Culture is what happens when leaders leave the room

We all recognise a positive workplace culture when we see it

People speak plainly. Bad news travels quickly enough to be useful. Talented people want to stay. The organisation has standards, but it also has trust.

We recognise a toxic culture just as quickly.

The mood changes when certain people enter the room. Everyone knows which truths are unsayable. The official values sound generous; the lived reality tells a different story.

That difference matters. Culture is often treated as the warm side of business: the posters, the purpose statement, the away day. In reality, it is the pattern of behaviour that tells people how things really work.

Strategy tells people where the organisation wants to go. Culture is the outcome of how people behave on the way.

In complex energy environments, strategy succeeds or fails based on confidence, alignment and trust. Culture is where all three are reinforced or weakened.

Culture is the lived truth of the business

Harvard Business Review put it well: culture is what takes over when the CEO leaves the room.

It is the unwritten code, the shared assumptions and the habits that become normal because people have learned how to succeed inside the system.

This is why similar strategies can produce very different outcomes. One culture fixes problems early. Another learns about failure too late.

Over time, an organisation becomes what it repeatedly tolerates.

That was the case at the Co-op whose chief executive resigned in March after the BBC published a report saying many senior staff felt there was a toxic culture at the top. They described ‘fear and alienation’ that led to poor decisions, declining sales and many senior team departures.

That shows how culture and performance are inseparable.

McKinsey’s organisational health work has found that over the long term, culturally healthy organisations deliver three times the total shareholder returns of unhealthy ones, regardless of industry.

Meanwhile, Gallup has repeatedly linked employee engagement with stronger business outcomes including productivity, profitability, retention, safety and customer loyalty. 

The practical lesson is simple: people do better work when they understand the mission, trust the leadership and believe their contribution matters.

Fear can make people move quickly. But it rarely helps them think clearly, challenge safely or make better decisions.

Leaders cast long shadows

Culture starts with leadership because people watch leaders closely. They may listen to speeches, but they believe the behaviour they see every day. They notice who gets rewarded, who gets protected and whether the difficult question is welcomed or punished.

The CEO sets the tone. The executive team turns that tone into everyday behaviour.

The board’s job is to test whether the culture described in the board papers is the culture people actually experience. And that board role matters.

The UK Corporate Governance Code requires boards to assess and monitor culture, and the 2024 version places emphasis on how the desired culture has been embedded.

This is not about boards wandering into operational detail. It is about knowing whether culture supports or undermines strategy, risk appetite and reputation.

The question is not whether the company has values. Of course it has values. Usually three or four of them, often proudly emblazoned on meeting room walls. The real question is whether people recognise those values as true.

Good culture still has edge

A strong culture can be demanding, ambitious and fast-moving. It can expect excellence, challenge weak thinking and address poor performance without making people feel disposable.

The difference is trust. Because trust creates confidence.

In a healthy culture, standards are clear, accountability is real and people can raise a concern or admit uncertainty without being marked down as difficult.

That is where good cultures outperform.

They waste less energy on politics, surface risks earlier, keep the best people longer and make better decisions because more truth is available.

People go where they are valued.

When culture becomes dangerous

Poor cultures are not always loud or obviously dysfunctional.

Some look disciplined from a distance: the meetings run on time, the numbers are strong and the annual report says the right things.

Inside, people understand the real rules.

They know when bad news should be softened, which leaders should not be challenged and whether the organisation wants the truth or a convenient version of it. The energy sector has its share of classic examples.

GE under Jack Welch remains a classic but complex example, widely admired for its tough discipline and relentless focus on performance. Its “rank and yank” system sorted employees into three groups: the top 20 per cent, who were rewarded; the middle 70 per cent, who were pushed to improve; and the bottom 10 per cent, who were removed.

Supporters praised its rigour and accountability. Critics saw a culture that normalised internal competition and fear.

Enron was darker still.

At its peak, the energy trader was one of America’s most admired companies, celebrated for innovation, deal-making and financial ingenuity.

Then it collapsed in one of the defining corporate scandals of the modern era. Its “smartest guys in the room” culture prized brilliance, aggression and financial engineering, but the failure was cultural as well as financial.

Arrogance overwhelmed judgement. Cleverness became detached from responsibility.

Those examples are extreme, but the lesson is not. A culture can look high-performing while it is quietly destroying the conditions for sustainable performance.

Systems shape behaviour. If short-term financial performance is the only thing that really counts, people will notice. If safety is praised but speed is rewarded, people will notice. Culture is the sum of what the organisation proves it values, repeatedly.

What leaders should look for

Boards and executive teams should start by asking whether the culture they describe is the culture people experience.

There are warning signs. People agree in the room and resist outside it. Bad news arrives late, softened or over-managed. The same few voices dominate important decisions. High performers are excused from poor behaviour because “they deliver”. The company’s external promises no longer match the internal reality.

Any one of these is worth attention. Together, they suggest that culture is starting to work against strategy. Employees usually see it first. Customers and stakeholders see it next. Investors usually see it eventually.

Avoiding that spiral does not require a grand cultural transformation. It requires better questions:

1. What behaviour do we reward that we would never put in our values?
2. Where does truth get stuck before it reaches the leadership team?
3. Which people are allowed to behave badly because they are seen as useful?
4. What do our incentives really tell people to prioritise?
5. Would employees describe our culture in the same way we describe it externally?

These questions are uncomfortable. They should be. If there is no discomfort, the exercise has probably become about branding rather than culture.