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From Toxic to Thriving: How to Change Corporate Culture

By Matt Kelly (Updated )

Leo Tolstoy once said that all happy families are alike, but every unhappy family is miserable in its own way. Corporate cultures are a lot like that and that's why being able to change corporate culture is not one-size-fits-all. 

What Tolstoy meant was that all happy families behave in certain ways; that’s what lets them achieve happiness. Unhappy families, on the other hand—each one can deviate from those behaviors however it wants, and achievement of happiness slips away. The specific result doesn’t matter; misery is still misery.

That’s an important point for compliance officers to grasp as we think about toxic corporate cultures, and how to turn them around. 

You can even question whether we need to define what a toxic culture is when the thing itself is so subjective. We’ve all seen those cultures before. Some of you are probably working within one right now. Backstabbing, laziness, conflicting agendas, ulterior motives, arbitrary decisions, and so much more. We know toxic behaviors when we see them.

The challenge for compliance officers isn’t to address specific dysfunctions. It’s to understand the patterns of behavior that allow a strong culture to persist, and to identify where your corporate culture’s patterns of behavior differ. Then close that gap.

How to Change Corporate Culture

1. Start With Objectives

Cultures are toxic when people pit themselves against each other, rather than put the health of the whole first. 

The exact nature of the pitting isn’t important (at this juncture, anyway). It could be subtle, like exclusion from meetings or biased promotion practices; or it could be overt like drastic new policies sprung on employees without notice. Every miserable family is miserable in its own way. 

What’s really happening is that different groups are posturing to exercise their power over others. They’re more interested in the fighting, in the demonstration of their own power than in the fundamental goal. 

That doesn’t happen when all participants agree on the goal, on the importance of the goal, and on how to achieve the goal. So if you want a thriving corporate culture, start by developing those things.

That’s why tone at the top is so important. The top sets the objectives. The top decides which objectives take priority over others. The top is responsible for how to achieve objectives, even if others develop the specific processes to do that.

So how do compliance officers help with this phase of a thriving corporate culture? Start by helping senior executives to articulate those objectives and priorities. That might take the form of a clear Code of Conduct, or executive messaging that spells out why certain behaviors (say, inclusionary hiring or not paying bribes) are more important than others (personal career advancement or closing a sale). 

The point is that thriving corporate cultures have consensus on a few big things, so all employees can focus on those few big things all the time—even while their actual pursuit of those things differs greatly from one department or employee to the next. 

2. Think About Design and Input

Now let’s get more specific. If you search for “culture” in the Justice Department’s guidance on effective compliance programs, the first reference to that word (on Page 4) is followed by three questions: 

What is the company’s process for designing and implementing new policies and procedures, and has that process changed over time? Who has been involved in the design of policies and procedures? Have business units been consulted prior to rolling them out?  

Those questions drive toward the idea of inclusion, and that raises another important point about toxic corporate cultures. People engage in toxic behaviors when they feel vulnerable or unheard. So the more you can incorporate their input while designing policies and procedures, the better. 

When we talk about “embedding compliance into procedures, rather than tacking it on at the end”—this is what that phrase means. If we want employees to feel like compliance is part of something the organization does, rather than an additional step the organization orders them to do, then we need to include their input while designing policies and procedures. 

That doesn’t mean employees always get their way. It means that listening to employee concerns as part of your plan to change corporate culture. Which is a lot better than the toxic practice of ignoring employee concerns because you’re busy dictating what they should do. 

3. Consider Compensation and Discipline

Next, the company must consider compensation plans that give employees incentive to behave in certain ways, and what happens when employees don’t.

For example, if the company embraces incentive compensation for individual goals but ignores it for team goals, employees view co-workers as competitors rather than partners. If the company threatens discipline for misconduct but never follows through, employees will feel emboldened to put their judgments and objectives above the companies.

I call this the “get fired/get rewarded” risk. That is, all employees wonder: Will I get fired if I do this? Will I get fired if I don’t? Likewise, they also ask: Will I get rewarded if I do this? Will I get rewarded if I don’t? 

A thriving corporate culture ensures that its compensation and disciplinary practices guide employees to answer those questions the right way. It aligns positive and negative reinforcement (pay raises and promotions; warnings and termination) with corporate objectives (ethical conduct, teamwork, innovation; whatever), so employees can easily grasp what they should do in their daily routines. 

And So Much More

At this point, you might be asking yourself—what about measuring corporate culture? What about analyzing data? What about training?

Those things are all important too. Still, they’re the tactics a company uses to implement its strategy for achieving a strong corporate culture. The strategy itself hinges on three steps:

  • Develop a consensus on objectives and priorities;
  • Solicit input from employees on how to achieve those;
  • Ensure that reward and discipline practices align with achieving your goals.

Every thriving corporate culture does those things. Every toxic culture misses the mark in its own unique way.

integrated compliance management

Matt Kelly

Matt Kelly is an independent compliance consultant and the founder of Radical Compliance, which offers consulting and commentary on corporate compliance, audit, governance, and risk management. Radical Compliance also hosts Matt’s personal blog, where he discusses compliance and governance issues, and the Compliance Jobs Report, covering industry moves and news. Kelly was formerly the editor of Compliance Week. from 2006 to 2015. He was recognized as a "Rising Star of Corporate Governance" by the Millstein Center in 2008 and was listed among Ethisphere’s "Most Influential in Business Ethics" in 2011 (no. 91) and 2013 (no. 77). He resides in Boston, Mass.

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