Does Leadership Shape Company Culture?

What do you imagine when you think of “leadership”? Perhaps a politician or historical figure. Maybe you picture a fictional character helping their band of friends to the prize at the end of a difficult quest.

But let’s add another variable: company culture. What does great leadership look like when thinking about successful workplaces? A clear headed C-Suite? A competent board of directors? A strong CEO?

When looking at companies like Microsoft or Apple, it would be easy to believe that companies are nothing but extensions of their charismatic leaders. But the reality is a bit more complicated. Senior leadership can steer a company to success or chaos, but the real fluctuations in productivity happen lower down the chain. Middle managers, rather than CEOs, are responsible for 70% of the variance in employee engagement. A surprising statistic, right? 

As experts in building company culture, we heard about this phenomenon several years ago and have been testing it in real workplace environments. In this article about the role of leadership in company culture, we’ll explain how managers shape culture, as well as ways leaders can adapt their approach to improve morale and productivity.

The Link Between Leadership and Company Culture

When we say that leaders are important for culture, what do we mean? While strategy and vision are essential for a successful business, leaders must also build teams that they can mobilise for success.

In Gallup’s State of the Global Workplace report, their researchers found that a mere 23% of employees strongly agree that their organisation’s leadership communicates effectively. This is a proportion of the workforce that mirrors those who feel highly engaged at work; 21% globally and 10% in the UK.

Let’s take a step back for a moment. Is poor leadership communication the sole reason for low engagement in the workplace? Of course not. But there is growing evidence that the way leadership communicates has a significant impact on overall company culture. And poor culture is the death knell for employee retention and productivity.

Why Leaders Set the Cultural Tone

If company culture is key to performance, why focus on leadership? While this is a fair question, it misses a key aspect of how workplaces function: leaders impact all aspects of company culture. They hire and fire. They set the standards for communication, conduct and productivity. 

Expecting cultures to improve from the bottom up, without addressing issues with leadership, will only create partial solutions.

Evidence shows that companies with “highly aligned” leadership and culture report 59% higher employee engagement and 36% better retention (Gallup).

Neglecting the vital role of leadership in making employees feel great about their workplace could be costly. Luckily, there are proven ways to improve the connection between leadership and employees.

Skip to the “How to Align Leadership with Cultural Goals” section to learn more.

The Ripple Effect of Leadership Behaviour

In the MIT Sloan 2024 Culture 500, leadership was cited as the top differentiator between companies with thriving or toxic cultures. This data was based on over 1.4 million Glassdoor reviews. To add weight to this idea, mentions of “positive leadership” correlated with up to four times lower turnover intent.

Employee attrition is a big problem for companies, costing £30,614 per employee (Oxford Economics). This number rises the further up the company hierarchy you go.

Let’s look at an example of how not to behave as a leader. The culture at Twitter transformed for the worse when the company was purchased in 2022. In the aftermath of the acquisition, a large proportion of the staff was fired. Although the platform survived, many have complained that both the working environment and the product has declined in quality and safeguards.

What could Twitter’s new owner have done differently?

• Clear email communications.
• Non-threatening review process.
• Transparency.
• Longer consultation period.
• Prioritising a culture of psychological safety.

Now, let’s consider the alternative. Despite what some leaders claim, it is possible to be successful while respecting employees. Rosalind Brewer, the former CEO of Walgreens and former COO of Starbucks, is a great example of a leader who champions diversity and inclusion while navigating market chaos. Her strong leadership was especially evident during the pandemic.

Ultimately, there is no single way to run a company. But the notion that cutthroat practices are the only way to drive profit is a myth. Leaders like Brewer demonstrate that empathy is a valid way forward.

How Leadership Impacts Team Morale

The evidence supporting the connection between leadership and company culture has been mounting, especially since the workplace shifts that occurred after the pandemic.

According to the SHRM 2024 Global Culture Report, 72% of HR leaders say leadership behavior is the number one influencer of organisational culture. The same study reports that 1 in 3 employees left a job in the past year due to toxic leadership or misaligned values.

Let’s take a common example of a fork in the road for company leadership: redundancies. During layoffs, employees can feel isolated and anxious. Unfortunately, unhealthy communication isn’t always easy to see during times of acute stress.

