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Sickly cultures are killing organisations, says the Financial Reporting Council

Consultancy 23rd May 2022

The Financial Reporting Council (FRC) has pointed to an upturn in problems with organisational cultures. Company collapses and scandals, it says, have come as a direct consequence.

It’s simple enough: the snowball effect of irritations with the workplace culture, inappropriate behaviours, grievances and conflict, leads to the need for formal action and workplace investigations. In turn there is a high risk of negative media scrutiny, investor activism, and damage to share prices and recruitment and retention of staff. Employer brands, so carefully built up, can quickly become synonymous with poor working conditions and management attitudes. The first things we think about in connection with P&O, Amazon and BrewDog aren’t good people practices.

Senior leaders, of course, know the fundamental importance of culture in principle. But the global shocks of the pandemic, the shift to hybrid models of working, the ongoing issues with supply chains and inflation, mean a context which is moving faster than the thinking and response to what’s happening in workplaces. “Cultivating a healthy culture, underpinned by the right tone from the top, is fundamental to business success,” says Sir John Thompson, Chief Executive of the FRC.

The biggest threats have come from the shift in the balance of power between employer and employee. Staff shortages and more willingness to move jobs has meant more pressure on employers to meet changing expectations and needs. Rather than just moving for better pay or promotion, staff are now more likely to be looking for working conditions that suit them as individuals: which might be more flexibility in arrangements, less responsibility, a role that’s more rewarding, where there’s a greater sense of purpose, remote or where they can always be among people in an office environment.

Hybrid working has meant employees have become more used to having control over how they work — and are far less willing to be micro-managed. They want the focus to be on outputs not rigid timings and ways of working. People expecting more support for their wellbeing, an understanding of the importance of managing stress and mental health and what that actually means in terms of loosening routines and the intensity of work demands.

At the same time, HR is seeing a heightening of sensitivity in terms of attitudes to what should be considered as discrimination, as well as willingness to speak up and protest against ‘inappropriate’ behaviours. And there’s more stress on relationships in general, caused by the climate of uncertainty and need for changes and adaptability in the workforce.

The FRC has argued that action is needed from top to bottom to arrest the slide towards more toxic cultures: “The board should set the tone, middle managers given clear objectives to prioritise and enact the change, and the workforce be empowered to engage and speak up”. A culture needs to have constant attention — and not only be an issue when there’s a crisis and serious problems already exist.

It’s critical that HR and employers generally are in a position to deal with issues caused by the threats to a healthy workplace culture: making sure investigations are carried out in a professional way, with practices that are in line with current best practice standards and don’t rely on ad hoc internal interventions; providing access to the option of mediation involving professionally trained mediators; consideration of the use of neutral assessment to get to the root of any relationship problems in teams. And fundamentally, looking again at relationships across an organisation and the all-important state of conversations. The quality of conversations is what makes the difference between dealing with challenge and change in constructive ways, with a shared sense of understanding and purpose, and a collapses into conflict.

In our new context of angst, employers have to be thinking carefully about how and when conversations happen, and how well-equipped both managers and staff are when it comes to dealing with difficult situations. What skills they have (listening? self-awareness? empathy?). Ultimately, good organisational culture doesn’t come from a vision or values but the everyday ability and willingness of people to have good conversations and work out problems through informal means and channels.