Why toxic workplace culture is the ‘biggest risk’ organisations face

Here, a workplace culture expert asserts that the impact of a toxic workplace culture should not be overlooked or underestimated, emphasising that it is, in fact, the “biggest risk” an organisation can encounter.

HR Leader recently spoke with Colin D. Ellis, a specialist in workplace culture and author of Detox Your Culture, regarding the extensive consequences toxic workplace culture can have on an organisation’s reputation and overall performance.

Ellis explained that a toxic workplace culture emerges when “senior leaders allow employees to engage in poor behaviour or underperform over an extended period of time”.

While toxic cultures are rarely unexpected, Ellis observed that they are often dismissed or overlooked by senior leaders, who may hope the issue will resolve itself or underestimate its long-term impact on the organisation.

“They are hardly ever a surprise. Senior leaders are aware of the issues and either choose to ignore them, in the hope they will go away, or downplay their significance in relation to the overall health of the culture,” he said.

He identified several critical indicators that an organisation may be grappling with a toxic culture, including recurring allegations of “bullying, harassment, racism, sexism, misogyny, or homophobia”.

The toll on employee performance and productivity

The effects of a toxic workplace culture extend far beyond low morale and strained relationships within the office, with Ellis pointing out that such a culture profoundly impacts employee performance and mental health.

“Not only does it undermine the quantity and quality of the work produced by employees, it can also affect mental and physical health, leading to increased sick leave or attrition, as employees seek better conditions elsewhere,” he said.

Citing recent research, Ellis highlights the far-reaching consequences of a toxic workplace culture, noting that it has been “proven to reduce productivity by 20 per cent”, “cost organisations as much as US$50 billion in staff turnover costs”, and increase the likelihood of “major disease by 35–55 per cent”.

Reputation damage

The human cost of a toxic workplace culture is profound, but Ellis explained how its effects also extend to an organisation’s reputation, leaving lasting internal and external damage.

Ellis outlined that toxic workplace culture can hinder an organisation’s ability to attract top talent, especially when current or former employees publicly share their negative experiences online.

“Recent research by Glassdoor demonstrates that 86 per cent of jobseekers now research company reviews and ratings before applying for positions. Negative employee experiences shared on such platforms directly impact talent acquisition,” he said.

“Deloitte’s research reveals that 94 per cent of executives believe company culture is important to business success, yet toxic cultures often result in decreased customer satisfaction as disengaged employees provide lower-quality service”.

Moreover, Ellis referenced research highlighting the substantial financial ramifications of a toxic workplace culture on an organisation.

“The financial impact is substantial – SHRM research estimates that toxic workplace cultures have cost US employers $223 billion in turnover costs over a five-year period, demonstrating how reputational damage translates to concrete business losses,” he said.

“A company’s culture used to be akin to a ‘black box’, where only those who were employed inside it would be familiar with its inner workings. Now, everyone – including the media – is interested in company culture and is prepared to expose those who negatively affect it.”

Long-term effects

Toxic workplace cultures have far-reaching and long-lasting effects, with Ellis highlighting that their impact can “ripple through every aspect of the organisation, not only financial but also operational”.

“From a financial perspective, toxic culture results in a 16 per cent decrease in annual profits, an increase in the cost of replacing employees lost to toxic culture at 150–200 per cent of their annual salary, whilst Mercer found that toxic cultures reduce market value by up to 30 per cent over a three-year period.

“Operationally, brands damaged as a result of toxic culture take three-plus years to recover. According to Deloitte, 94 per cent of damaged employer brands take three-plus years to recover, and that can also affect recruitment for up to five years,” he said.

Ellis explained that a damaged reputation is not quickly restored, particularly when there is no concerted effort to implement a cultural shift within the organisation.

“Without an influx of new people, it will become harder for a company to recover from its toxic culture, ultimately leading to a dramatic reduction in share price (WiseTech), acquisition (Activision Blizzard) or outright business failure (WeWork),” he said.

Strategies to combat

Ellis offered several practical strategies for organisations seeking to identify and mitigate toxic cultural elements.

He contended that culture is a deliberate choice and emphasised that when leaders actively invest time, energy, and resources in shaping a positive workplace culture, they effectively prevent toxicity from taking root and foster a healthier environment.

“You get the culture that you choose to build. Therefore, when thought, time, money, and effort [are] given to not only defining the culture required to deliver the strategy but also to positively evolve it over time, then the risk of toxic culture arising will be continually mitigated.

“This includes training middle managers on how to build vibrant team cultures, as they remain the biggest influencers on day-to-day culture within any organisation,” he said.

Another critical approach Ellis offered is the importance of senior leaders leading by example. He emphasised that leaders must consistently model the values and behaviours they expect from their teams, as their actions set the standard for the entire organisation.

“For their part, senior leaders not only need to take culture seriously, they also need to role model the culture that they expect to provide an example for others to follow. They need to ensure that no one is bigger than the culture and deal swiftly and decisively with individuals (regardless of their seniority) who seek to undermine the safety it provides to employees,” he said.

“For too long, culture has been seen as something ‘fluffy’ or intangible when the opposite is true. Culture is – and always will be – the number one determinant of team and organisational success. Without making an investment in it, the conditions for toxicity will increase, and performance could be affected for years to come.”