Here are some examples of poor communication:

1. Freezing some employees out of meetings.
2. Sending generic and/or obfuscating emails to the whole team about important changes.
3. Telling two employees different things about a situation.
4. Setting up too many meetings without adjusting workload.
5. Creating a “boys club” during meetings.
6. Talking over colleagues or claiming credit for their contributions.
7. Tolerating and/or giving unwanted or belittling nicknames.
8. Allowing unfair commentary on another employee’s work, personality or performance.

Even if leadership is not guilty of these communication sins, allowing any of the behaviours listed above to go unchallenged will create a toxic atmosphere. Put simply, ignoring poor communication is not leadership, and company culture will suffer as a result.

With every instance of bad leadership comes an opportunity to talk about positive examples. Our client, OVO Energy, successfully steered their organisation through a high-profile merger in 2021. With the help of our platform, they managed to maintain employee engagement despite redundancies and a remote work environment.

So, what is the lesson? Strong leadership and a people-first culture is the difference between losing great employees or retaining them.

Can Culture Thrive Without Strong Middle Management?

In this section, we will move our focus away from senior leadership. To paint a full picture of the leadership problem, we need to look at management across multiple levels of a business.

Specifically, we need to examine the way that middle managers affect company culture. We’ve already mentioned that they are responsible for 70% of the variance in employee engagement. 

Management has faced significant challenges in the last decade. Remote and hybrid work patterns, now the norm for thousands of companies, have changed how many businesses function. 

Even if your teams aren’t desk-based, all industries have struggled with attrition, “quiet quitting” and falling productivity. That said, most managers aren’t performing at their best, and even fewer are receiving adequate training. So, how do bad managers impact culture?

The Role of Middle Management

According to Business Insider, only 44% of managers have received formal management training, contributing to decreased engagement and increased burnout.​ 

There is a growing discrepancy between management’s perceptions of how they provide feedback and employees’ experiences, a disparity that highlights the need for improved communication and recognition strategies in most industries.

Bottom-Up Cultural Influence

Can middle management and HR influence company culture from the employee level? Yes, it’s possible – with the right infrastructure and strategy. For engagement to work from the bottom up, it needs to encompass three important elements: recognition, communication and accountability. 

Giving employees more power to recognise their peers will build a culture of togetherness. Employees can become disengaged because their contributions feel invisible. Lack of recognition from senior leadership has a real impact on a team’s performance and the efficiency of a certain process, but this negative effect can be mitigated by peer recognition. 

Beyond improved training, giving middle managers the autonomy to share recognition will have a positive effect on employee esteem. Chasing authorisation from someone higher up will only slow down the process. Empowering management means that employees get more immediate recognition, creating a positive culture without direct input from senior leadership.

How to Align Leadership with Cultural Goals

Managers can be overwhelmed by their expanding roles, unsure of how to effectively engage their teams. With our culture platform, managers can motivate employees and drive performance across hybrid, remote and office-based cultures.

Our recommendations for Leadership Teams:

1. Upskilling Managers: 

Investing in manager development, including formal training and consistent coaching, is crucial for enhancing team engagement and performance. Our platform gives managers valuable feedback for their engagement efforts, helping them adjust their culture strategy in real time.

2. Enhancing Wellbeing: 

Organisations should prioritise employee wellbeing through clear communication, recognition and support systems, especially for younger workers and those in remote or hybrid roles. We recommend our Moments feature for greater team cohesion. 

3. Addressing Feedback Loops: 

Implementing regular, meaningful feedback mechanisms can bridge the gap between management and staff. Mo uses Boosts to drive engagement through automated prompts.

Transform your culture with Mo

Book a free demo to learn how Mo can help you:

• 🤝 Improve employee engagement scores
• 🚀 Reduce employee churn
• 😍 Build a collaborative culture

Book your free demo

Mo Helps Leaders Become Culture Catalysts

Our award-winning platform is designed to help busy managers engage their teams. It doesn’t matter if your people are in-office, hybrid or remote.

A great company culture is within reach. With the right strategy and investment, your organisation can find a market advantage, retain employees and soar where others flounder in the new world of work. If you have any questions about your culture, or anything covered in this guide, reach out to our team.