Dive Brief:

•  A lack of a clear vision or values and an information-controlling CEO are key signs of a dysfunctional corporate culture, according to a research report by Marsh & McLennan Companies (MMC). In the report, corporate directors from around the world described the warning signs of cultural dysfunction, much of which has been targeted for change by investors and other stakeholders, especially in the fallout from the #MeToo movement, according to MMC.
• Research results showed that directors are assuming greater oversight over culture problems that may have once been the responsibility of a CEO and/or senior team members. Issues like fighting among leadership, limited transparency and high employee turnover within specific business units are now providing a "starting point" for discussion among directors, according to Kapila Anand, a participant in the report.
• Outside research cited by MMC showed 80% of women who report sexual harassment in their organization change jobs within two years, and 30% of mergers and acquisitions fail to hit their financial targets because of culture-related issues.

Dive Insight:

Organizations that don't address internal dysfunction may jeopardize both their reputation and brand. Eventually, internal problems seep out into the public, often by employees sharing their working experience on social media, ratings sites such as Glassdoor and Kununu, or with the media.

Poor ratings can seriously impair an employer's ability to compete for talent in an employee-driven labor market. A Monster study released in September found that on a rating scale of one to five, most job seekers will only apply for a job at a company with at least a three-point rating.

Other studies show investors are becoming more involved in turning around toxic companies, especially on issues under pressure from social activism, such as sexual misconduct and gender- and raced-based pay disparities. For example, investment activist group Arjuna Capital is seeking pledges from major corporations to end pay inequity. And Kristina Bergman, CEO and co-founder of Integris Software, took the unprecedented step of attempting to prevent sexual harassment by having investors in her startup sign an agreement to replace board directors if there's "reasonable probability" that they were involved in or condoned misconduct.

Patricia Milligan, global leader of the Multinational Client Group at Mercer, an MMC division, described the price of ignoring corporate culture dysfunction as a threat to an organization's foundation and said in a statement that those who don't look into how their culture is functioning place their organizations at serious risk. Employers need only look at the number of complaints or lawsuits filed monthly or annually by workers alleging sexual misconduct or discrimination to get a sense of a problem's scope.

HR can help toxic cultures turn around by making integrity the measure of acceptable performance, adopting ethical standards of conduct for everyone in an organization to follow and enforcing those standards.