Jose Costa needed a better view.

After being appointed CEO of GrandVision’s North America division in September 2017, he knew what his first step would be: assess the culture of the U.S. arm of the world’s largest optical retailer. So Mr. Costa bought glasses—a lot of them. He visited several of the company’s stores, pretending to be a customer to gauge the experience. He followed those visits up with lengthy conversations with everyone—from executives to receptionists—probing them about what was working and, more importantly, what was not.

It was an eye-opening exercise. In an aggressive bid to expand into North America, Netherlands-based GrandVision had in 2015 acquired For Eyes, a U.S. optical retail chain with more than 100 locations. For Eyes was then a 43-year-old family-run business. It was not surprising there would be some growing pains as it merged with a publicly traded $4 billion multinational. (It is now branded “For Eyes by GrandVision.”) There were deep cultural divides, divides managers struggled to overcome. A lack of transparency did not help.

“My predecessors kept information and data from front-line employees,” says Mr. Costa, who grew up in Venezuela. “It was top-down, command-and-control rather than collaborative. There was a lot of fear and stagnation.” There were other issues, too, including basic leadership problems at the top. The founder of For Eyes had handed over the company to his son and daughter, who disagreed on strategy. “There was a lot of tension and internal dysfunction,” Mr. Costa says. “The son and daughter were not aligned with the vision of the father, so the message coming across to the workforce was not cohesive.” People were wary and unsure of the company’s direction. The culture was on its way to becoming toxic.

From Uber to Nike, the last few years have offered ample evidence of the dangers of toxic workplaces. High turnover and a lack of innovation are hallmarks of poor workplace cultures. Such cultures are widespread: 11.3 percent of companies have a toxic culture, meaning there is a churn-and-burn mentality with employees or no sense of connection with team members, according to research by LearnLoft, a company that assesses workplace cultures. An additional 54.5 percent of companies have a deficient culture, defined as a lack of connection. Separate office spaces, conference rooms, printers, lunchrooms and parking spaces for executives and nonexecutives foster the disconnect, which leads to lack of innovation, creativity and teamwork, LearnLoft reported. Between toxic and deficient cultures, two-thirds of companies have a culture that works against success and leaves employees feeling unengaged.

Mr. Costa says that based on these definitions, GrandVision North America’s culture was deficient when he arrived. But the timing of his arrival was propitious—a merger or acquisition is a perfect time to re-evaluate the culture of both the acquiring and acquired company, says Audra Jenkins, chief diversity and inclusion officer at staffing company Randstad North America. Her company has had some significant acquisitions itself in recent years, such as purchasing Monster in 2016.

“You want to proceed delicately,” Ms. Jenkins says of the culture assessment and change process. “If the company being acquired has a great culture, you don’t want to disrupt that. You should take a hard look at what each can borrow from the other.” In the case of an acquisition that has a toxic culture, she says the first step to improving the situation is communication. “Change management is not something that happens easily,” she says. “You need a strong plan for transition.”

What Level Culture Is Your Company?

There are five levels of organizational culture, each with its own defining characteristics.

Level 1: Toxic

The company has a churn-and-burn relationship to employees. Team members lack a sense of connection. (11.3% of organizations surveyed)

Level 2: Deficient

There are clear divides between executives and nonexecutives: separate office spaces, conference rooms, lunchrooms, parking spots, etc. This undermines teamwork. (54.5%)

Level 3: Common

There is low to medium turnover, and a few “all in” top performers tend to power much of the company’s performance. (22.7%)

Level 4: Advanced

People seek out opportunities, and there is a direct connection between the work and the company’s purpose. Executives work to mold the culture every day. (6.8%)

Level 5: Elite

There is a highly connected work environment, and teams see a future working together. They consistently exceed growth targets. (4.5%)

Source: LearnLoft

“Whether you are the CEO or an employee on the front lines, you have the same core values and needs. You wake up every morning wanting to do something of value.”

—Jose Costa, CEO, GrandVision North America

Five New Values

Mr. Costa knew that well. He previously led turnarounds at companies including Burger King and Maaco, an automotive paint and body repair chain with more than 500 stores across the United States and Canada. After taking the helm of For Eyes by GrandVision, he immediately crafted a vision for a new culture based on five values: integrity, fun, superhero customer service, meritocracy and accountability.

While those could easily turn into feel-good buzzwords, Mr. Costa took firm steps to show the workforce that he was committed to the cultural statement. To strip away bureaucracy, he removed private offices at the corporate headquarters and had functions sit together in an open space, with heads of departments situated alongside their direct reports. He also changed the name of the corporate center to the support center, denoting a new emphasis on front-line workers. “The cash registers are in the stores, and the corporate office is there to support the stores.”

