The Cost of a Toxic Workplace Culture
Introduction
A toxic workplace culture often sits within a company like a colossal elephant in the room, a glaring issue that everyone sees but few dare to confront. It is a festering problem that can range from subtle incivility to outrageous behaviour that can include, but is not limited to, rudeness, belittling, blaming, excluding and harassment.
A large body of academic and non academic evidence points to the fact that toxic culture creates a workforce that is disengaged with both the work and the business itself. It destroys morale, team spirit and ultimately, both innovation and productivity. But when it comes to the actual cost of letting toxic behaviours go unchecked within your business, what are the numbers? Is there a way to quantify the final bill?
To answer this question, this White Paper looks at existing research on what traits define a toxic workplace culture (Sections 1 and 4), what its prevalence is (Section 2) and what the key costs related to it are in terms of attrition, productivity and employee health (Section 3). It then uses some of this data to calculate a tentative measure of the cost of toxic culture for a business (Section 5). Although we are aware these calculations are unlikely to be exhaustive, we feel they begin to paint a picture of the scale of the problem. Finally, Section 6 outlines how The Hive can support businesses to tackle toxic workplace culture.
Toxic culture – a working definition
Although a number of interesting and potentially valid definitions have been proposed by both academics and management experts over the years, US based consultancy Culture X in partnership with MIT caught our attention for recently being able to base their definition of toxic workplace culture directly on employees’ views. This is key, since we know both anecdotally and from existing research that there can be a discrepancy between the values that are promoted and lived at senior leadership level and the culture that is in practice embedded across the different levels of the organization. Specifically, Culture X’s study looked at the language of 1.3 million employees’ reviews on Glassdoor and related this back to the employees’ 5 point scale culture rating of each employer (Sull, Sull, Cipolli & Brighenti, 2022). By analyzing the relationship between how employees describe their employer and how they rate the organisation’s culture, the authors were able to shed light on the cultural factors that best predict toxic culture.
Results suggest that a toxic workplace culture has five key attributes:
- Disrespectful towards colleagues/reportees
- Non-inclusive in terms of age, gender, race, sexual orientation, disability
- Dishonest/unethical; non-compliant when it comes to rules and regulations
- Cutthroat, with employees undermining each other and not collaborating
- Abusive, where behaviours such as yelling, shouting, belittling colleagues/reportees are the norm
In an earlier study, the same authors compared the relative importance of a wider range of themes emerging from employees’ reviews on Glassdoor in predicting a company’s culture rating. They found that, amongst a range of factors, employees feeling respected was by far the most powerful predictor of a (positive) culture rating. This included highly tangible factors such as compensation and benefits and job security. Having leaders who are supportive and who live the company’s core values also scored high, suggesting that leadership roles are key in shaping perceptions on the ground (see Section 4).
How prevalent is toxic culture?
According to MIT/Culture X estimates, around 10% of current employees and 16% of former employees mention one or more elements of toxic culture in their reviews (Sull et al 2022). Gallup (2021) estimates that 6% of US and Canadian employees have been disrespected in the last 24 hours.
In addition to this, toxic culture seems to be on the rise. According to Sull, Sull & Zweig (2022), during the Great Resignation, toxic culture was ten times more likely to contribute to employees leaving their job compared with lack of satisfaction with their salary.
Moreover, historical data on uncivil behaviour in the workplace collected by Pearson and Porath (2013) shows that in 2011 half of employees reported being treated rudely at least once a week, up from a quarter in 1998. Although this could be simply down to greater awareness and therefore propensity to report the issue amongst employees, it suggests the issue is real and the elephant is, indeed, still sitting in the room.
High direct and indirect costs
The effects of toxic culture on a company are tangible and well documented. Overall, pre-pandemic estimates of the cost of toxic culture to US employers were around $50 bn before the Great Resignation (Sull et al, 2022). Attrition costs are a key factor in this. Gallup estimates that the cost of replacing an employee who quits can total up to twice their annual salary when all direct and indirect expenses are taken into account (quoted in Sull et al, 2022).
Once an employee is lost, a toxic culture also makes it more difficult to replace them and, more generally, to recruit personnel and attract talent. Glassdoor’s Mission and Culture Survey (2019) found that over 77% of adults across the US,UK, France and Germany would consider a company’s culture before applying for a job there.
