How Business Culture Can Hurt Your Business

We’ve often hear from business leaders how important their company’s culture is. And the discussion can often sound like lip service, hollow words that get packaged as examples of leadership.

But in the last months, we’ve seen real-life, bottom-line examples: Business culture matters.

“The recipe for the disastrous decision by United Airlines’ employees to call for police to remove a passenger from a fully booked flight was years in the making,” writes the Wall Street Journal.

indeed, the heavily reported incident has become a public relations nightmare for the airline — in fact, for the entire airline industry. Now, events that might have gone unnoticed, such as a new report of a couple traveling to their wedding being taken off another United flight, are big news.

But as the Journal reports, an event like the doctor’s physical removal from his seat can be the direct result of a business culture gone wild.

The WSJ reports: “Like most other airlines, United Continental Holdings Inc. follows strict rules on every aspect of handling its passengers, from how to care for unaccompanied minors to whether someone gets a whole can of Coke. While procedures change to keep up with evolving safety and security protocols, streamlining the underlying bureaucracy can be a lower priority for an operations-focused carrier such as United, experts said.”

Another example where a business culture may have negatively affected a business result came in the recent Wells Fargo situation, according to recent comments from the Federal Reserve Bank of San Francisco President.

The Wall Street Journal reports: “Wells Fargo & Co.’s phony-account scandal shows that regulators need to emphasize cultural issues at banks as much as they look at capital, liquidity and other quantitative measures of risk, Federal Reserve Bank of San Francisco President John Williams said in an interview.”

Said Williams: “To me this is just another example of the importance of the soft side of supervision, which is really about management, governance and culture. I think this is going to be the ongoing challenge that we all face.”

And Williams wasn’t the only Fed board member focusing on the importance of business culture.

In another piece on the topic, the Journal reported: “Federal Reserve Bank of New York President William Dudley urged banks to report more progress on changing their culture, singling out Wells Fargo & Co. for its recent sales-practices scandal. ‘The public sector must continue to shine a spotlight on the issue, and the industry must continue to demonstrate that it is taking responsibility for its culture,’ Mr. Dudley said in prepared remarks for a Tuesday event in London organized by the Banking Standards Board.”

The concern does not hit just established companies like United and Wells Fargo.

A recent Harvard Business Review piece addressed “How Morale Changes as a Startup Grows.”

The authors state that “startup cultural utopia invariably hits a rough patch for about 70% of startups in years three to four, regardless of how happy the team was before. We call this the ‘cultural chasm.’ When we examined how and why this happens, we found that growth does not compensate for this cultural chasm. In fact, the faster the startup grew, the deeper the cultural chasm was that they had to overcome. Put another way, a company can’t speed their way through the cultural chasm.”