SEVEN DEADLY SINS!
Seven Deadly Sins of Organizational Culture is a book that opens by recounting the 2001 Enron scandal, highlighting how it triggered massive changes in the world of auditing. Enron, one of the largest energy corporations in the U.S., managed to conceal its enormous debts through complex accounting tricks and financial manipulations by its executives. However, when the scandal erupted, Enron was driven to bankruptcy. And it didn’t end there—the auditing firm responsible for Enron’s audits, Arthur Andersen faced the same fate due to serious negligence in their auditing processes. This collapse shook not just two major companies, but the entire financial world, paving the way for stricter regulations in auditing and financial reporting processes. Most importantly, the Sarbanes-Oxley Act (SOX) was introduced to enhance transparency and reliability in financial reporting, strengthening companies’ internal audit processes and imposing much stricter rules on auditing firms.
Yet, these legal regulations alone were not enough to prevent corporate failures. Laws often set boundaries, but the real difference is made by the organization’s culture. A solid internal control system and effective corporate governance can only thrive where there is a strong organizational culture. The author views culture as the most critical factor in determining the success or failure of organizations, considering it the fundamental force that shapes human behavior.
Linh San Truong, the book’s author, is an audit and corporate governance expert with 30 years of experience. Holding MBA, CPA, CIA, and CISA certifications, Truong has held leadership positions in both public accounting and various sectors. He has worked with major organizations like KPMG and Credit Suisse, consulting for Fortune 20 companies. Additionally, he has established internal audit departments as Chief Auditor in three different companies, while also leading corporate risk management projects. With extensive experience across North America, Europe, and Africa, he is now part of the leadership team at North Texas Tollway Authority, focusing on organizational culture, risk management, and auditing.
Organizational culture has a profound impact on the behavior of people in the workplace. A healthy culture fosters positive behaviors. However, since culture is an abstract concept, the book’s central question is how to measure this “health.” The author argues that just as a doctor must periodically monitor a patient’s overall health, organizations must regularly review their cultural health.
Like patients under observation, a company’s cultural health should be assessed through a variety of factors. Relying solely on financial outcomes to gauge an organization’s overall health is an outdated and insufficient approach. Cultural health encompasses the entire organization and requires a holistic approach.
The author of Seven Deadly Sins of Organizational Culture, Linh San Truong, a seasoned expert in auditing and corporate governance with over 30 years of experience, has held a leadership position in both the public and private sectors. Now, leveraging his experience across North America, Europe, and Africa, he offers consulting services to various companies.
The book highlights the seven key factors that influence the health of organizational culture, detailing the seven deadly sins that emerge from neglecting these factors:
- Faulty Mission and Misaligned Values
- Incorrect Incentives
- Lack of Accountability
- Inadequate Talent Management
- Lack of Transparency
- Ineffective Risk Management
- Weak Leadership
Now, let’s explore these seven flawed behaviors in detail.
- Faulty Mission and Misaligned Values
The idea that an organization’s success hinges on a solid and meaningful mission is presented in this section. A mission is considered the core purpose of a company’s existence and the impact it strives to have on the world. However, when the mission focuses solely on profit, problems often arise. A prime example of this is the collapse of WorldCom. By committing accounting fraud to exaggerate assets, they became infamous for one of the largest accounting scandals in history. Once a mission focused solely on profit was adopted, a strategy was drawn, ethical values were distorted, and ultimately the company was driven to bankruptcy.
In contrast, industry giants like Google, Patagonia, and Disney focus on goals that extend beyond profit. Google’s mission to ‘organize the world’s information and make it universally accessible,’ Patagonia’s ‘commitment to protecting the planet,’ and Disney’s mission of ‘inspiring people’ drive employees to pursue a higher purpose, not just financial gain. Such missions guide the company’s strategies and shape daily operations, just as our own “Make Happy Be Happy” philosophy permeates every aspect of our personal and professional lives.
The author lists key characteristics of a successful mission:
- The mission must include all stakeholders—not just shareholders, but also consumers, employees, suppliers, and the community.
- It should clearly express how the company intends to make the world a better place.
- It should be inspiring, setting goals that other companies can use as a benchmark.
- It must be formally documented and communicated effectively to both employees and external stakeholders.
- The company’s strategy should align with this mission and be executed within the framework of its values.
For a mission to be effective, it must go beyond being just a slogan. It must be communicated clearly to both internal employees and external stakeholders, while also being inspiring and meaningful. Additionally, aligning the company’s strategy with this mission is critical for success. A mission that appeals not only to shareholders but also to customers, employees, and the broader community ensures the company’s long-term sustainable success. For instance, every third Thursday in November, we celebrate “Make Happy Be Happy Day” with all our stakeholders worldwide.
