Developing the right culture

A pressure cooker has been created by COVID-19, which is putting organisational culture to the ultimate test. How an organisation’s culture manages that pressure will have a crucial role in how it survives the global pandemic’s economic impact.

Business leaders now need to rely on the strength of the organisational culture and the engagement of their teams, which they have built over time. A culture built on trust and information sharing – with the sense that every team member is ‘pulling together’ in the same direction – may be just the heartbeat for long-term survival, ahead of a range of other factors.

The readily accepted reality is businesses will lose on average 5% of their annual revenue to fraud, according to the Association of Certified Fraud Examiners. The Financial Cost of Fraud 2019 report by Jim Gee and Professor Mark Button determined that the combined loss to the global economy is £3.89trn a year – a figure that has risen by 56% over the past decade. In the UK alone, this number is reported to be close to £190bn.

In today’s economy, that 5% – seen by some leaders as simply the cost of doing business – could actually represent the difference between an organisation sinking or swimming as cash flows tighten.

COVID-19 has diluted the perceived power of traditional ‘command and control’ leadership styles. It’s highlighting those leaders who trust their team to work on their own initiatives, and those who don’t. For those who don’t, navigating the pandemic’s challenges is much more difficult.

Some employees may be facing pressures on multiple fronts: increased internal pressures from leadership as revenues continue to decline and external pressures, such as a partner’s job loss. A strong culture is key in ensuring these increased pressures don’t result in an otherwise good employee turning to fraud.

Naturally, leaders want to perform to the best of their ability, driving business and team success by achieving or even surpassing targets. However, if the pressures of these performance ambitions cascade down into individual employee targets without a leader acknowledging or understanding the various challenges that an employee is under, problems may begin to arise.

Intentionally or not, leaders who increase workplace pressures can begin to mould a culture that can prompt dishonest or negligent behaviour from their teams and invite increased risk into the business.

This culture of pressure can cause employees to become disconnected from the business and its values, feeling undervalued and unfairly treated. That sense of disengagement can cause employee behaviour, which is misaligned with their true morals. We are all susceptible to poor decision-making, especially when we’re feeling stressed or emotionally drained.

Leaders need to think for the long term. If they tolerate small wrongdoings as a byproduct of employees struggling to reach unattainable targets in the short term, it can lead to much larger, sustained losses in the long term).

So how can leaders adapt their approach? Here are four practical solutions that can be employed:

Actively drive higher standards. Workplace culture should go beyond the letter of the law. It should view compliance as more than a tick-box exercise, pushing past the minimum legal requirements and encouraging maximum ethical behaviours.

Encourage open conversations. Leaders should be approachable, encouraging open conversations about fraud and the risks at every level within a business. Successful cultures are built from the ground up, so keeping discussions open to every employee is vital for effective fraud prevention.

Prioritise employee engagement. Leaders should work to keep teams on board with the business’s goals and purpose. They should also focus on revising reward incentives, ensuring they align with what the employees truly value to prompt high motivation.

Invest in education and training. Business leaders need to take the time to educate employees on the ethical and acceptable behaviours that are expected of them. In doing so, employees will feel encouraged to be the organisation’s ‘eyes and ears’ in its fraud prevention strategy.

This process isn’t just about creating change for today’s leaders. It’s about setting the tone for the next generation of leaders and showing them the moral way to lead to long-term success, with minimal fraud risk.

For further information on the themes explored in this article, which were the result of roundtable of 12 industry experts, see Tenet’s white paper, Leading to Loss, available at tenetlaw.co.uk/white-paper

In 2010, John Stumpf, then CEO of Wells Fargo, launched his ‘eight is great’ mantra, a rhyme that fuelled extremely high sales targets for the company’s employees. The idea was that employees would be required to sell a minimum of eight accounts to each customer, compared with a target of only three several years earlier.

This target was not based on an understanding of his teams’ true capabilities. Instead, Stumpf was merely driven by greed, a greed encapsulated in a joke he made when questioned about his reasons for the target: “I’m often asked why we set a cross-sell goal of eight. The answer is it rhymed with ‘great’. Perhaps our new client cheer should be: ‘Let’s go again, for 10’.”

But this mantra led to company culture quickly turning toxic, with employees fearful for their jobs and resentful of their leaders, some even reported how pressures and actions of management became unbearable. As a result, many were willing to do whatever it took to reach the exceedingly high targets that were laid out for them.

In the years following the ‘eight is great’ mantra, the company received numerous reports of ethical violations. It was discovered that, over the course of four years, at least 5,000 employees had opened more than a million false credit cards and accounts on behalf of unwitting customers. Employees were also found to have transferred customer funds into these new accounts, prompting overdraft fees and damaged credit ratings.

Reports of employee wrongdoing were dismissed by the leadership; any issues were simply attributed to ‘bad employees’. As a result, more than 1,000 employees a year lost their jobs between 2011 and 2013. Only after the full extent of the reputational and financial damage was revealed did Wells Fargo begin to work to rebuild its culture, eliminating sales quotas and actively looking to reduce team pressures.

Martin Winterkorn, former CEO of Volkswagen Group, wanted to be the best. However, it was suggested his leadership style fostered a fearful workplace culture. He pursued exceptionally high sales targets to push VW Group to become the world’s largest carmaker – which it briefly held after selling 5.04 million cars in the first six months of 2015.

The infamous emissions scandal began in 2015 when the US Environment Protection Agency issued Volkswagen Group with a notice of violation of the Clean Air Act. Motivated by the CEO’s drive for results, employees intentionally programmed engines to only activate emissions controls during the testing period. This meant the vehicles passed emissions testing, but went on to emit up to 40 times more nitrogen oxide in real-world driving.

The decision to manipulate controls for testing was fuelled by the toxic culture at VW Group. As leaders drove for success at any cost, they unintentionally passed on pressures, which went on to trigger the unethical behaviours surrounding the emissions scandal.

View the Business and Management Faculty webinar Common online frauds and how to avoid them.

• Leadership, personal development and HR hub

The ICAEW Library & Information Service provides full text access to leading business, finance and management journals and key business and reference eBooks. Further reading on leadership is available through the resources below.