If an employee experiencing toxic behaviour at work does stay, they are likely to be less engaged and less productive. Nearly half of those who felt disrespected at work reported decreasing their effort and spending less time at work. It has been estimated that active disengagement in the form of less time spent working and lower productivity can cost up to 18% of the employee’s salary each year (Ghandi & Robinson, 2021).
Moreover, both the physical and mental health costs stemming from higher stress levels due to toxicity can add up. Employees working in a toxic workplace suffer greater stress, anxiety,depression and burnout; they also see their risk of suffering a major illness increase between 35% and 55% (Goh, Pfeffer & Zenios, 2016). These costs may be partly or fully footed by the employer.
Finally, and most importantly, an unhealthy culture has also been shown to have an impact on the bottom line. Graham,Harvey,Popadak,Rajgopal (2017) recently investigated whether corporate culture affects corporate ethics, innovation and crucially, a company’s productivity and market value. They based their inquiry on the notion of an effective culture, defined as “one that promotes the behaviors needed to successfully execute the firm’s strategies and achieve its goals”. This is a wider definition that is likely to include the definition proposed by Sull et al (2022) while stretching beyond it to encompass a broader range of cases where toxicity may not be extreme, but is still impairing for a business.
They find that norms and behaviours, (that is, culture) together with formal institutions such as governance and compensation policies explain up to 36% of the differences in effectiveness of culture across a large sample of US private and public firms. They also find that an effective culture significantly increases the likelihood of ethical corporate behaviour as well as firm’s productivity and market value. According to the authors, the causal chain of the impact starts from trusting and having confidence in employees which then leads to key behaviours such as delegation, collaboration, creativity and empowered solution finding. This in turns leads to an atmosphere of motivation amongst the workforce and, ultimately, effectiveness.
Leaders are key in setting the tone for local/company wide culture
An important consideration when thinking about toxicity in corporate culture is how far it has already spread within the business and how systemic it is. Imagine your organisation as a bustling ecosystem, with different teams and departments representing microcosms of this larger world. In some corners the air is filled with positivity and collaboration, while in others, a toxic cloud lingers, casting a shadow over the entire landscape. Amongst our clients, we often see that senior leadership is already fully onboard with making a conscious effort to eliminate toxicity and create a healthy culture. Yet, there can still be micropockets of unhealthy corporate culture across the organisation that are hard to eliminate.
But if our corporate culture is generally healthy, do we really need to worry about microcultures? The answer is a resounding yes. First of all, it may be that certain groups within the organisation are hit harder by elements of toxic culture than others. It could be that a corporate culture subtly discriminates against women, younger/older individuals or even LGBT employees. Toxicity may not have breadth, but may well have depth, which means these groups could be experiencing it intensely, with harsh consequences on their engagement, productivity, health and well-being.
Secondly, if pockets of toxicity are present at team/department level, they may fester, become hard to eradicate in the long run and ultimately set the entire business back in terms of growth and profitability.
So where do we start from? Here, we know that individual leaders and managers across a business play a key role. They set the tone for attitudes and behaviours which are accepted and practiced within their teams and play a huge part in embodying (or not) a certain culture on the ground. A study by Sull & Sull (2022) synthesising existing research on specific elements of corporate culture found that strong leadership has one of the highest correlations with a healthy corporate culture across all elements. It is followed closely by social norms, which reflect the extent to which corporate values are translated into tangible behaviours.
Similarly, Brené Brown’s pioneering work on wholehearted leadership also shines a light on the role of leaders in defining culture. In particular, Brown’s research identifies the root cause of toxicity within armored leadership. The latter is based on shame, a powerful, primordial feeling which is essentially the fear of being rejected and feeling disconnected from one’s tribe. Armored leaders constantly seek protection from shame by creating and embodying a range of sub-optimal behaviours. These behaviors include (but are not limited to) perfectionism and instilling fear, wanting to be right, micromanaging subordinates, using power over them, rewarding exhaustion instead of value adding, tolerating discrimination and endorsing a “fitting in” culture. Therefore microcultures matter and, within them, leaders and managers are key in turning them around.
Adding up the figures – our back of the envelope calculations
So how much does a toxic culture cost your business? Although this is difficult to estimate accurately and exhaustively, our back of the envelope calculations based on prevalence data (Sull et al) on the cost of toxic behaviour related to loss of productivity (Pearson et al 2013) and attrition (Gallup) can give us a sense of the scale of the issue.
