Recent events have again shined a light on the importance of organizational culture and leadership, with the dramatic ouster of founder Adam Neumann from his role as CEO of the start-up WeWork, shortly before its expected initial public offering and a 75% collapse in its valuation. Reports that he fostered a tequila-fueled party culture replete with loud music at work, mandatory company retreats rife with sex and drugs and his personal pocketing of $6 million by selling the brand "We" to his own company have seriously damaged the company's reputation and share valuation. That's not to mention the serious allegations of sexual harassment and discrimination that have been made within the company.

The saga recalls memories of Travis Kalanick's eviction as CEO of Uber in 2017 over similar reports of an unethical and toxic culture at the company, as well as Elon Musk's forced departure from the board of Tesla after an investigation for share price manipulation (Musk was also back in the news again this week for breaking labour laws over anti-union activity at Tesla). What is it about these start-up companies that leads them down such a destructive path, and what can it teach us about the values of leadership and integrity? Two problems can be identified.

The first is the character of the founders and CEOs themselves. The success of people like Elon Musk and Steve Jobs before him has helped to cement the myth of the 'maverick' and 'visionary' entrepreneur, particularly within parts of the tech industry or the gig economy. This unhelpful idea perpetuates beliefs that 'true leadership' consists of risk-taking, a brash personality and a huge dollop of egomania and narcissism. In reality, while self-confidence and a willingness to take risks are obviously vital traits for entrepreneurs, as companies grow the kind of leaders they need are those with both a clear vision and an ability to lead by example in their behaviour. CEOs are vital drivers of organizational culture and will ultimately determine whether unethical behaviour is encouraged, tolerated or challenged within the company.

The second problem is around the speed at which these unicorn companies (those privately held with a valuation over $1 billion) grow. WeWork went from 1,000 employees in 2016 to 12,000 in 2019 – an annual expansion rate of around 250%. When almost everyone in a company you join is also a new arrival, the organisation's culture is extremely unstable and offers little time to assimilate new employees before yet more people arrive. In such circumstances, where the company's founder is the only person who's been present any length of time, the signalling being sent from the top matters more than ever.

Nowhere is this seen more strongly than in the continued #MeToo movement of challenging sexual harassment in the workplace. Last November 20,000 employees and contractors at Google walked out of their offices in a mass protest, called the Google Walkout for Real Change. CEO Sundar Picai publicly offered his support for Google staff over the issue – an important sign of leadership – but there is evidence that just signaling support for change is not enough. Since the walkout two of the key organizers have alleged they are paying the price for speaking out, being sidelined from key projects and marginalized at work.

According to the Hays Diversity and Inclusion Report 2018, only 35% of UK workers trusted their leaders to deliver genuine change on diversity and inclusion issues. This figure was even lower among members of minority groups with only 28% of BAME workers, 26% of disabled workers and 25% of LGBT workers expressing trust in the ability and willingness of their organizations' leaders to deliver on real change. Meanwhile, only 34% consider their leaders to be role models who challenge traditional viewpoints and established ways of working.

The time has come for companies to be less forgiving of poor leadership and to demand a greater focus on ethical behaviour and corporate culture. The simple fact is that it's what workers (and customers) increasingly expect. Surveys suggest that new generations of workers are expecting higher ethical standards of their employers than those did in the past.

Integrity is one of the four pillars of employee engagement. It means living up to high standards of ethical and professional conduct and having a culture that promotes the same and challenges those who fail to do so. This should cover everything from diversity and inclusion, tackling sexual harassment and discrimination, to transparency, anti-corruption and general principles of treating others with fairness, honesty and respect regardless of who they are.

Companies with integrity in turn benefit from higher engagement, better reputations, lower staff turnover, more productivity and a whole host of other benefits. Conversely, companies without it can often find themselves in a downward spiral – unethical behaviour, pressure on other workers to compromise their own ethics or turn a blind eye, which leads to good employees quitting, more misconduct and a further corrosion of the organization's culture.

Patrick Briône is Head of Policy & Research at the IPA

[email protected]

Contact us for more information