This section also touches on the issue of values. Regardless of how strong the mission is, its implementation and the values upheld throughout the process are equally critical. If a company resorts to unethical practices, the mission loses its meaning. Therefore, values such as integrity, inclusivity, and accountability play a crucial role in developing a healthy organizational culture. The author cites Patagonia as a good example of a company that implements its mission well, such as by donating all its Black Friday revenue to environmental protection organizations, demonstrating their commitment with tangible actions.
Ultimately, a company’s mission should not merely be a slogan but a guiding principle that drives its strategies and activities. When a mission becomes part of daily operations and is supported by values, the organization is more likely to achieve sustainable success and foster a healthy culture.
- Incorrect Incentives
What are the most powerful factors in guiding employees’ behavior within a company? Incentives. Employees are motivated to work towards goals that they are rewarded for. However, poorly designed incentive systems can lead to unexpected outcomes for the company.
Characteristics of a Healthy Incentive Structure
A company’s incentive structure should encourage employees to exhibit the right behaviors. These KPIs should be concise, measurable, and limited in number, with more detailed ones preferred by younger generations. Here are the features of a healthy incentive system:
- Incentives should align with the organization’s values. Incentives that conflict with the company’s core ethical values can lead employees down the wrong path.
- Goals must be achievable. Incentives should be realistic and data-driven. Otherwise, employees may resort to unethical behaviors to meet targets.
- Risk adjustments should be implemented, ensuring that incentives are structured to prevent employees from taking excessive risks.
- Focus should be on quality over quantity. Instead of focusing solely on sales volume, the quality of sales and long-term returns should also be considered.
At this point, there’s an unconventional example from the industry: Bridgeport Financial. This debt collection company rewarded employees not based on the amount of money they collected but on the number of “thank you cards” they sent. The company’s founder believed that treating customers with respect and understanding their situations would yield more successful results. This strategy led the company to achieve three times the industry average in collections. Here, “fostering a healthy culture” is crucial when developing a successful incentive system.
- Lack of Accountability
The author uses HSBC’s money laundering scandal as one of the most striking examples of how the absence of accountability can lead to disastrous consequences. Despite knowing about the billions of dollars in illegal transactions carried out by Mexican drug cartels through HSBC, the bank turned a blind eye. Although suspicious activity reports were generated, managers ignored these warnings because the primary goal was to complete transactions quickly and maximize profits. This culture forced employees to focus solely on the numbers. As a result, the bank faced a fine of $1.9 billion. The repeated mistakes were due to the failure of managers to implement the necessary accountability measures.
The author outlines the practices that must be implemented to build a healthy culture of accountability:
- Clear definition of policies,
- Support of these policies with actionable processes,
- Monitoring and detecting violations,
- In-depth analysis of the causes of deviations and the development of effective solutions,
- Consistent and fair consequences for rule violators.
In an organization without accountability, flawed behaviors are repeated, and the sustainability of the organization is jeopardized.
Arguments like “It’s okay this time,” “Let’s forgive for once,” or “They’ve learned their lesson, they won’t do it again” are often supported by everyone. However, these events should be recorded and addressed appropriately. Forgiving is reserved for God, not for us, as we cannot stop the world and rewind it. Let me also point out that people who have survived such crises have often become the best later on. I’ve been through this myself.
- Ineffective Talent Management
Highlighting talent management, this section reveals the critical role it played in Enron’s collapse. Jeffrey Skilling, CEO of that period, focused solely on intelligence while neglecting important qualities such as experience, character, and teamwork. With this mindset, even though the best MBA graduates were hired, a selfish, unethical, and destructive culture developed within the company.
Ineffective talent management, employees must not only be skilled but also understand and align with the organization’s mission and values. Appointing incompetent individuals to critical roles can threaten the long-term success of a company. Therefore, talent management must adopt a strategic approach and focus on continuous employee development.
Characteristics of Healthy Talent Management
- Employees must be fully aware of and understand the organization’s mission. Each individual should recognize how their work contributes to the company’s overall strategy, helping them find purpose in their roles and stay motivated.
- Employees must represent the company’s values. Talent should not only be about the technical aspects of the job; individuals must share the company’s core values and act accordingly.
- Companies must regularly assess employees and provide feedback. Talent management should extend beyond the hiring process. Companies must focus on assessing whether employees are growing and aligning with the company’s values, offering feedback to guide their development.
