by Tim Glowa, M.B.A., IBDC.D, GCB.D, (he/him), CEO and Founder of HRbrain
Boards of directors are responsible for the long-term strategy and oversight of organizations, ensuring the company’s actions align with its mission and growth objectives. While management executes day-to-day operations, the board sets the strategic tone, holding leaders accountable for fostering a workplace that supports employee engagement and organizational performance.
Recent data, including findings from HRBrain's “The State of Work Today” study, underscores the alarming state of employee engagement across North America. With only 38% of U.S. employees and 43% of Canadian employees trusting senior leadership's decisions, and over half of the workforce feeling unheard at work, boards must take these warning signs seriously. Disengagement, coupled with a toxic work environment, can significantly derail growth strategies and harm the company’s reputation, financial performance, and ability to attract and retain top talent. This article explores the implications of workforce disengagement and toxic workplaces for boards, highlighting their role in mitigating these risks while ensuring organizational success.
The Board’s Role in Strategic Oversight
As stewards of an organization’s long-term success, boards are uniquely positioned to influence and oversee the elements that drive employee engagement and productivity. While management is tasked with executing workplace initiatives, the board must ensure that the strategic foundation aligns with a culture of trust, accountability, and inclusivity.
A disengaged workforce poses risks that extend beyond internal dissatisfaction. It can manifest as decreased productivity, higher turnover rates, and an inability to execute on critical strategic initiatives. For example, if employees do not trust leadership or feel their voices are unheard, they are less likely to align with organizational goals, stifling innovation and collaboration. Furthermore, toxic workplace environments often breed reputational risks, which can result in public scrutiny, lost customers, and diminished shareholder confidence.
To address these challenges, boards must proactively oversee workplace culture and its alignment with organizational objectives. This starts by setting clear expectations for management and maintaining oversight of key engagement metrics.
Workforce Engagement as a Strategic Priority
The HRBrain study provides evidence that employee engagement is not just an HR issue but a core business concern. High engagement levels are linked to better productivity, customer satisfaction, and innovation—key drivers of competitive advantage. Conversely, disengagement can undermine even the most robust strategies. Boards should prioritize workforce engagement in the following ways:
1. Embedding Engagement into Strategy:
Boards must ensure that organizational strategies explicitly include workforce engagement as a pillar of success. This involves not only setting ambitious growth objectives but also ensuring that these goals are achievable within a supportive workplace culture. The link between engaged employees and business outcomes must be a constant consideration in strategic decision-making.
2. Requiring Management Accountability:
Management must regularly report on employee engagement metrics, such as turnover rates, trust levels, and feedback from employee surveys. Boards should request quarterly updates to monitor trends and intervene if red flags arise. For instance, a persistent decline in engagement should prompt boards to question whether leadership decisions are effectively addressing employee concerns.
3. Mitigating Risk through Proactive Oversight:
Employee disengagement and toxic behaviors can lead to lawsuits, regulatory scrutiny, or reputational harm. Boards should work closely with management to identify and mitigate these risks through preventive measures, such as robust reporting systems for workplace grievances and frequent engagement audits.
Toxic Workplaces: A Governance Challenge
Toxic workplaces amplify the risks associated with disengaged employees. Toxic behaviors—such as harassment, discrimination, and unethical practices—can severely undermine trust in leadership and diminish the organization's capacity to achieve its strategic goals. Boards have an ethical and fiduciary responsibility to ensure that management fosters a workplace environment free of toxicity.
Governance Strategies for Addressing Toxicity
1. Mandating Regular Culture Audits:
Boards should commission independent audits to assess workplace culture, ensuring objectivity and accuracy. These audits can identify patterns of toxicity and recommend corrective actions. Boards can use this data to benchmark against industry standards and track progress over time.
2. Implementing a Whistleblower Policy:
Establishing confidential reporting mechanisms is essential for addressing toxic behaviors. Boards must ensure that employees feel safe to report misconduct without fear of retaliation. Furthermore, whistleblower reports should be reviewed at the board level to confirm appropriate follow-up actions by management.
