Organizational Culture: An Overlooked Internal Risk – BusinessWeek

Organizational Culture: An Overlooked Internal Risk – BusinessWeek.

Companies that encourage and support open communications outperform their peers, according to research from the Corporate Executive Board

Nearly half of executive teams lack the information they need to manage effectively because employees withhold vital comments out of fear that doing otherwise will show poorly on them. This restricted information flow can cripple a company’s ability to identify and respond to internal and external threats. A recent survey by the Corporate Executive Board of more than 400,000 employees across various industries reveals that companies that break down two key barriers to honest feedback not only cut fraud and misconduct, but also deliver peer-beating shareholder returns by a substantial margin.

• Nearly half of executive teams fail to receive negative news that is material to company performance in a timely manner because employees are afraid of being tainted by being the bearer of bad news.
• Only 19 percent of executive teams are always promptly informed of bad news material to company performance.

Companies where employees provide honest feedback substantially outperformed their peers in terms of 10-year total shareholder return (TSR) from 1998 to 2008.

Two factors stood out in particular:

Openness of Communication

Employee perceptions of the extent to which management encourages two-way dialogue matters. According to CEB research, companies rated by their employees in the top quartile in terms of openness of communication have delivered TSR (10-year TSR 1998–2008) of 7.9 percent compared with 2.1 percent at other companies. In addition, they also had materially lower levels of observed fraud and misconduct.

Fear of Retaliation (and Willingness to Speak Up)

Among the 12 key indicators we track in our cultural diagnostic, the one that is most strongly correlated with 10-year TSR is employee comfort speaking up. The most important driver of this comfort is a lack of fear of retaliation. As with openness of communication, we found that companies that excel on this factor also had materially lower levels of observed fraud and misconduct.

Fear is a particularly powerful inhibitor.

Full article here.

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Do both and you’ll increase creativity too

Organizational climates that support creativity and innovation also include open communication and idea support, both of which contribute to employee engagement. Win, win, win.