([email protected]) ARE SENIOR CONSULTANTS FOCUSSING ON CORPORATE GOVERNANCE & CULTURE WITHIN THE BUSINESS CONSULTING SERVICES OF RSM NETHERLANDS

What do FC Ajax, Enron, Boeing, Volkswagen, Goldman Sachs and Uber have in common?

These organizations are (or were) well-known and have (or had) an appealing image. They are great names in their respective businesses, fascinating places to work and have been quoted as inspiring companies that attracted ambitious people who wanted to add to the success of those organizations.

But they have also lost a huge part (if not all) of their stock values, due to situations where behavior existed that cannot be considered to be anywhere near professional. Be it sexual harassment (Ajax and Uber), discrimination (also Uber) tampering the numbers (Enron), the ‘diesel dupe’ on manipulating emission test results at Volkswagen, corruption (Goldman Sachs) or creating a culture in which extreme risk-taking is supported and failures are not to be discussed, as appeared to be the case at Boeing. The impact appeared to be strong: stock prices fell, legal claims were filed and the companies’ reputations were seriously impacted. And in the case of Boeing, it even resulted in the loss of lives of 346 passengers. When such situations occur, it takes organizations a long period of time to get back on track while dealing with investors, staff members and society that expressed disappointment or contempt when learning about this behavior. And some simply don’t survive, like Enron.

A closer look at Boeing

When you take a closer look at the Boeing issue, several harmful patterns can be recognized. It seems that signals from the shop floor were not (properly) picked up and employees who warned the management about weaknesses in their procedures and culture were laid off. The short-term interests of the business appeared to be stronger than the long-term and the safety of flight staff and passengers. At Boeing, this resulted not only two plane crashes and the loss of many lives, but also in substantial material damage like loss of turnover, losses for companies in their supply chain, etc. Some investigations showed that employees at the Boeing plant in South Carolina maintained an overly ambitious production schedule and appeared to be afraid of losing their jobs if concerns were being raised. A sound level of psychological safety was missing. Important signals from engineers were not taken seriously and were perceived as a threat to meeting production goals. Indeed, for some engineers this resulted in their dismissal. Here we got the impression that short-term business results were more important than the level of integrity of the organization, and it looked like the lack of assurance of internal controls and an internal culture allowed this to happen.

In the meantime, substantial measures have been taken to improve the situation and lots of improvements have been made. But nevertheless, the damage will still be felt for quite some time.  

How about your organization?

The key question here is of course: could a situation occur in your organization, in which the behavior of your management and/or employees could lead to a serious increase of risks or even loss of business? Your first reflex might be a strong ‘no’ as you feel that you know your company quite well and you have rules and regulations in place that should be followed by your employees. You might have a strong feeling that you’re in control. But let’s be frank; this can happen everywhere. And it’s good that we are all aware of this.

A successful organisation needs to start with a strong strategy and clear values and needs to act in line with laws and regulations. But the piling up of laws, regulations and internal procedures simply does not work. They don’t only need to be understood, but also to be applied correctly. Boeing certainly had solid safety procedures in place, and they’re used to the execution of solid testing procedures in their production facilities. And yet a disaster happened. That’s where the human factor plays a crucial role. Experience has shown, and scientific research has confirmed, that gaps exist in the perception of workplace behavior between the (top)management and employees ¹.

''The piling up of laws, regulations and internal procedures simply does not work. They don’t only need to be understood, but also to be applied correctly.''

We have experienced, that a very strong influencer of organizational success and employee behavior is the corporate culture. The ways in which ‘things get done around here’, and the perception that exists regarding ‘good behavior that should be rewarded’ are key. Soft controls, the non-tangible behavioral factors that are important for the achievement of your organizational goals, should get careful attention. Examples of soft controls are clarity, tone the top, transparency, room to speak up and enforcement (to name a few). Soft controls can for instance allow employees to raise concerns or speak up and enable them to learn from mistakes. It also leads to balanced decision making and supports building trust and intrinsic employee commitment to the success of the organization. And, if something goes wrong, the execution of a good root cause analysis will help to understand what the real source of malpractice is. With this approach continuation of malpractice can be avoided and clear improvements can be realized.

At Boeing the management have understood that a significant change is required, and actions have been taken. But it will take a long time to fully recover from the past.