By Jessica Tasman-Jones
This article is brought to you by Agenda, an FT Specialist publication that focuses on corporate boards
Bullying executives who undermine colleagues by harassing or excluding them should not be tolerated by boards, even if they otherwise perform well, according to research.
Staff resignations, reputational damage, shareholder backlash and legal action are among the possible consequences of ignoring so-called toxic behaviour by leaders.
This month, hundreds of Twitter employees resigned after Elon Musk demanded that staff commit to a “hardcore” culture of long hours. Goldman Sachs’ culture has come under scrutiny, too, with reports of sexism and overworked junior analysts.
An analysis of thousands of reports into corporate culture found that toxic leadership was the best predictor of a dysfunctional workplace, according to research published in the MIT Sloan Management Review.
Charles Sull, the co-author of the report who is also co-founder of Culture-X, a company that specialises in employee feedback software, said poor workplace culture was a major reason for resignations after Covid-19 lockdowns ended.
A culture that tolerates bullying is 10 times more likely than salary level to contribute to a company’s attrition rate, according to previous research by Sull and his co-authors.
By dealing with bullying executives, senior leaders can signal a company’s commitment to a healthy culture, he says.
Allowing bullying to fester leads to legal risks, says Suzanne Caveney, the legal director at Eversheds Sutherland. Even behaviour that is lawful can lead to allegations of constructive dismissal, she says.
Shareholders are increasingly focused on workforces. There are direct links between long-term share value and the wellbeing of employees, says Nick Pelosi, a manager at EOS, a shareholder advisory service that is owned by Federated Hermes, the asset manager.
In 2021 EOS supported a shareholder proposal at Activision Blizzard that required the California games developer to order an independent report into workplace misconduct, and to appoint a director nominated by the workforce.
ShareAction, a non-profit organisation, has created the Workforce Disclosure Initiative and some institutional investors have identified toxic behaviour through that.
The initiative collects data on factors such as discrimination and harassment, gender and ethnicity pay gaps, turnover rates, workforce participation in corporate decision-making, and details on monitoring and reporting of employee wellbeing.
Poor behaviour in these areas signals incompetence, says Brad Herbig, a co-leader of the mental health and wellbeing initiative at the McKinsey Health Institute. He says this should influence companies’ performance-management processes, which should include reviews, reward-based pay and promotions.
Since changes to the corporate governance code in 2018, most UK boards have appointed an independent non-executive director who is responsible for workforce engagement. This person can gain insight into company culture through site visits, meeting employee representatives, examining staff surveys and talking to human resources departments.
The remuneration committee also has a role to play. Bonuses have a qualitative component that relates to behaviours and leadership, says Tom Gosling, executive fellow at London Business School. In many cases leaders can be coached to improve their behaviour and firing them should be a last resort, says the MIT Sloan Management Review report.
This article is based on a story written for Agenda by Frederic Lee.