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What Does a Tough or Toxic Organizational Culture Cost?

This is a guest post by Marcella Bremer

Why would organizations invest in developing an effective organizational culture? The answer is that it impacts organizational performance and that culture, as it’s hard to copy, can be a competitive advantage. It’s an asset, as Kevin Stiroh, a bank supervisor, says in Harvard Business Review. “A firm’s cultural capital is a type of asset that impacts what a firm produces and how it operates.” Though tough or toxic cultures may be a liability...

Stiroh: “The possibility of employee misconduct — the potential for behaviors or business practices that are illegal, unethical, or contrary to a firm’s stated values, policies, and procedures — is a form of risk. Investments in cultural capital is one way to reduce that risk.”

Cultural Capital

“In an organization with a high level of cultural capital, misconduct risk is low, and its organizational structures, processes, formal incentives, and desired business outcomes are consistent with the firm’s stated values. Unspoken patterns of behavior reinforce this alignment and drive corporate outcomes.”

The research agrees with Stiroh, and it aligns with what I’ve seen in my client work. High-performing organizations have cultures that are distinct, transparent, trustworthy, clear, and motivating as they offer a shared purpose that inspires. They are positive and productive.

These cultures go without hidden agendas, without bullying, office politics, gossip, confusion, unresolved conflicts, blaming, shaming, sabotage, and so on. That’s not just pleasant for people. Working without such “negative behaviors” saves a lot of money.

How is your cultural capital? I have worked with leaders who thought that people should be tough at work, or that psychological safety was bogus (“No one gets killed at work, haha”). That gives you an idea of why they had to work on their culture. These organizations suffered from a host of symptoms, such as absenteeism, disengagement, low productivity, stagnation, bureaucracy, or exhaustion.

"...disrespectful behavior costs companies $14,000 per employee due to lost productivity..."

Incivility

Culture is not a luxury, and civility isn’t either. A study conducted by Russell Johnson and colleagues of the University of Michigan found that rude behavior, like sarcasm and put-downs, leads to mental fatigue. Consequently, employees had less self-control, which increased their tendency to being rude toward others.

Workplace incivility isn't just bad for morale — it hurts a company's bottom line. Researchers estimate that disrespectful behavior costs companies $14,000 per employee due to lost productivity - as Science Daily reports.

While curt remarks and other forms of incivility isn’t the same as hostile behavior such as bullying, it happens often in the workplace and influences employees. According to estimates, workplace incivility has doubled over the past two decades and has an average annual impact on companies of $14,000 per employee due to loss of production and work time.

Go figure that! Developing a more positive culture boosts performance - and saves organizations a lot of money. If this goes for your culture: multiply your staff with 14,000 and you’ll know how much you could save by improving the culture.

Christine Porath and Christine Pearson conducted another study (with 14,000 respondents) and found that incivility demoralizes people. Employees subjected to incivility "markedly loosened bonds with their work life." Nearly half of employees "decreased work effort" and intentionally spent less time at work, while 38 percent "intentionally decreased" the quality of their work.

Also, 25 percent of employees took their frustrations out on customers. Aha, hence the staggering $ 14,000 annual cost!

Incivility could be a consequence of being too busy, stressed-out, with too much pressure. Yet: “I’ve wondered why it’s tolerated, because there are such negative effects on people and the organization,” says Porath in the Wharton Journal. “And what I’ve concluded over the course of time is that the vast majority of it stems from people not recognizing the effect they have on others.”

Toxic behaviors and Cultures

Incompetent, or worse, toxic leaders, drive the best employees away and hurt the culture. A study by Accenture says that the most commonly cited reasons people leave a job, are:

  • Don't like my boss (31%)
  • Lack of empowerment (31%)
  • Internal politics (35%)
  • Lack of recognition (43%)

Gallup estimates that active disengagement from a toxic boss costs the U.S. $450 billion to $550 billion per year. A Harvard Business School study discovered that avoiding a toxic hire, or letting one go quickly, will save you $12,500 in cost.

Workplace bullying is a rising topic, with estimates that 25 to 50% of the workforce has been subject to it. Nearly half of the working population has witnessed it. Workplace bullying can include verbal abuse, intimidation, humiliation and sabotage. It’s mostly intentional - and toxic cultures tolerate it.

It’s no surprise that people don’t perform well in high-anxiety situations and Bill Sutton (Stanford University) has suggested that productivity could decrease with 40% when workers experience bullying.

Gallup estimates that active disengagement from a toxic boss costs the U.S. $450 billion to $550 billion per year.

Invest in Culture to Save Costs

Here’s the cost of not developing a (more) positive and productive culture. Can you afford to not invest in culture?

A toxic culture might damage productivity with a 40% decrease.

A tough culture that tolerates incivility might cost $14,000 per employee in lost productivity per year.

A strong, effective culture, as shown by the research of Kotter and Heskett, can lead to 20-30% more productivity than the competition.

A positive culture, consciously developed with positive leadership, might boost performance with at least 20% - if not more. (Estimated based on literature and client work).

And here’s what you can win: If you take the incivility out and become an effective culture, your results might grow with 20% Or develop a positive culture and results might grow with 20-40%

What will you do?

If you want to learn more, check out the Positive Culture Academy online curriculum, or see all courses available from the Positive Culture Academy

About the Author

Marcella Bremer MScBA is an author and culture consultant. She is the co-founder of the online Positive Culture Academy and the culture survey website OCAI Online.

Last updated: 28 Feb 2019

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