- Employees must be competent in their roles. Appointing individuals who lack the necessary qualifications for positions can cause significant disruptions within the organization. It’s essential to ensure that employees possess the required skills and knowledge to execute their responsibilities effectively.
- Companies should offer ongoing training and development programs for employees. Necessary support and resources must be provided for employees to succeed, and continuous learning and development should be encouraged.
- Employee engagement should be regularly assessed. Companies should conduct regular surveys to understand the level of employee engagement and analyze the feedback to make improvements.
Southwest Airlines is a successful example in the industry of talent management, where they select individuals not only based on their skills but also their fit with the company’s values and cultural structure. Factors such as a tendency toward teamwork, customer satisfaction, and commitment to ethical values play a crucial role in this process. With this talent management strategy, Southwest has maintained profitability for 47 years, highlighting the importance of aligning the right employees with the right values.
Talent management in changing business conditions, such as during the AI revolution, also includes equipping current employees with new skills.
360-degree assessments must continuously improve, and we should strive to be recognized as the best employer, encouraging employees to recommend their workplace to others. At our company, we already refer to each other as “TEAM ÜLKER.”
Talent management plays a critical role in the long-term success of a company. Rather than focusing solely on individual talent, considering cultural fit, character, and teamwork helps a company succeed.
- Lack of Transparency
The Theranos scandal stands as one of the most notable examples of how a lack of transparency can result in catastrophic consequences for a company. A major promise from the company was the “Edison” device, which allegedly offered fast and accurate test results using just a fingertip blood sample. However, these claims turned out to be completely false.
The intentional blockage of information flow within the company prevented employees from understanding what was happening, creating a culture of failure. Even the board members were kept in the dark about the company’s internal operations. Management tried to move forward by concealing the truth, but eventually, the collapse of the company became inevitable. The story of Theranos demonstrates how a strategy based on hiding the truth under the mask of “success” can be extremely dangerous.
A lack of transparency can cause a company to collapse, but a well-executed transparency strategy can ensure long-term strength. By embracing the principle of “open and honest communication,” a company can foster trust, not just among its employees, but also with its business partners. For this, the company shares financial statements or operational data and communicates its strategic decisions and future plans to partners. This ensures full alignment with the partners’ goals and operational processes, enhancing collaboration efficiency and minimizing the risk of unforeseen challenges. In the end, companies like Zappos, which establish transparent business relationships with their partners, manage to develop long-term, sustainable collaborations.
The principle of transparency is not only an ethical necessity but also a critical element for a successful and sustainable business model. This principle increases trust, loyalty, and efficiency across all processes, from internal structures to external stakeholders, enabling long-term success.
Even within our privately held companies, employees at all levels are aware of and actively manage the numbers related to their work. For example, in each factory, production floor teams are aware of their costs and productivity, and they calculate and track the savings generated through the measures they implement. Similarly, all departments, including sales, work with the same responsibility. Additionally, as senior management, we share our views, current status, and future forecasts with our employees during various meetings held at different levels and periods.
- Ineffective Risk Management
This section presents one of the most striking examples of how a financial system is built on risky decisions: the 2008 financial crisis, which was rooted in the mismanagement of risk and the prioritization of profit over everything else. As you know, in 2008, especially in the US, these risky decisions and poor management strategies led to the collapse of not just individual companies but the entire business world.
Lehman Brothers was one of the biggest players in this system. The company ignored limits with its high-risk appetite and concealed the real risk level by removing dangerous positions from stress tests. This was a situation where risks were neither measured nor managed, and the company eventually filed for bankruptcy. Lehman Brothers had completely disregarded risk management while pursuing an aggressive growth strategy. This was a massive disaster not just for Lehman but for the entire global economy.
Inefficient risk management can lead to catastrophic consequences, as seen in the 2008 financial crisis. Therefore, the author emphasizes the vital importance of creating a healthy risk management framework for organizations. Leaders’ responsibilities extend beyond pursuing profit; they must also ensure the company’s long-term sustainability.
As a result, the way risk management is handled has a significant impact on organizational culture. While ineffective risk management can lead to a company’s downfall, healthy risk management practices ensure that companies survive in the long run.
Impending crises are often predictable. First, priorities and principles for crisis management should be identified and communicated, with all plans developed accordingly. After the last global crisis following the pandemic, we defined and announced the principle “CASH IS KING.” Now, even an R&D team member is aware of this and takes action accordingly. We now monitor our cash flow weekly, without any leniency. We track indicators such as low or even negative net working capital, and we focus on net profit rather than EBITDA. I have discussed these points in many of my writings and speeches.
