I have been sharing my perspectives about organizational culture for more than a decade. In a partnership with AuditBoard, my colleague Sandro Boeri and I recently published the 2025 Organizational Culture and Ethics Report. We share extensive insights on how organizations can monitor and mitigate culture risks. But the sad reality remains: organizations with bad cultures are not anxious to monitor them.

If the 21st century has taught us anything about organizational life, it is this: culture matters more than ever. The first quarter of this century has delivered a “masterclass” on the devastating impacts of toxic cultures. From global corporations to fast-growing startups, the headlines have been filled with stories of promising enterprises undone not by weak strategies or failed products, but by corrosive cultural undercurrents.

I have long embraced the simple but powerful definition of culture as “how things are done around here when no one is looking.” By that measure, culture is not what an organization proclaims on glossy posters or in annual reports—it’s the unwritten rules, the accepted behaviors, and the real priorities revealed when no one expects outside scrutiny. Healthy cultures thrive on transparency and accountability; unhealthy ones hide in plain sight, insisting that everything is fine until it collapses under the weight of its own contradictions.

And that is why organizations with bad cultures are often the last to know.

The Illusion of Healthy Culture

Healthy cultures are often celebrated and recognized as a strategic differentiator. Leaders in such organizations understand that a vibrant culture drives value creation, attracts top talent, and sustains long-term performance. Employees are proud to belong, boards highlight culture as a governance priority, and investors regard it as a source of competitive advantage.

Leaders of unhealthy cultures, however, want to talk about almost anything else. They may tout impressive corporate values statements or thick codes of conduct, but those often serve as window dressing rather than reflections of day-to-day behavior. Indeed, the louder an organization proclaims its values, the more suspicious we should be if lived behaviors fail to align.

This disconnect sets the stage for surprises. Boards and investors are often shocked when an organization they thought modeled integrity suddenly implodes because of cultural failures. Yet such debacles should not be surprising at all. Few organizations with toxic cultures advertise the truth. If culture is how things are done when no one is looking, it should not shock us that toxic ones work hard to keep people from looking.

Why Bad Cultures Stay Hidden

There are several reasons why organizations with toxic cultures are the last to acknowledge it themselves:

1. Self-deception at the top. Senior leaders may convince themselves that their carefully crafted values statements define reality. They hear only what they want to hear from subordinates, creating a “success theater” in which bad news is filtered out before it ever reaches the C-suite.
2. Fear of retaliation. In toxic cultures, employees quickly learn that speaking truth to power can cost them their jobs or reputations. Whistleblowers are marginalized, and honest feedback loops collapse. The result: silence where candor is needed most.
3. Short-term distractions. Unhealthy cultures often mask deeper problems with financial success—at least for a while. When performance metrics are met, few are willing to question how results were achieved. Toxicity festers behind the curtain of quarterly earnings.
4. Overconfidence in compliance. A thick code of conduct or an impressive ethics program can lull leaders into believing culture is managed. But compliance documents do not create culture; lived behaviors do.

The tragic result is that boards, investors, and even executives themselves can be blindsided by cultural breakdowns that were hiding in plain sight.

Indicators of Toxic Culture

So how can outsiders—and insiders who want to see clearly—spot the subtle but telling signs of an unhealthy culture? Here are some indicators that should raise concern:

• Misalignment between words and deeds. Leaders who speak passionately about values but behave otherwise set the tone for hypocrisy. Employees quickly see through the façade.
• High turnover among high performers. When talented people leave quietly but consistently, it often signals that the culture stifles rather than supports them.
• Fear-based decision making. If managers and employees hesitate to raise issues, challenge assumptions, or admit mistakes, fear may be driving behavior more than trust.
• Lack of accountability at the top. When senior executives escape consequences for missteps while lower-level employees are punished harshly, it is a red flag for inequity and cynicism.
• Excessive focus on financial results. Healthy cultures balance results with integrity. Toxic ones relentlessly pursue numbers at any cost, regardless of collateral damage.
• Opaque communication. A lack of transparency, spin-heavy announcements, or inconsistent messaging often point to deeper cultural issues.
• Resistance to independent oversight. Leaders who resent audits, avoid external reviews, or minimize board involvement may be hiding cultural weaknesses.

What Boards and Investors Should Watch For

Boards of directors and investors must be especially vigilant, because they have both a duty and a vested interest in ensuring that culture sustains organizational value. Yet, culture can be difficult to assess from the boardroom. Here are subtle signs that should not be ignored:

• Overly polished culture reports. If culture updates sound like public relations campaigns, with no acknowledgement of challenges, the board should dig deeper.
• Limited employee voice. Boards should be wary if they never hear directly from employees below the executive level. Anonymous surveys, focus groups, or site visits can provide unfiltered insights.
• Patterns in whistleblower data. Boards should not just review the number of complaints but also ask about their nature, how they were handled, and whether retaliation concerns exist.
• Audit and risk management blind spots. If internal audit or compliance rarely reports cultural or ethical issues, it may be because the function lacks independence—or because leadership discourages such reporting.
• Unrealistic performance targets. Stretch goals can inspire, but when consistently unattainable, they may incentivize corner-cutting or unethical behavior.

A Call to Vigilance

The reality is that culture-induced debacles rarely emerge out of nowhere. Warning signs almost always exist, but too often they are ignored, rationalized, or suppressed. Organizations with bad cultures are indeed the last to know—but only because they choose not to look.

For boards, investors, and leaders committed to value creation, culture must be more than a slogan. It must be an ongoing area of oversight and inquiry. Leaders must model the behaviors they proclaim, encourage candid feedback, and embrace transparency even when it is uncomfortable. Internal auditors and risk professionals must be empowered to provide unvarnished assessments of cultural risks, and boards must insist on hearing those insights.

The lesson of the 21st century is clear: culture can make or break an organization. The healthiest cultures thrive on scrutiny, because they know that what stands up to the light of day only grows stronger. Toxic cultures, on the other hand, shrink from scrutiny—hoping no one will look too closely.

But in today’s environment of heightened accountability, scrutiny is inevitable. The only real question is whether organizations will face it on their own terms—or whether they will be forced into the headlines as the latest cautionary tale.