Article originally published in the Philadelphia Business Journal on August 7, 2018
The success of all organizations depends on how well their mission-critical systems operate. Technopedia defines mission-critical systems as those “essential to the survival of a business or organization, [such as sales, operations, cash management]. When a mission-critical system fails or is interrupted, business operations are significantly impacted.”
Tone at the top and culture are also mission-critical. To realize their importance, one only needs to look at the failure of tone at the top and organizational culture that resulted in scandals at Wells Fargo, Volkswagen, Uber and Theranos to name a few, to see the damage done to these businesses, their customers, employees and the reputations of their leaders.
Tone at the top is set by the CEO and the senior leadership team and reflects the ethical climate of the organization, while culture reflects how employees within the organization deal with each other, customers and other stakeholders. As the leader of your business, ensure that you set the right tone and culture. They become the behavioral norms of your employees.
Both tone and culture determine whether employees will trust their leaders and their fellow employees. Trust is built on honesty, ethics and integrity. Without trust, you can’t build a high-performance team. Without trust, you suffer high employee turnover and loose the talent you need to achieve business success.
Employees should be focused on growing the business and exceeding the expectations of their customers, and not worry about being undermined by their boss or a fellow employee.
If tone and culture are so important, why do employees of some organizations report that the tone and culture are poor, a sentiment periodically expressed to me?
One of the responsibilities of the board of directors of every company is to monitor the tone of the CEO, as well as the culture they nurture within the organization.
In an article in the July 2018 issue of the Journal of Accountancy, Sabine Vollmer wrote, “Boards that prioritize corporate culture, watch for red flags and set clear expectations will encourage ethical behavior throughout the company.”
Vollmer said, “Research over the past 20 years has continued to underscore that integrity drives performance. Corporate culture and tone at the top are considered key drivers of ethical behavior, but boards of directors often devote little time to the topic.”
So, how can a board determine whether the tone and culture are right within an organization? The reports coming into the employee hotline are a good indication. Employee hotlines, mandated for all public companies, are usually monitored by the audit committee of the board. All organizations should have hotlines. What the audit committee does with the information reported through the hotline determines how serious the company is about tone and culture.
In the case of Wells Fargo, employees used the bank’s confidential ethics hotline to report a toxic culture and fraudulent, unethical activity within the community banking division, led by Vice President Carrie Tolstedt. As many as 3.5 million bogus customer accounts were opened over five years to meet very aggressive growth goals.
In a Jan. 17, 2017 CNN Money article headlined, “Wells Fargo admits to signs of worker retaliation,” columnist Matt Eagan wrote about the employees who trusted that their reports of fraudulent activity to the confidential ethics hotline would be investigated. A few of these employees faced retaliation and were terminated.
After an investigation of the ethics hot line terminations, Tim Sloan, who replaced John Stumpf as the CEO of Wells Fargo, said, “Anything more than zero is too large.”
Did Stumpf, the Wells Fargo CEO at the time, know that these employees were terminated? This is a very serious failure of tone at the top and culture.
In an April 10, 2017 Wall Street Journal article headlined, “Wells Fargo Slams Former Bosses’ High-Pressure Sales Tactics,” columnist Emily Miller wrote that the independent report commissioned by the Wells Fargo board “portrayed … [Stumpf] as a tone-deaf leader who protected an irresponsible lieutenant [Tolstedt] and worked for board members who didn’t keep the pair in check.” Glazer wrote that “Ms. Tolstedt … was singled out 142 times in the report for setting the tone in the troubled retail-banking unit.”
The resulting financial and reputational damage to Wells Fargo were in the billions of dollars. It is apparent that the board did not consider tone and culture mission-critical to the company.
All boards need to put a process in place to insure they are aware of the tone and culture set by the CEO and treat it as mission-critical. CEOs need to know that their performance, in part, will be assessed on their tone at the top and the organizational culture they nurture.
Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School. He can be reached at Stan@SilvermanLeadership.com.