How Toxic Cultures Form

The Silent Epidemic in Australian Organisations

In January 2024, a well-regarded mid-tier professional services firm in Melbourne lost eleven senior staff in a single quarter. Exit interviews revealed a consistent pattern: the departing professionals did not leave for more money. They left because they could no longer tolerate the culture.

They described an environment where public humiliation was used as a management tool. Where disagreement with leadership was career-limiting. Where the stated values on the corporate website, "integrity, collaboration, respect", bore no relationship to the lived experience of working there. Where a small number of high-revenue individuals were permitted behaviours that, in any other context, would be grounds for immediate termination.

The CEO, when confronted with the data, was genuinely surprised. "I thought we had a good culture," she said. "We did the engagement survey last year and scored above benchmark."

This gap, between what leaders believe about their culture and what their people actually experience, is the defining characteristic of toxic organisational cultures. And the evidence suggests it is far more prevalent than most leaders are willing to acknowledge.

The Mechanics of Cultural Toxicity

Toxic cultures do not emerge from a single catastrophic event. They develop through a gradual accumulation of small compromises, unchallenged behaviours, and misaligned incentive structures that compound over time until the culture has drifted so far from its stated values that the gap becomes irreconcilable.

The MIT Sloan Management Review's landmark 2022 study on the Great Resignation identified toxic culture as the single strongest predictor of employee attrition, 10.4 times more powerful than compensation. The study analysed 34 million online employee profiles and 1.4 million Glassdoor reviews to identify the cultural elements that drive attrition. The top five toxic attributes were disrespect, non-inclusivity, unethical behaviour, cutthroat competition, and abusive management.

The pattern of cultural degradation follows a predictable sequence.

Stage One: Normalisation of Exception. A high-performing individual is permitted to bypass a cultural norm, perhaps treating support staff dismissively, or making decisions unilaterally that should involve consultation. The behaviour is observed but not addressed, usually because the individual's commercial contribution is deemed too valuable to risk.

Stage Two: Erosion of Standards. Other team members observe that the behavioural exception carries no consequence. Some begin to adopt similar behaviours. Others become cynical about the organisation's stated values. The gap between espoused values and enacted values widens.

Stage Three: Institutional Capture. The toxic behaviours become embedded in the organisation's informal operating system. New hires are socialised into the actual culture rather than the stated culture. Leaders who challenge the dysfunction are marginalised or depart. The organisation develops what psychologist Chris Argyris called "organisational defensive routines", patterns of behaviour that prevent the discussion of the very problems that most need to be discussed.

Stage Four: Systemic Dysfunction. Trust collapses across hierarchical levels. Decision quality degrades as information is withheld, dissent is suppressed, and political calculation replaces analytical rigour. The organisation's performance begins to deteriorate, but the causal connection between cultural toxicity and business outcomes is obscured by the complexity of the system.

Why Traditional Interventions Fail

The standard organisational response to cultural problems, engagement surveys, values refreshes, leadership offsites, and HR-led "culture programs", fails with remarkable consistency. Research from Gallup shows that despite $7.5 billion spent annually on engagement programs in the United States alone, the percentage of actively engaged employees has moved by fewer than five percentage points in two decades.

These interventions fail because they address the symptoms of cultural toxicity rather than its structural causes. An engagement survey tells you that trust is low. It does not tell you why trust is low, and it provides no mechanism for addressing the root causes.

Values refreshes fail for a different reason: they create the illusion of action without requiring any actual change in behaviour. An organisation can spend months crafting a new values statement, typically arriving at some variation of integrity, innovation, collaboration, and excellence, while the daily behaviours that drive cultural toxicity continue unchanged.

The Structural Root Cause

The root cause of most cultural toxicity is not individual bad actors, although they are often the most visible symptom. It is the absence of structured decision-making processes that create transparency, accountability, and genuine participation in organisational choices.

When decisions are made behind closed doors, without clear criteria, and without accountability for outcomes, every decision becomes a political act. Trust is replaced by calculation. Collaboration is replaced by competition. And the organisation's culture is shaped not by its stated values but by the informal power dynamics that determine who wins and who loses in each decision.

Conversely, when decisions are made through a structured process, where the problem is diagnosed transparently, options are evaluated against explicit criteria, and execution is assigned with clear accountability, the conditions that breed toxicity are systematically eliminated. Political manoeuvring is less effective when decisions are evaluated against transparent criteria. Blame culture is less viable when accountability is built into the execution framework. And trust is rebuilt through the experience of participating in decisions that are fair, rigorous, and consequential.

From Diagnosis to Intervention

The organisations that have successfully reversed cultural toxicity share a common approach. They begin with rigorous diagnosis, not a generic engagement survey, but a structured cultural assessment that identifies the specific behaviours, systems, and leadership practices that are driving dysfunction. They then design targeted interventions, not generic programs, but specific changes to decision-making processes, accountability structures, and governance rhythms that address the root causes identified in the diagnosis.

The most effective interventions are structural rather than programmatic. They change how decisions are made, how accountability is established, and how information flows through the organisation. They embed these changes in the daily operating rhythm rather than layering them on as supplementary activities.

This approach requires intellectual honesty that many leadership teams find uncomfortable. It requires acknowledging that the culture problem is not caused by a few bad individuals or an insufficient training budget. It is caused by the leadership system, the processes, structures, and behaviours that leaders have created and sustained.

The good news is that the same leadership system that created the toxic culture can create a healthy one. But only if leaders are willing to change the system rather than merely declaring new values and hoping for the best.

References:

Sull, D., Sull, C., & Zweig, B. (2022). "Toxic Culture Is Driving the Great Resignation." MIT Sloan Management Review, January 2022.
Argyris, C. (1990). Overcoming Organizational Defenses. Allyn & Bacon.
Gallup. (2023). State of the Global Workplace Report.
Edmondson, A.C. (2019). The Fearless Organization. John Wiley & Sons.