(https://www.linkedin.com/posts/mulker_the-leadership-podcast-activity-6991395078632058880-Vz7m/?originalSubdomain=tr; https://fastcompany.com.tr/dergi/sirketiniz-her-acidan-hazirsa-is-dunyasinda-hiz-iyidir/; https://www.tclira.com/murat-ulker-2024-zor-bir-yil-olacak-finansman-temini-lazim/; https://muratulker.com/y/super-zenginlerin-cogu-vatansever-comert-ve-gercekten-de-devletlerinin-refahi-ile-ilgilenen-kisiler-mi/)
Characteristics of Healthy Risk Management
- Spreading the Risk Management Process Across the Organization
All employees must be aware of the company’s risk management policies. Training should be offered to help employees understand how the company’s risks can impact their roles. This involves developing policies and procedures that guide employees on how to effectively manage risks.
- Integrating Risk Management into Daily Operations
Risk management must be embedded in daily operations, integrated into decision-making processes, and even incorporated into employee performance evaluations. For instance, if employees in the mortgage industry had been able to assess the likelihood of repayment by their clients, the outcomes might have been very different.
- Tracking and Managing Risk Metrics
To manage risks, they must first be measured. While performance metrics often focus on outcomes, risk metrics should act as leading indicators. Companies need to monitor risk-related indicators, and managers should take a proactive approach to manage these risks.
- Inadequate Leadership
This section addresses leadership, with the author arguing that any issue related to organizational culture can be traced back to a failure in leadership. Leadership is the foundation of organizational culture. A strong leader not only defines the strategy but also ensures its implementation, aligning it with the organization’s core values. Certain traits are essential for effective leadership. First and foremost, leaders must wholeheartedly commit to the organization’s mission, making decisions in alignment with it. They cannot prioritize personal interests or make decisions that contradict the organization’s values.
When we discuss leadership, it’s important to remember that this applies to managers at all levels, yourself included. The Prophet Muhammad once said, “Each of you is a shepherd, and each of you is responsible for their flock,” highlighting the timeless and universal relevance of this principle.
The Uber case is a distinct example of how leaders can disregard the values a company sets and how this can negatively affect the organization’s culture. Uber’s mission was based on values like “safe transportation for everyone” and “doing the right thing.” However, these values remained mere words on paper. The scandals erupted in 2017, revealing allegations of sexual harassment, a bullying culture among employees, and unethical behavior at management levels within the company. The root cause of these issues was the failure of leaders to genuinely adopt the company’s values and guide employees toward them.
The senior leadership at Uber was slow to address these issues, allowing bad behavior to spread throughout the company. Despite reports of harassment, these incidents were overlooked for a prolonged period, and some employees accused of harassment were allowed to remain in their roles. This directly contradicted Uber’s stated values of “safety for everyone” and “doing the right thing.”
The leaders’ attitude fueled insecurity and unrest within the company. Employees felt their concerns were ignored, and the lack of transparency ultimately led to a cultural crisis. As a result, Uber had to invest considerable effort to rebuild its reputation.
Leaders are also accountable for managing communication within the organization. Transparent communication is essential for ensuring accountability. They must be open to listening to employees’ concerns and actively work to address them. Leaders should make sure employees adhere to the rules to ensure the system operates smoothly and hold them accountable when needed.
The author also emphasizes that leadership involves encouraging employees to exhibit the right behaviors. Leaders must guide their teams toward a grand vision, he says. However, this vision should focus on long-term success rather than short-term gains.
In conclusion, leadership and organizational culture are closely intertwined. Effective leaders shape the culture by embodying the organization’s values. When a leader aligns with the organization’s mission and values, the company grows and evolves in a unified direction. On the other hand, weak leadership undermines the organization’s foundation and, in the end, can lead to its collapse.
Evaluation of Culture
Evaluating organizational culture is a key method for assessing the overall health of a company. However, culture is an abstract concept, a challenging one to measure. In this section, the author breaks down the components that constitute culture and outlines the ways they can be assessed. To accurately gauge the cultural health of an organization, it is essential to consider various indicators and the maturity levels of its processes.
Policy management and process maturity are key tools for understanding a company’s cultural structure. Factors such as the formalization of policies, and the repeatability and relevance of processes, indicate how disciplined and systematic an organization is. Maturity models are valuable tools for assessing how effectively an organization manages its processes. The five-level maturity model helps determine the stage at which the organization’s policy or process management currently stands.
The first stage, the “ad hoc” level, reveals that processes are entirely unplanned and unstructured, resulting in many shortcomings within the organization. At this stage, policies are typically reactive; solutions are sought as problems arise, but there is no proactive approach. This leads to inconsistent and unclear processes, making the organization unstable.
