Low-trust organization

In 1960 Douglas McGregor published a book “The Human Side of the Enterprise”. In that book, he writes about Theory X and Y.

Theory X says:

Employees cannot be trusted to do the right thing. They are mainly motivated by money and fear of losing their job. They would rather be directed than take responsibility.

Theory Y says:

Motivation on organizational and personal level can be aligned. Under the right conditions, people are motivated by the desire to realize their own potential. People will direct themselves towards a target they accept.

An example of an organization whose culture is based on Theory Y is Wise. One of the core principles at Wise was (likely still is): “We hire smart people and we trust them”. Wise is also an excellent example that this approach can scale very well even during times of rapid growth. When I joined there were about 60 people, when I left 7 years later there were more than 2000. Still, I felt no difference in the level of trust that the organization put in its employees.

It seems quite logical that building an organization that embraces Theory Y will lead to better results. However, there are many organizations still out there whose culture is rooted in the assumption that employees should not be trusted.

Downsides of low-trust culture

Low-trust culture cultivates additional processes and rules that make the business slower to deliver value but also slower to change. Such organizations make it hard for their employees to fulfill their full potential as they either conform or spend a big chunk of their mental capacity working around the bureaucracy.

There is nothing wrong with processes and best practices. They can be enablers — making things run more smoothly, especially as the organization grows. However, in a low-trust organization, these policies are meant to police employees — to protect the company, its teams, and employees from themselves and their peers. There is a difference between focusing on how to block people from doing bad things vs empowering them to do the right things.

How does such an irrational culture appear and why is it resistant to change?

Culture is based on people — it does not grow out of company values written down by upper management or the HR department. The founders or first key employees are the ones who will lay the foundation for the organization’s culture. If they see the world through the lens of Theory X they will naturally hire new people who either have the same mindset or are ok to work within the boundaries laid out.

In addition, this kind of environment is very suitable for an expert beginner mindset. All these corporate rules make it easy to create a seemingly unique environment where it is always possible to say that we are special and hence the best practices widespread in the community do not apply to us.

Why does it matter?

Can an organization with a low-trust culture still be successful? Absolutely, just like it is possible to build a successful business when having feature teams instead of product teams or forming the product engineering organization around functions instead of business domains. As long as the competition is even slower or the company is able to compensate for its inefficiency through other means it can afford to remain in the low-trust world of Theory X. However, it does open itself up to being overrun by newcomers whose culture is not stuck in command and control mindset.