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Organisational Culture: Toxic Culture and Business Performance

Jim Riley

27th February 2015

It is relatively easy to identify evidence on how organisational culture can be an intangible asset of a business - a source of competitive advantage and a key reason for a business enjoying industry-beating financial performance.However, the reverse can also be true. If organisational culture is managed incorrectly or (worse) left un-managed, it can become dysfunctional or toxic. In these situations the organisational culture of a business can become a liability, not an asset. It can even lead to the failure of the business.

A useful analogy for corporate culture is to think of culture as being like a living, breathing eco-system.

Shaun Parr's excellent article in FastCompany uses the example of an aquarium to illustrate the concept:

"Long-term success is dependent on a culture that is nurtured and alive. Culture is the environment in which your strategy and your brand thrives or dies a slow death.

Think about it like a nurturing habitat for success. Culture cannot be manufactured. It has to be genuinely nurtured by everyone from the CEO down. Ignoring the health of your culture is like letting aquarium water get dirty. "

So think of toxic culture as an unhealthy environment - which ultimately might prove fatal for those tiny fishes swimming around the aquarium.

I like this definition of toxic culture:

"A toxic culture in an organisation creates an environment that can damage the emotional, physical or financial wellbeing of employees, customers and those associated with that organisation".

Of course, I'm not suggesting that leaders set out to create a toxic culture. Yet when a workplace culture evolves on its own with little attention given to positive relationships and employees & management aren't held accountable for inappropriate (or even illegal) actions, the mood at any organisation can turn poisonous.

The results of a toxic culture can be significant. For example, lower productivity, low morale, increased absenteeism and higher staff turnover. Ultimately, a toxic culture might lead to actions that become a cause of business failure.

So, what are the signs of a toxic culture?

Various experts have looked at this question and highlighted common symptoms of an organisational culture that is toxic. These include:

· Weak leadership - no clear sense of direction

· Double standards by leadership – if there are members of leadership who don't hold themselves accountable to the same standards and expectations as others in the business, the culture will soon be based on contempt

· Authoritarian or bullying leadership - if the leadership are bullies, then those who succeed in such a culture are likely to be bullies too. Authoritarian leadership too often creates a culture of fear and subservience.

· Openness and honesty: can everyone speak their mind? The alternative is a culture where important issues are swept under the carpet

· Lack of transparency and morality

· Dishonesty and corruption - the root of this culture is based in ambition and greed

· Reluctance to embrace change - can create a stifling environment where innovation and creativity are discouraged

· Rampant gossip/rumours - the rumours could be about other employees, leadership or strategy. But they spread fast and can have devastating effects.

· Us/Them mentality – which can often arise from weak leaders

· Retaining poor-performing staff - keeping them on board will frustrate the other good performers with a good attitude and they are much more likely to leave

Some examples of toxic culture

Remember, with toxic culture, we are looking for evidence or examples of a culture that appears to act as a liability for a business or organisation.

Here are a few suggestions:

Goldman Sachs

When Greg Smith famously left Goldman Sachs, he wrote in the New York Times:

“I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it…. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for. “

Australian Olympic Swimming Team at London 2012

Australia has traditionally enjoyed great success through world-class performance in Olympic swimming meets. So what went wrong at London 2012?

The Australian team managed to win just one gold medal, despite being tipped for huge success.

An independent review (commissioned by Swimming Australia in the wake of the team's poor performance in London) found a failure of leadership and culture with Australian swimming's worst Olympics in two decades undermined by a lack of moral authority and discipline which manifested in a "schoolyard clamour for attention and influence".

Australia's 2012 Olympic swimming team was consumed by a "toxic" culture involving bullying, the misuse of prescription drugs and a lack of discipline, the damning report found.

The independent review, cited incidents of "getting drunk, misuse of prescription drugs, breaching curfews, deceit, bullying".


Another recent example - and a very good one.

Barclays was one of several leading banks that were implicated in a scandal involving the fixing of the Libor interest rate. Whistle-blowers pointed to a culture of fear that allowed the practice to go on. The Serious Fraud Office launched a criminal inquiry into interest rate fixing amid increasing clamour for rogue bankers to be prosecuted.

The Libor scandal was a key factor in the appointment of Antony Jenkins as the new CEO of Barclays. One of his first actions was to commission an independent review into the culture at Barclays – which he clearly feared was turning toxic.

The subsequent Salz Review blamed "cultural shortcomings" at the bank for problems that led to the Libor-rigging scandal. The Salz Review said the bank needed a "transformational change" to restore its reputation among the public. The review said the bank had become too focused on profit and bonuses rather than the interests of customers.


Perhaps the best example of how a toxic culture can ultimately lead to the collapse of an organisation. In Enron's case, this collapse was one of the biggest corporate scandals of all time and much of it can be directly traced to the culture of greed, aggression and plain illegal behaviour that was encouraged and tolerated by the senior management team.

Jim Riley

Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known Business writer and presenter as well as being one of the UK's leading educational technology entrepreneurs.

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