The “agile” stage shows that the organization continually improves its policies and processes, demonstrating high adaptability and a proactive structure. Agile process management indicates that the organization quickly adapts to changing conditions and regularly reviews itself to increase operational efficiency. At this stage, processes are not only defined but also automated and continuously optimized. Such a structure makes the organization more resilient to both internal and external threats, supporting long-term success.
These stages are shaped by the organization’s size, age, and its development trajectory over time.
Talent management is another key indicator of an organization’s cultural health. Employee engagement surveys, turnover rates, performance review scores, and similar metrics help to gauge the atmosphere within the organization, as well as how motivated and aligned employees are. Exit interviews can also offer valuable insights into why employees depart, uncovering possible cultural issues.
External feedback should not be overlooked. Customer satisfaction, reports from external auditors, and even public perception offer valuable information about how the organization is perceived externally and how its culture is reflected. Feedback from former employees can paint a more honest and realistic picture of the organization’s internal dynamics.
In short, evaluating an organization’s cultural health is not possible from a single viewpoint, but requires an assessment of multiple metrics. Since culture is the cornerstone of an organization, these evaluations are crucial for the long-term success of the organization.
Cultural Transformation
Cultural transformation is one of the most critical change processes for an organization. Sometimes, deeply rooted cultural issues—such as communication gaps tied to a society’s traditional structure and excessive attachment to hierarchy—can exist. In a culture where things are not progressing as they should, it often indicates a lack of open communication. To address this, a change in company culture is necessary. A large reform process is required to address communication gaps and correct faulty behaviors stemming from the hierarchical structure. Following a fatal accident involving Korean Air, David Greenberg, who was brought in from Delta Air Lines, took steps to transform the airline’s culture while respecting Korean traditions. He implemented significant changes in communication and training and introduced new cockpit standards through a subsidiary of Boeing. Thanks to these changes, Korean Air restored its safety reputation within just two years and regained the trust of the airlines it had previously partnered with.
The author defines cultural change as a process that reshapes the entire organizational structure and highlights that a successful cultural transformation starts with a change in leadership. Leaders must not only implement strategy but also embody and live the organization’s mission and values at the highest level.
Another key step in cultural change, according to the author, is to define the values of the desired culture and communicate these values to all employees. Values created through the participation of everyone should be integrated into performance evaluation processes and play a crucial role in recruitment. The gaps between the current culture and the desired culture must be identified, and action plans should be put in place to bridge these differences.
When we consider organizational culture, it’s not about the societal culture you’re part of, but the specific culture you foster within the workplace. Ethical values are indeed universal; however, even if you can’t secure justice since you don’t have legal power or courts, “fair process” should be your goal! In other words, someone from Turkey will remain Turkish, and someone from England will stay English. Yet, in the global arena, their behaviors would align with the company’s values and culture. In any case, organizational values cannot contradict fundamental human and ethical principles. Ultimately, the goal is to promote goodness and prevent harm.
In conclusion, cultural change requires a disciplined process. However, at the end of this process, a values system that is adopted and practiced by employees serves as the bedrock for the organization’s long-term success.
The concepts discussed in the book are well-known to most of us and have long been central to the business world. However, companies often struggle to apply these straightforward principles because their successful implementation demands consistency and commitment.
Foundational pillars like strong management and solid culture ensure a company’s long-term survival. Cultural change is not a quick process; in fact, it is quite the opposite. Maintaining a healthy culture requires constant vigilance. Cultural transformation should not be a one-time project within an organization but a continuous effort. Every three to five years, a new generation of employees enters the organization. Even the letters of the alphabet are running out. Therefore, both values and culture must be regularly updated. If organizations ignore this delicate and risky process, over time, an inefficient culture can lead to employee turnover, financial struggles, and even more severe outcomes. Ultimately, making organizational culture a healthy asset plays a critical role in both the organization and society’s future. One must be a part of this change; otherwise, one becomes part of the problem.
Overall, the book provides an in-depth analysis of the nuances of organizational culture. Each chapter delves into the root causes of company failures, uncovering various “flaws,” while also showcasing successful examples that highlight the power of cultural transformation and effective leadership. These analyses serve as guiding principles for both leaders and employees. It is especially crucial to recognize the profound impact leadership has on company culture, as poor decisions can lead to serious consequences, not only financially but also in terms of human lives!
(*) https://www.amazon.co.uk/Seven-Deadly-Sins-Organizational-Culture/dp/1032265477
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