Most Australian managers believe stress and fear are good motivating tools, but here's why it's the fastest way to kill your startup

The last decade in corporate Australia has seen a much greater acknowledgement of toxic workplace practices and their impact.

In the startup sector in particular, over recent weeks we have seen many women come forward to share their experiences of gender discrimination, sexism, harassment and abuse, a subset of toxic behaviour.

I am in the process of talking with anyone who wants to share their experiences, and recommendations for how to do better so I can pull together an open source resource for the ecosystem, and possibly implement some industry-wide best practices.

Many of these discussions have been difficult, because people have been truly traumatised by some of their treatment. But it has led to the natural question: why does this type of behaviour happen in the first place?

Acknowledging that there are additional factors that play into gendered workplace toxicity from other types of it, one participant charitably offered that perhaps managers or people in positions of power who create toxic workplaces are operating in such a competitive and demanding environment, they lose their compassion in the fight to retain their position. Perhaps.

There may also be some answers in a study released this month which has shown that a third of corporate managers are driven largely by fear, and this is responsible (at least in part) for the creation of toxic workplaces and $2.3 billion in productivity costs.

Believing in fear

Worryingly, this study also showed that 7 in 10 managers felt that stress and fear can be used as positive motivating tools, despite acknowledging the adverse effects on performance, well-being and company culture. The study clarified that fearful leadership isn’t just shouting or aggressive behaviour, it’s avoidance, complacency, decision fatigue, hesitancy to express viewpoints, fear of letting people down, micromanagement, reluctance to provide feedback, not creating space for others to speak up, holding back growth opportunities for others and more.

The study stated that fearful leadership often stems from inexperience and low self-confidence, leading to increased stress, fatigue and compromised decision making.

Margot Faraci

Margot Faraci, a veteran banking executive and management expert who led the Love Leadership study, says: “Fearful leaders might prioritise short term gains over long-term employee wellbeing, inadvertently fostering a tense and anxious workplace. These actions stem from an unconscious fear of losing control”.

I understand this innately. I’ve personally experienced high toxic workplaces and I’ve observed plenty of examples of fearful leadership across my two decades and as a venture capitalist and stamping this out is an area where I attempt to ‘add value’ ᵗᵐ as an investor/advisor.

I’ve seen many companies wax lyrical about their culture — often tied to stories of their early days, the hard times, the initial wins, the principles that they believe are important to make and build great companies.

They talk of cultures built around empathy, honesty, persistence, accountability, frugality and preparedness to do the hard things. I’ve seen companies fly in culture experts, and undertake professional development lectures about cultures they aspired to mimic or borrow from, and I’ve seen many a company who felt they had built a strong team that trusts and respects each other, and have each other’s backs.

Until they don’t.

When a crisis hits

Crises expose poor cultures like nothing else and I’ve seen many companies when hit with a crisis, devolve into something closely resembling Lord of the Flies.

I’m not exaggerating. I’ve seen undermining, plotting, attempts to steal customers, attempted and successful coups, lack of understanding or seeking to understand, knee-jerk reactions, throwing people under a bus and self-preservation acts.

I’ve seen yelling, swearing, unfair blame, lack of empathy, temper tantrums, victim blaming, bullying, public humiliation, unrelenting stress, unreasonable expectations, heartlessness, crying, panic attacks, psychological assessments and therapy.

You would have thought this was the Australian parliament, not the private sector.

In these times of crises — be they true existential threats to the company or personally challenging issues for management — in my experience, management becomes hypersensitive to the things that affect them personally, and starts to focus on the urgent instead of the important.

Unhelpfully, that tends to be the things they can’t control, like external factors, instead of those they can, such as business performance. And then when these types of crises continue and there is a buildup of exponential pressure, management can explode into full tyrannical effect.

In one example, a CEO slept in the office several days a week and made sure everyone knew it. They would brag about how many days they worked in a row to shame those who hadn’t.

Under increasing pressure the CEO’s resentment and growing contempt for team members who refused to see it their way, or disagreed, couldn’t equal their commitment in hours, or match them led to bullying, yelling, harassment, public shaming, contravening their rights, not providing support when needed or actively refusing to provide duty of care when asked, and undermining in the media and to others in the team.

Pleas for a different leadership approach, such as encouragement and support, alongside listening to employees’ feelings and feedback, were met with eye rolls, dismissed as ‘silly’, ‘not hard enough’ or ‘weak’.

It combined to alienate a team desperately searching for leadership, vision, and stability. And it caused severe emotional and psychological distress that required therapy and/or led to resignations to protect mental health.

When management and leadership devolve into using fear as their primary tool to drive results to drive short term outcomes, it is counter-productive. Coups happen, good people leave, revenues fall, and companies may not survive. And I’ve seen all these ouctomes realised in response to toxic leaders.

But here is the paradox. Often those involved are fundamentally good people, but under extraordinary pressure in an exceptionally uncertain environment.

When uncertainty, inexperience, and self-interest combine, leaders can default to fear-based decision making. There are thousands of studies that demonstrate fear based decision making leads to very bad decisions and poor execution, including Margot Faraci’s latest one.

However, if fear based leadership is still used by 7 out of 10 managers today, and clearly can cause genuine trauma and damage a company’s long-term performance, how do we fix this to ensure psychological safety and sustainability for all and value creation for shareholders ?

Faraci says managers and leaders need to acknowledge and confront their fears to break the cycle. Acknowledging is an important first step, but then what?

In my experience, leaders revert to fearful leadership because they’ve never been truly challenged before so don’t know how to react with stability, or because they have not learned how to manage through pressure and without the right cultural cornerstones to provide guardrails, they resort to lizard brain thinking and in a state of fear, do what’s in their best interests or gets the short term outcome.

Many leaders have also never really experienced true hardship or a crisis as someone with no power, so they don’t have the perspective and empathy to understand how those they are trying to lead are thinking and feeling and what will drive the best performance.

Managing fear

Without the right tools to manage fear, the more people become focussed on their own self-interest and the less concern they show for the wellbeing of others.

If we truly want to address toxic workplaces, we need to stop promoting people into positions of power without training on how to lead with vulnerability and not with fear.

And we need to stop rewarding behaviour that creates fearful leadership by promoting people who behave this way, and lionising fearful leadership styles.

But it needs to be modelled from the top, including Boards. If Boards and key executives don’t have the ability to transcend fear and lead with vulnerability, then we have little chance of it trickling down to the broader workplace to create a less toxic environment.

It starts with assembling a broader scope of approaches at the Board level, and that comes from diversity. Diversity in culture, gender, background, experience, and leadership style, and companies who don’t do that are operating in fear (fear of doing it differently, fear of working with people unlike them, fear of hearing they may not be doing a good enough job).

As Faraci says, the only way to fix this is we must first acknowledge the fear, then we must break the cycle.

It’s time we take a more human approach to leadership.

It’s tragic, actually. The traditional approach to leadership has been entirely human. It’s just extremely disappointing that it’s this aspect of humanity we seem to tolerate — using stress and fear to drive short-term gains, and not the alternative side that would provide the necessary ethical checks and balances like diversity, integrity, empathy and vulnerability.