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The Financial Impact of a Poor Company Culture

02/13/2023


Having the opportunity to work in Fortune 500 companies, family-owned businesses, and extensive industry operations has afforded me a unique view into various company cultures and their overall effect on profitability, with just as many lessons learned about success as failure.


Earlier in my career, I worked in a company that prided itself on its values of trust, transparency, empowerment, and employee appreciation. At the time, the company was a shining beacon of the industry, but it was about to learn an expensive lesson about poor leadership.


The division leader believed that if he hired the right sales director—an ace, if you will— market share and profitability would skyrocket. Enter the new sales director. He placed his desk in the middle of the trading floor and set a time limit on phone calls. If a trader remained too long on the phone, or the conversation didn’t track with what the director thought was correct, that trader would be reprimanded, usually while still speaking to the customer. If quotas weren’t met, traders risked being excoriated in front of the team. Employees were spoken to disrespectfully, differences in opinions were not tolerated, and the employees felt they played a daily game of whack-a-mole. If you popped up, you likely would get a strong bop on the head.


In a few months, company culture collapsed. High-performing traders left, morale sunk, and market share fell along with profits, losing a stunning 15% of market share and 2.25 basis points of profitability. The remaining employees were disconnected and demoralized. Thankfully, division leadership saw the error of their hire. The sales director was invited to leave the organization, sanity returned, and company culture was regained.


What did this teach me? Many otherwise great companies have destructive mid-level leaders, usually due to a combination of political rather than competency-based promotions, a rushed hiring process, or placing people in leadership positions who aren’t effectively trained to lead under pressure.


While continuous core competency improvement is vital in increasing efficiencies and profitability, culture needs to be top of mind. Consciously creating a positive workplace culture takes far less effort than fixing a poor one created by unconscious means. A survey from Deloitte of 200 companies found those that intentionally managed their culture significantly increased revenue by 682% compared to 166%, and net income by 756% versus 1%.


Deloitte’s survey also found in companies with effective cultures, “engaged managers and employees are much more likely to remain in the organization, leading directly to fewer hires from outside the organization. This results in lower wages for talent, lower recruiting, hiring, and training costs, and higher productivity. Higher employee continuity leads to better customer relationships that contribute to greater customer loyalty, lower marketing costs, and enhanced sales.”


Here are simple ways to create a positive, supportive, and productive work environment.

Define your company’s mission, vision, and values. Culture begins at the top; the leader must set the tone and own the cadence.


- Hire for your culture. Hiring for different competencies and skill sets is necessary, but the underlying decision to bring an employee aboard should align with the company culture.

– The line between life/work balance is becoming blurred today. Encouraging employees to take accrued vacation days and have flexible schedules is critical.


– Express thanks for your employees’ contributions to the company. Appreciation for their efforts ranks high in good cultures, much more than pay.


Business doesn’t cause cultural problems. Leadership creates cultural problems. A positive workplace culture affects the bottom line substantially and must be your highest priority. It’s time to discuss positive workplace culture and the rewards it will bring.


Dena Cordova-Jack built her 30+ year career with GP, Boise Cascade, Foxworth-Galbraith, and most recently as VP of Organizational Development for Kodiak Building Partners. She currently serves as Vice President for Misura Group.


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