What We Can Learn About Culture from Zenefits

The story of Zenefits’ spectacular growth and downfall is the start-up train wreck du jour that no one can stop watching. An extensive piece in Business Insider last week cataloged once more the lurid details many have been poring over—tequila shots in the office, young employees treating their Arizona outpost as a frat house—and a former sales manager is quoted as saying: “When we were smaller, we could act the way we were acting in the office. I don’t think Parker did a good job of growing up. He let things get out of control. There comes a point where hypergrowth achieves diminishing returns.” The story also outlines some more subtle cultural failures that plagued the start-up over the last year, the pulling back of vacation time, and the clawbacks on sales bonuses that demolished morale. It’s easy to see how the superfast growth—spurred on by Vegas-style VC funding—taxed the company’s resources to the breaking point; but did it have an even more deadly effect on the young company’s culture, destroying it before it had the chance to grow to maturity?

When Aristotle declared that “nature abhors a vacuum,” he was speaking to the way in which nature requires every space to be filled with something, even if only air. The same principle goes for cultures, as they too abhor a vacuum. Organizations growing quickly without a core set of clearly articulated and reinforced values to guide the behaviors necessary for sustaining the growth will experience a cluster of values that saturates the culture anyway. As we saw at Zenefits, this osmosis-like effect draws in values that communicate to everyone “This is the way we do things around here.” And this is why it seemed acceptable for guys to leave their used condoms in the office stairwells.

Weak cultures are those in which little agreement exists and where the effort toward the vision is fragmented and often dissipated through conflicting agendas, blaming, and unclear communications. Another Zenefits employee is quoted in the BI article as saying that a “culture of dishonesty” had emerged, in which industry regulations were ignored and products were mischaracterized to customers. It’s easy to see how such a culture wouldn’t be sustainable.

Strong company cultures are those consciously embedded with only the values that support the organizational vision, where everyone agrees about their importance. In these organizations, you can feel the human energy that flows from this alignment.

In the broadest sense, culture is the personality of the organization, the shared beliefs, and the written and unwritten policies and procedures that determine how the organization and its people behave and solve business problems. Culture provides meaning, direction, and clarity; it is the human glue that mobilizes people to aim for the vision.

To understand an organization’s culture is to remain focused on the five elements that create it and their attendant questions:

• Shared values: What do we think is important?
• Beliefs: How do we think things should be done here?
• Norms: What are the unwritten rules: the dos and the don’ts?
• Heroes: Who are the people who personify our culture and serve as role models for others?
• Systems: What do we do to influence people through our written and unwritten policies?

In the end, it all comes down to behaviors: “the way we do things around here.” The answers to these questions need to be put into action as a living, breathing part of the organization’s day-to-day functioning. Zenefits suffered from what is practically a Silicon Valley cliché at this point: a company culture that—infused by too much money and too much growth too fast—went from fun and inspiring to chaotic and dispiriting in a heartbeat.

The gap between the plan and reality of organizational performance is often significant and has been the subject of countless articles and books on motivation, leadership, management skills, and other elements heaped onto the “soft side” pile of organizational performance variables, in other words, the culture. At its most rudimentary, a “hard” strategy may look concrete, with its definitive goals, data, and spreadsheets, but it’s actually an abstraction. It is an idea for the future and has no real existence in the organization or in the marketplace. The organization’s culture, however, is a living, breathing, dynamic force that has a life of its own, operating independently of all plans and projections yet determining the success or failure of those plans.

I am currently a co-investigator of a large study of Fortune 500 CEOs aimed at exploring how these men and women are managing change in a world turned upside down by massive disruptions. One unexpected finding from my interviews is the extent to which they understand the importance of a perfectly “tuned” culture that’s aligned with the organizational transformation these disruptions demand. Our preliminary results, and countless other studies over the past fifteen years, continue to be sobering. They dispel the myth that culture is not a “hard” business issue. Cultures with values, beliefs, norms, heroes, and systems that support high performance significantly impact the financial metrics that matter to most executives.

The importance of company culture cannot be minimized, because a growth vision will fail unless the culture directs and sustains individuals’ behaviors, on a daily basis, in pursuit of strategy. While these intangibles may be far harder to measure than sales volume or return on equity, they are often the key factors in one organization’s competitive advantage over another. The difference between success and failure can often be attributed to a limited set of organizational characteristics. When they are combined, they create culture.

Many organizations emphasize values such as quality, customer service, teamwork, respect for the individual, and innovation—themes with broad appeal that can help people feel they are reaching higher goals for themselves. But all too often these values are communicated merely as organizational spin control in the form of annual reports, recruitment sections of the corporate website, and token discussion at management retreats. They fail to become alive, to be fully infused in the fabric of their culture. And nothing is more dangerous to a company’s survival.