3. Setting Clear Consequences for Leadership Failures:
A toxic culture often stems from poor leadership. Boards must hold management accountable for addressing and eradicating toxic behaviors. When leaders fail to act or are themselves sources of toxicity, boards must be prepared to enforce consequences, up to and including leadership changes.
Monitoring Employee Perceptions
One of the key findings from HRBrain’s study is that many employees feel their voices are not heard at work—58% in the U.S. and 46% in Canada. Boards must recognize the importance of listening to employee perceptions as part of their oversight responsibilities. Employee feedback provides valuable insights into workplace morale and potential barriers to achieving strategic objectives.
Tools and Approaches for Monitoring Perceptions
1. Employee Surveys:
Boards should ensure the company conducts regular employee surveys to gauge satisfaction, trust, and engagement. These surveys should include open-ended questions to capture nuanced feedback. Survey results must be shared with the board, along with a management plan for addressing identified issues.
2. Direct Employee Input:
Some boards hold town hall-style meetings or conduct focus groups with employees to gain firsthand insights into workplace dynamics. While management typically facilitates these interactions, directors can use this input to inform their oversight of management practices.
3. Third-Party Reviews:
Hiring external consultants to assess workplace culture can provide an unbiased perspective. Boards should use these reviews to validate internal findings and identify blind spots that may not be visible to leadership.
Governance Recommendations for Boards
To address disengaged workforces and toxic workplaces, boards must take deliberate actions that strengthen alignment between employee engagement and organizational strategy. Key recommendations include:
1. Integrate Culture into Risk Assessments:
Boards should treat workplace culture as a material risk, akin to financial or operational risks. By doing so, they can better anticipate and mitigate potential issues before they escalate.
2. Establish Culture Committees:
Some organizations have created board-level culture or workforce committees to focus on engagement and toxicity issues. These committees ensure that these concerns receive the same level of scrutiny as other critical business areas.
3. Tie Executive Compensation to Engagement Metrics:
Linking management incentives to employee engagement outcomes can create a direct accountability mechanism. For example, a portion of executive bonuses could be tied to improvements in trust scores or reductions in turnover.
4. Monitor Trends in Workforce Analytics:
Boards should use advanced analytics to track workforce trends, such as absenteeism, turnover, and productivity. These metrics can provide early warnings of disengagement or toxicity.
5. Champion Diversity, Equity, and Inclusion (DEI):
While specific organizational priorities may vary, boards should encourage DEI initiatives as part of broader engagement efforts. Inclusive workplaces are often more engaged and resilient, contributing to better strategic outcomes.
The Cost of Inaction
Failing to address workforce disengagement and toxic behaviors can have severe and measurable consequences for companies. Disengaged employees not only contribute to lost productivity and higher turnover but are also less likely to innovate, less loyal to the organization, and more likely to spread negativity. Toxic workplaces exacerbate these risks, often resulting in high-profile legal cases, reputational damage, and difficulty attracting or retaining top talent.
The cost of turnover is particularly striking: replacing an employee typically costs 50% to 200% of their salary. For a $75,000 employee, improving retention by just one percentage point can save $375,000 for every 1,000 employees—funds that could be invested in critical areas like marketing campaigns or IT infrastructure.
Boards that fail to govern effectively in these areas not only expose their organizations to financial and operational risks but also invite scrutiny from shareholders and regulators questioning their oversight. Addressing these challenges proactively is essential for protecting the organization’s long-term value and resilience.
Conclusion
Workforce engagement and culture are integral to achieving growth objectives and maintaining organizational resilience. Boards play a vital role in ensuring that these elements are aligned with the company’s long-term strategy. By monitoring employee perceptions, holding management accountable for fostering a healthy workplace, and integrating engagement into strategic oversight, boards can help their organizations navigate challenges and seize opportunities.
In a competitive world, a disengaged or toxic workforce signals a failure of governance. Boards must act decisively to address these issues, protecting the organization’s reputation as a trusted employer, reliable partner, and leader in its field.