Much of Mr. Costa’s philosophy about corporate culture was developed working for David Novak, the co-founder and former CEO of Yum Brands Inc. Over the course of his 15-year leadership tenure, Mr. Novak grew the company’s market capitalization to $31 billion from $4.6 billion. “He used principles that I follow today, such as making workers feel appreciated,” Mr. Costa says. “Many organizations don’t say thank you enough.” Click To Tweet

At regional meetings, Mr. Costa gives out superhero awards that include a $500 bonus to outstanding For Eyes employees. Recipients range from doctors and managers who identified life-threatening illnesses to customer service team members who delivered prescription glasses to a customer’s home.

With the previous regime, store leaders and front-line workers had no idea how the company was doing financially. Now, Mr. Costa makes a point of overcommunicating that information through everything from newsletters to videos and at events including regional meetings and webinars. The previous closed-off mindset of the company appeared in other subtle ways as well. For example, invoices did not offer customers a mechanism to give feedback, such as an 800 number for them to call. Mr. Costa fixed that issue to encourage dialogue between employees and customers.

Still, Mr. Costa says his biggest challenge remains getting workers to truly assimilate the message around better customer service. “I lose sleep thinking about how to bring the culture to life in every single one of our stores and with every single associate,” he says. “This will take a long time to execute.”

Part of the challenge is making tough decisions on how people are adjusting to the new strategy. “We promote around performance,” Mr. Costa says. “If after two reviews employees are not improving, we have to rethink if they’re at the right position in the company.”

“I lose sleep thinking about how to bring the culture to life in every single one of our stores and with every single associate. This will take a long time to execute.”

—Jose Costa

The Perils of Homogeneity

But perhaps the biggest changes Mr. Costa implemented focused on diversity. He believes that many of the problems that large companies have with toxic cultures tie back to homogeneity. “Look at the management teams,” he says. “Too many leaders surround themselves with people who look and talk like them. It creates a circle of failure, because everyone has the same experience, the same background and the same way of thinking.”

The failures that stem from homogeneity are not simply cultural, notes Ms. Jenkins—culture, financial performance and diversity are deeply intertwined. “Diversity is culture,” she says. “A lot of companies have failed to correlate the impact that diversity has on overall financial performance and customer bases.” But she sees a real shift underway among business leaders. “People are pushing diversity to show they care and demonstrate that belonging is important.”

Indeed, diversity hiring is now the No. 1 priority for talent leaders, according to LinkedIn’s 2018 Global Recruiting Trends report. Almost 80 percent of companies are prioritizing diversity to improve their culture, while 62 percent are doing so to boost financial performance.

While Mr. Costa became CEO just as the #MeToo movement was gaining steam, he already was planning to add more women to his management team. In his time at Maaco, he hired a female head of marketing who was instrumental in building up a lucrative base of female customers.

At For Eyes, Mr. Costa brought on board a Latina to lead the professional services department as the head doctor earlier this year. His management team is now almost 50 percent female. “It took the #MeToo movement to get a lot of people to pay attention to the need to tap into the talent women can bring,” he says. “I’ve always believed that you need a moral compass when you build teams.”

Mr. Costa’s view of diversity goes beyond gender and race.

As he built out his management team, he also looked for diversity of background and experience. “High-performing teams need different perspectives,” he says. He hired a CFO who came from the technology and telecommunications industry. His global human resource leader came from the cruise ship industry. His head of operations had worked in procurement.

While people from outside the industry could provide a fresh perspective, Mr. Costa learned that newcomers did not always adapt quickly to optical retailing. Some of the original managers he brought in who had retail experience struggled with its health care component, such as the many rules about confidentiality of patient records.

“When some people couldn’t keep up with the learning curve after four or five months, I had to make some changes,” he says.

Engaged in Change

One other change Mr. Costa implemented was on the policy front, relative to the new culture’s core value of accountability: improved sexual harassment and social media policies. Every member of an organization must know they have recourse if anyone—from the CEO on down—behaves inappropriately, he says. “Hearing employees out and letting them know they have been heard is the first step in creating a culture free of harassment.”

But culture is a tricky thing to quantify. Mr. Costa gauges cultural health by measuring employee engagement and satisfaction levels. The company also tracks employee satisfaction ratings and runs an internal survey twice a year that helps leadership calibrate its culture-building efforts. “We are able to see if the culture is growing and becoming more sticky,” he says.

Fundamentally, preventing or changing a toxic workplace culture, Mr. Costa says, requires openness and empathy. Mr. Costa learned this in a very public way. A few years ago, while president of Maaco, he appeared on the reality TV show Undercover Boss, in which an executive masquerades as an entry-level employee to discover how things really work at the company. His big takeaway from that experience? Any healthy culture is built around our common humanity. “Whether you are the CEO or an employee on the front lines, you have the same core values and needs. You wake up every morning wanting to do something of value.”

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