Culture Crash

The recent “First Annual Ultimate Culture Conference” in Chicago this week offered presentations about constructive and destructive corporate cultures. Culture choices define “how we do things here.” Building a culture is a series of choices and actions made every day, which lead companies down one path or the other.

What?

A creative, constructive culture overcomes challenges. It generates positive relationships with employees, customers and typically produces profits. Douglas Conant led a constructive culture turnaround at Campbell’s. Southwest Airlines is an oft quoted example as well. Here’s a list of 24 more.

The news from VW makes the difference between constructive and destructive cultures crystal clear. Organizational culture rolls down hill. When it’s destructive, there can be ugly consequences. Look at some choices that contributed to VW’s current crisis:

  1. Former CEO Martin Winterkorn decided to make VW the world’s largest auto manufacturer.
  2. Chancellor Angela Merkel overturned an existing EU agreement on pollution controls in 2013.
  3. Senior VW leaders nurtured a “deep rooted hostility” toward pollution controls.
  4. In 2008 VW engineers installed software to defeat emissions testing and bragged that they had developed a “clean diesel.” The same lie-ware is used in 2.1 million Audis.
  5. VW sold 11 million “clean diesels” that weren’t so clean.

So What?

The law of unintended consequences stipulates that the actions of people and governments always have unforeseen impacts. Here is the corresponding list of unforeseen consequences for VW:

  1. Winterkorn’s success was short lived. The fraud destroyed billions of dollars of VW’s value.
  2. Merkel’s decision sent a message that competitive position was more important than limiting pollution.
  3. Rather than acknowledging their engineering challenge, VW leaders now face the company’s worst crisis. Senior leaders have been terminated or placed on leave.
  4. The VW reputation has been irreparably stained. Investigations will consume vast human and financial resources. Criminal complaints have been filed and investigations are active. Instead of being focused on cars, many VW employees will spend their time talking to investigators.
  5. Millions of customers paid a premium for not-so-clean diesels. They are angry. Some want the company to buy them back.

In terms of the ultimate price tag, the lie-ware decision may be to VW what the Deepwater Horizon was to BP, but worse. Some estimate it could cost $86 billion. This makes the $60 billion BP has paid so far seem like a bargain. And that number does not include internal costs of people and time devoted to repairing the damage instead of building the business.

Now What?

Any business leader will face tough decisions. At times there may be no good choices. The character of a company’s culture will dictate the choices people make.

The results of constructive vs. destructive cultures are clear. It’s up to leaders to make the choice. One key step: get an objective snapshot of the current culture. Then, based on the results, you can look at your choices.

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