3 Times Poor Culture Cost Companies Millions

Most executives spend their time focused on optimizing shareholder value. That’s smart. What isn’t, is focusing only on increasing value for shareholders, while forgetting to take better care of the people that power the business. Many leaders are unengaged when it comes to looking inward at their culture, believing perhaps it isn’t their job, or isn’t worth their time. History proves otherwise. This article highlights 3 times executives lost sight of culture and how this had a direct, hugely negative monetary impact on their companies.

Culture is intangible for many leaders, but it can’t be brushed off as ‘secondary’ to success. As Fast Company writes, “Like a garden, organizational culture develops whether or not you design it. If you ignore it, it continues to grow, just not necessarily in the ways you might have hoped.”

Cultures that have morphed and grown on their own sometimes, in fact, can lead to public relations and monetary disasters.

Take the recent case of United Airlines. When they had an overbooked flight earlier this month, their reportedly rigid, rule-following culture created the environment which allowed a passenger to be violently removed from an airplane...to make room for a United employee no less! This error, and PR nightmare also cost the company real dollars, with $800 million in market value disappearing overnight. With one of United’s core values being “We Fly Friendly” - you certainly wouldn’t have expected this.

Fast Company shared how focusing on culture in the airlines industry can make a concrete, monetary difference. "Southwest converted its intangible culture into tangible benefits, including market share growth. In the two years between 1991 and 1993, it increased its market share in California from 26 percent to 45 percent. The energetic commitment of Southwest’s employees achieved a flying cost of 7.1 cents per mile compared to over ten cents for other major airlines."

The disconnect at United? Core values have to be lived, communicated, reinforced, modeled by executives and also rewarded and nurtured. Values have to be more than words. They can’t be just posted on the web site and then put away in a drawer.

A similar example is Volkswagen. The German automaker ended up have to pay over $17 billion in fines and reparations for trying to falsify the emissions information for their diesel cars. It’s difficult to understand how the same company that puts a spot for flowers and vases in their VW Bugs could also go so massively wrong.

The only answer can be culture, and only rewarding behaviors that are aimed at short-term gain, while under emphasizing behaviors that foster corporate goodwill.

Wells Fargo is in the same camp. Their CEO, John Stumpf was just forced to resign last October after it was proven the company created millions of fake accounts. Wells Fargo stock was stripped of millions of dollars in value, and they will likely need to pay reparations after all the dust settles of near a billion dollars.

Apparently their need to hit short term goals became (irrationally) more important in their culture than long-term preservation of the brand. Looking the other way while you encourage your employees to create fake accounts (without customer knowledge) is much more than a cultural wrinkle.

These tales of ‘culture gone wrong’ are important to highlight as they demonstrate the real world value, the ROI of developing a strong, vivid company culture. Don’t let the naysayers criticize your employee initiatives around culture, communication, employee engagement or accuse these initiatives of being ‘nothing more than touchy-feely.’

Bad cultures cost money, destroy employee morale, and erode market capitalization.

This is the second in a series of posts I’m sharing with my observations on what’s working and what’s not in how we unleash the potential of people and teams. To do so, it is helpful to first evaluate what’s at stake. In the three cases above, you see what can happen if culture, and communication withers -- or if organizations don’t ‘walk the walk.’

Care to share your thoughts on culture? Whether you’re leading a team or working within an organization, please take this survey to help me understand your perspective. If you take the survey, I’ll share the results with you so you can see what others think.

This article originally appeared on LinkedIn

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