Take for instance a large business of 500 employees. Here we know that up to 50 employees could be experiencing toxic behaviour at work. Out of them, 6 employees over the past year will have left the business due to experiencing uncivil and toxic behaviour. This will have cost the business twice these employees’ yearly salary in direct and indirect expenses related to attrition – an equivalent of 12 times these employees’ average salaries.
If we then add costs related to a decrease in productivity for employees who did stay we can estimate that 24 employees who have been experiencing toxic behaviour will have decreased their effort as a result of this. This costs the business the equivalent of one employee’s average salary. Assuming the average salary within the company is £45,000, this quickly adds up to a total of £585,000 in attrition and productivity costs alone.
Therefore, the total cost of toxic culture related to employees quitting their job or becoming less engaged and productive is likely to be equivalent to more than 13 times these employees’ average salaries. And this is not even beginning to account for other costs such as health costs and the impact on the company’s market value as argued by Graham et al (2017).
Conclusions
Whilst often being an invisible challenge, toxic workplace culture is something businesses are increasingly having to come to terms with. Even though recent estimates from MIT/Culture X indicate that only around 10% of current employees and 16% of former employees mention experiencing elements of toxic culture at work, data suggests that this phenomenon is on the rise, contributing significantly to employee departures during the Great Resignation. Moreover, average figures are unlikely to be telling the full story as toxicity may be disproportionately affecting certain groups of employees (e.g. women, younger/older individuals, LGBT) or grow unchecked within pockets of the organisation.
The economic impact of toxic culture is substantial, with pre-pandemic estimates from the US suggesting a cost of around $50 billion to employers. Attrition costs are a key factor and toxic cultures make it challenging to replace employees, impacting recruitment and talent attraction. Decreased productivity is another key aspect of costs that needs to be considered. Our back of the envelope calculations taking these two key costs into account suggest that for a large business of 500 employees based in the UK, total yearly costs quickly add up to more than half a million pounds. And these estimates are likely to be conservative.
So what can be done to address this? Whether you are concerned about unhealthy microcultures at team level across your organisation or you suspect toxicity may be more of a systemic problem within the organisation, The Hive can help.
Research shows that leadership plays a crucial role in shaping corporate culture. Strong leadership, along with supportive norms, is highly correlated with a healthy culture. Leaders and managers are also pivotal in turning around toxic microcultures. We can work with individual teams and their leaders to collaboratively uncover toxic behaviours, create trust and open communication, foster empathy, strengthen accountability and, as a result of these, increase collaboration and productivity. Our Clear Waters training for protecting working cultures from toxicity works exactly to do this (if you are curious, listen to our CEO Andrew Tilling talking about the model in this free introduction),
Equally, we can work at an organisation-wide level to support clients with culture change. Although every client is unique, we find that often this is down to how clearly and authentically corporate values are defined and/or how strongly they are integrated throughout the organisation through effective behaviours.
References
Sull, D, Sull, C, Cipolli, W, Brighenti, C, 2022, Why every leader needs to worry about toxic culture, MIT Sloan Management Review
The High Cost of a Toxic Workplace Culture: How Culture Impacts the Workforce — and the Bottom Line, 2019, Society for Human Resource Management
Sull,D., Sull, C, Zweig, B, 2022, Toxic Culture is Driving the Great Resignation, MIT Sloan Management Review
Pearson, C, Porath, C, 2013, The Price of Incivility, Harvard Business Review
Glassdoor, 2019, Mission and Culture Survey
Gandhi, V., & Robison, J. (2021). The “Great Resignation” Is Really the “Great Discontent”, Gallup
Goh, J., Pfeffer, J., Zenios, S., 2016 “The Relationship Between Workplace Stressors and Mortality and Health Costs in the United States” Management Science Vol. 62 Issue 2 Pages 608-628
Graham, J., R., Harvey, C., R., Popadak, J., Rajgopal, S., 2017, Corporate Culture: Evidence from the field, NBER Working Paper 23255
Sull, C. & Sull, D.2022, How to Fix a Toxic Culture, MIT Sloan Management Review
Brown, B., 2018 , Dare to Lead, Ebury Publishing
https://sloanreview.mit.edu/article/10-things-your-corporate-culture-needs-to-get-right/
