When Basecamp CEO Jason Fried shared a memo that prohibited political discussions at work, the headlines to follow caught the attention of many and were, arguably, every business leader’s nightmare. The news quickly spread across the internet, and even a member of Congress tweeted a response critiquing the company’s new policy. The uproar might not have been the intention, but in the weeks that followed, roughly one-third of the staffers at the tech firm accepted buyouts if they did not support the new restrictions. Among those exiting the company were the heads of customer support, marketing and design.
As someone who specializes in assessing political and reputational risks, this news immediately caught my attention. But, as a skeptical news consumer, I dug deeper to understand what was really happening beyond the flashy headlines and social media chatter. According to The Verge, the directive came in response to employee discussions that “centered on what is happening at Basecamp.”
So, what was causing such an employee uprising that the founders felt the need to shut down the discussion? Some employees sought a reckoning over a practice by the company’s customer service representatives to keep a list of users with names “they found funny,” some of which were Asian or African in origin. Employees pushed for more and broader discussions on diversity, inclusion and equity, and “after months of fraught conversations, Fried and his co-founder, David Heinemeier Hansson, moved to shut those conversations down,” the Verge reported. Outside the company, many piled on what they believed was the insensitivity with which the company treated important social issue discussions.
With the workplace — at Basecamp and beyond — caught in the middle of this fraught debate, there is an important lesson.
As Trello noted, “A toxic work culture can not only cause serious issues for your team — but serious issues for your business.” I believe Trello is right. The culture you build in your business can help your corporate reputation either shine bright as a beacon to talent and customers or flash red as a warning for them to stay far away. If your business happens to be in a regulated industry or one that draws other government scrutiny — an ever-widening list — a rotten culture could cause even more harm than that.
Consider, for example, the setbacks endured by Wells Fargo, one of the nation’s largest financial institutions. Years of management pressure on bankers to meet aggressive sales quotas for new accounts led staffers to engage in widespread fraud, according to the Los Angeles Times. While the bank initially disputed the accusation that its corporate culture led to the fraud that cost them billions of dollars in fines and restricted its ability to lend, the company’s newest CEO, Charles Scharf, has ultimately conceded Wells Fargo had a “flawed business model in how the company was managed.” A House Financial Services Committee report confirmed these sentiments.
As Scharf took the helm, he focused on improving the tone and tenor of the company’s operations, which was a major step for the company, and the accompanying changes seemed to have paid off. Barron’s recently called the bank “more than just a comeback story.”
These examples show me that increased scrutiny because of a failed corporate culture can spell real trouble for a business, and leaders offering the wrong prescription to address culture can only add to a firm’s reputational and political harm. To avoid this fate, business leaders must build a culture that can withstand the headlines and scrutiny when crisis strikes. To do so, business leaders should focus on three fundamental practices:
1. Don’t just talk about your company’s culture. Live it. As a leader, you cannot just talk about how you have a great culture and believe in certain values. You have to actually practice those and live up to them. Actions speak louder than words, and people can tell when a company isn’t practicing what it preaches.
2. Understand who all your stakeholders are and how well you serve them. Smart companies know that supporting their customers, employees, suppliers and communities is just as important to a thriving operation as providing value to shareholders. With today’s investor focus on social impact and heightened ESG considerations, the shareholders will expect it, even if the company does not.
3. Remember that today, any executive, employee and company can become a front-page story. Operate accordingly. In politics, we call it passing “The Washington Post Test.” It simply means that anything one says or does can end up in the news, and since it travels faster than ever before, it’s crucial to be prepared.
Follow these three practices and any headlines about your company should match your dreams rather than your nightmares.