Does your organisation have Cultural Debt?


Debt has been on my mind lately. My family’s move to Christchurch involves the selling and purchasing a house. And a mortgage. It’s been a busy time – apologies for the gap between articles.

Debt allows us to meet our goal or desire now. We then repay the debt over time with interest. If under control, debt can be useful. If not, there can be dire consequences. Either way, there is risk in taking on debt.

Let’s extend the analogy to your organisation. 

What happens when we make decisions that erode positive aspects of culture to meet a short-term or strategic objective? We create cultural debt.

Cultural debt is when we make a decision that borrows against the positive values and patterns of behaviour in the organisation. I’m assuming your organisation has some positive cultural elements. But, if it doesn’t, perhaps your cultural account has been overdrawn for too long!

There is a social contract between individual and organisation. The individual desires to contribute beyond that required by their remuneration package (the market contract). The organisation, in return, provides an environment that meets the social and growth needs of the individual. Such as autonomy, competence and relatedness – the drivers of intrinsic motivation. Dan Ariely provides further insight into social and market contracts or norms in this video.

Decision making by leaders impacts the culture. Unfortunately, some decisions erode the social contract and create cultural debt. Typical scenarios could include a restructure that splits up a close-knit team or a new policy which cuts across informal work practices.

Restructures and new policies are necessary at times. But the erosion of the social contract leads to disengagement. Initiative and contribution are not acknowledged so people stop trying or caring. They revert to a purely market contract. The least effort required to get what they’re paid to do.

It’s also important to note that it’s often more complex than ‘poor leadership’. Real tensions exist. For example, imagine you’re the manager of a finance team. Due to a regulatory deadline, your team is working long hours and overloaded. But you can’t find a person with the required qualifications to join the team and relieve their pressure. Despite your best intentions, you incur cultural debt. 

The point is: cultural debt happens. The rest of this article tackles how we diagnose it. The follow-up will cover how we repay it. 

How do we identify where there is a cultural deficit?  Observe language and behaviours in the organisation that show the health of the social contract. 

Here are some contrast creating questions to help you on your way:


  • When management communicates, do they (you) assume people desire to contribute of their own choice? Or assume that people need incentives through rewards or threats? 

Speaking of language, I’ve deliberately used ‘management’ instead of ‘leadership’. ‘Management’ represents the authority structure in the organisation. Leadership is an activity that helps others see what they need to do and supplies them with the tools and feedback they need to make progress. See Heifetz’s work on Adaptive Leadership

  • When people talk about the organisation, do they use ‘we’ or ‘they’?


  • In decision-making, are the people affected involved in formulating a solution? Or does a select group decide and people feel change is ‘done to them’?
  • Does management share and acknowledge the contribution and progress people are making? Or is it unclear on who is doing what and if people are making meaningful progress?

If you’re observing the second option more than the first then your organisation may be experiencing cultural debt. Once again, some of this may have arisen from necessary short-term decisions. Either way, the first step is to acknowledge it’s there.

Reach out if you need support in diagnosing cultural debt. And stay tuned for the next instalment to consider ways to repay cultural debt.

Doug Maarschalk is a facilitator and coach who guides people to sustained high performance through healthy continuous improvement. He’s worked with clients in the horticulture, banking, logistics and manufacture sectors along with local government. Read more about the Services Doug provides and the Clients he has worked with.