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Why a toxic workplace is now a much bigger liability for companies

Uber CEO Travis Kalanick speaks to students at the Indian Institute of Technology (IIT) campus in Mumbai. (Danish Siddiqui/Reuters)
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Corporate culture has long been the sort of squishy management consultant term that’s hard to define, even harder to change, and the recipient of lots of lip service yet little action by chief executives.

But however amorphous the phrase may be, its importance was stamped into stark relief this week after a former female Uber engineer made allegations about its sexist, chaotic and aggressive culture -- "a game-of-thrones political war," she called it -- at the San Francisco company in a deeply unsettling blog post about her experience there.

The viral essay spawned devastating follow-up stories by journalists about the company’s "Hobbesian environment" and its "human resources mess." It revived a #DeleteUber social-media boycott of the ride-sharing app that cropped up following President Trump’s travel ban. On CNBC, one venture capitalist called the allegations "a huge deal" as the company moves toward an expected IPO. Early Uber investors Mitch Kapor and Fraeda Kapor Klein, who also works on diversity issues in Silicon Valley, penned an open letter Thursday saying they are "disappointed and frustrated," and "concerned that the company will try to manage its way past this crisis and then go back to business as usual."

More and more, stories depicting aggressive corporate cultures are both the source of fascination in a social-media driven world and a potential reputation risk that goes well beyond what a company's current employees and future recruits think of it. Uber is the latest example. The fake accounts scandal at Wells Fargo laid bare a toxic sales environment fueled by high-pressure sales goals. A widely read story about Amazon’s hard-charging corporate culture in the New York Times in 2015 prompted push-back from the company months later. (Amazon's CEO, Jeff Bezos, is the owner of The Washington Post.)

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A company's culture has long been an underlying actor in any story about its successes, its struggles or its failures. (Enron, anyone?) But human resources and corporate reputation experts say that shifting expectations of consumers and employees, the role of social media and increasing interest from investors in corporate culture have driven the topic to the forefront, making exposure of a company's "how we do things around here" approach more salient and precarious than ever.

"People and analysts, in particular, are starting to say how a company treats its employees needs to be factored into valuations of the company," said Brian Kropp, the human resources practice leader of the consultancy CEB. "A lot of them are starting to look at this issue and say that’s going to have material impact on the company." 

Social media is a big driver. A blog is what allowed Susan Fowler, the engineer who described the "strange, fascinating and slightly horrifying" experience of her year working at Uber, to share her story, while social-media outlets like Twitter, Facebook and other viral platforms amplify it. (Fowler alleges she was propositioned by a manager soon after starting and that the H.R. department repeatedly protected "high performers" when she and others complained.) Meanwhile, growth of sites like Glassdoor give anyone with an Internet connection the chance to offer unvarnished reviews of what it’s like to work for a company as easily as they'd review a movie.

That makes it harder for companies to stay ahead of any negative impressions online. "You've got to respond quicker," says Bob Sutton, a professor at Stanford University's Graduate School of Business. "It's higher risk and harder to control than it used to be."

Expectations by employees and consumers, meanwhile, have also shifted. About a decade ago, companies began cultivating what they called their "employment brand" -- the image in the minds of potential recruits of what it's like to work at that company. But since then, the "employment brand and the product brand have become really enmeshed, and they've all become part of one bigger story," Kropp said. "What you see is a lot of companies starting to use their H.R. policies to influence what their corporate brand looks like."

In other words, they don't just care about what employees and recruits think about what they're like to work with. What consumers -- who increasingly want to do business with companies that share their values -- think about their culture matters a lot, too. Another factor: The rise of subscription-based purchases for everything from cellphones to Netflix to services like Birchbox means people evaluate who they buy from differently. "When it comes to purchase decisions, which look more and more like relationships, people think more and more about long term," says Anthony Johndrow, the CEO of a reputation advisory firm in New York.

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That's why companies are giving new H.R. policies -- extended maternity leave, for instance, or weekends-off policies for junior bankers at Wall Street firms -- the kind of P.R. push traditionally reserved for new products. In reverse, it's also why they're more wary than ever about negative exposes of their company's culture.

Research has shown that consumers don't need to experience bad treatment themselves to think twice about buying from a company. Christine Porath, a professor at Georgetown University's McDonough School of Business, found in lab experiments that when customers witness uncivil behavior between two employees, "not only do they think badly of those employees, but they generalize really dramatically to the organization and the brand," she said. Just 20 percent of participants in her study said they would do business with the firm again, she found. "They're very unforgiving with respect to this."

Investors are also more focused on culture. Kropp recently released a report showing a surge in discussion by CEOs and analysts in earnings calls about a company's talent, with organizational culture being first on the list of topics. Between 2010 and 2016, the rate of companies making references to organizational culture in earnings calls went from 19 percent in 2010 to 29 percent in 2016, his research found.

Analysts Kropp interviewed told him companies that had a better grasp of how their employees were doing were more successful navigating the financial crisis, which spurred their interest in tracking the issue more closely.

He says that could be a factor for Uber, which is reported to have a nearly $70 billion valuation and is expected to go public in 2018. "My guess is investors are taking a step back and saying those are real risks," Kropp said.

In an emailed statement, Uber chief human resources officer Liane Hornsey, who started at the company recently, said "we are totally committed to healing wounds of the past and building a better workplace culture for everyone." The company's CEO, Travis Kalanick, known for a pugnacious reputation, appears to have taken on a more humble tone, tweeting after Fowler published her post that "what's described here is abhorrent & against everything we believe in," apologizing to employees in an emotional all-hands meeting this week, and saying in a memo to employees that "it's been a tough 24 hours."

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The company has brought in former U.S. Attorney General Eric Holder to conduct an internal investigation, and board member Arianna Huffington said she would "hold the leadership team’s feet to the fire."

It's unclear how much of a reputation hit Fowler's post -- and the attention it's brought to Uber's culture -- will ultimately have. However unnerving it may have been for some consumers to read the New York Times' account of Amazon's culture, the company was recently rated the most reputable company in the United States among visible companies by the Harris Poll.

Johndrow says corporate reputation is less likely to take a hit if consumers don't feel the effects directly, as they did with the Wells Fargo scandal. The biggest reputation risk for Uber, he says, will be its ability to attract and retain the best employees in the fallout of the most recent news. But consumers may not be far behind. The repeated bad headlines, he says -- from the CEO's reference to "Boob-er" to what people misperceived as an effort to profit following Trump's travel ban -- means for some consumers, "we're nearing the 1,000th cut."

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