Verified by 
Key points
- Corporate scandals are often rooted in the organizational culture.
- Research shows that seven toxic elements in organizational cultures can obstruct attempts to regulate or manage harmful behavior.
- Factors that contribute to an eventual corporate scandal may include overly ambitious target goals and normalization of rule violations.
Volkswagen installed a software device to cheat emission testing in over 11 million cars. Wells Fargo fraudulently opened 3.5 million bank accounts without authorization from its customers. For years, British oil company BP prioritized cost reduction over safety, resulting in massive leaks and spills in Alaska and the Gulf of Mexico and in major accidents. In just one instance, 15 were killed and 170 were injured at a Texas oil refinery.
The Problem of Culture
All are examples of major corporate scandals. And in each case, the behavior that led to the scandal had been ongoing for a long time and involved many people in the company. In such structural organizational misconduct, the problem sunk so deeply into the corporation that it became a part of the organizational culture. More problematically, this negative, toxic culture actually obstructs systematic attempts to regulate or manage the harmful behavior. As one study put it: "Culture can indeed eat systems for breakfast."
It is no surprise that in the wake of these major scandals authorities and corporate boards pay increasing attention to culture. Companies, including Whirlpool, Citigroup, and CACI International, recently formed board culture committees. Companies are also hiring culture experts who provide them with survey tools to evaluate negative elements in their corporate culture.
It is far from clear what corporations must do when they are tasked with diagnosing and improving their culture. How do we even know what the culture in an organization is? And how do we know something is amiss in the culture that may come to promote damaging behavior?
Studying Organizational Culture
Organizational science provides an answer to these questions. In a paper we published in Administrative Sciences entitled Toxic Corporate Culture, we drew on this work to study what elements in organizational culture promote structural wrongdoing. We did so by analyzing the cases of Volkswagen, Wells Fargo, and BP.
To understand their cultures, we looked at three core aspects. First are their structures, which consist of the visible aspects of the organization, including their hierarchy, internal rules, and incentives. Second are their values, which range from the explicitly shared norms to norms that people share implicitly or situationally as they become so deeply embedded in the organization that insiders are no longer aware of them. Third are people's practices, consisting of the behaviors people engage in and see others engaging in. We used the abundantly publicly available data on these three cases to understand what sort of toxic elements were at play in these three levels of the culture.
Seven Toxic Elements
In analyzing these cases, we found that seven interrelated toxic elements were at play in their damaging behavior. These elements, we argue, are not unique to these cases, and can be used to analyze toxic cultures within corporations in many contexts.
1. Just get it done
The first toxic element is strain. If the working environment puts too much stress on employees, treats them poorly, or sets unrealistic targets, employees may respond by violating laws to alleviate strain. When highly ambitious target goals can only be achieved through unrealistic and unsavory means, we see that to push employees and managers to achieve these targets, they may receive negative stimuli and high pressure.
2. Do not speak out... or else
The second toxic element is obstructed communication, the inability for staff and management to speak out and be heard. This arises when employees and even higher-level management are afraid to speak out about unrealistic targets. Moreover, when they do speak out, there is no response, or even worse, there could be retaliation. Such a culture of silence will create opportunities for rule-breaking, just as it makes changing the root causes of strain impossible.
3. It's ok to break the rules
The third toxic element is the normalization of deviancy. This happens when there is little-to-no organizational response to violations within the company. As rule-breaking behavior begins to occur with seeming impunity, it becomes viewed as just a normal part of business. The practice produces a social norm that stimulates further rule-breaking, creating a situation that undermines personal ethics and morals that would typically prevent rule-breaking. In all three cases, regular and internally documented infractions occurred for over a decade with minimal consequences.
4. It's you, not us
The fourth toxic element is blame-shifting. This occurs when companies blame rule-breaking on rogue employees, especially after scandals become public. By shifting the blame to the individual, the focus shifts to “bad apples” rather than “bad barrels.” This obstructs organizations in addressing the broader organizational elements that have sustained the misconduct and it strengthens a culture of fear to speak out: Employees see the organization as self-protecting and themselves as expendable.
5. There is no harm
The fifth toxic element is neutralization. We see this happening when, after a scandal is exposed, corporate leaders publicly justify what happened using what criminologists call “techniques of neutralization” to reduce their shame and guilt. Neutralization techniques include denying responsibility, denying injury, reframing the victim into someone who deserves the harm, the defense of necessity, the claim of normality, and the metaphor of the ledger (i.e., good acts balance out bad acts). These justifications enable the company and its employees to neutralize guilt for past misconduct, and the better they are able to do it, the more it promotes future misconduct.
6. Rule-breaking is easy
The sixth toxic element is opportunity. Criminologists have shown how contexts affect opportunities for crime. Here a key issue is the complexity and dynamism at the company. Spreading decision-making power reduces the ability of successful oversight while giving more people in the firm the power to make decisions that can result in offending and harmful behavior. In the cases we studied, we saw that the delegation of authority created opportunities to cut corners without sufficient oversight. Vice versa, also highly centralized decision-making can enable a small group of high-level employees to make a series of detrimental decisions, such as in the VW case.
7. Do not believe what we say
The seventh element is corporate cognitive dissonance. The tone at the top, which is often articulated through corporate values statements, often proclaims a deep and profound commitment to compliance. Yet, while the tone at the top is one of commitment to compliance, the practices in the middle and at the bottom may be sustaining misconduct. If this happens, employees and lower-level managers experience a deep disconnect between the tone at the top and their everyday reality. As a result of this dissonance, employees conclude that there is no true commitment to compliance or that their leadership has no authority over their behavior. In line with psychological studies, we find that such corporate dissonance fosters more rule-breaking.
These seven elements of toxic culture play a key role in organizational crime and misconduct. To prevent the next major corporate scandal, we must focus on the organizational culture and not just on the individual actors. We must become better at diagnosing risk in the culture so corporations can address it at a much earlier stage before the toxic culture sets in.
