Toxic Employees Don’t Start That Way—We Create Them. How to Avoid Doing That Again.

We often think of toxic employees as anomalies—individuals who somehow slipped through the cracks and poisoned the culture. But here’s the uncomfortable truth: most toxic employees didn’t start that way. They become that way when leaders and organisations fail to set clear expectations, offer constructive feedback, or follow through with meaningful accountability.

It’s rarely a switch that flips overnight. It’s a slow erosion—of boundaries, clarity, and honest communication—until we wake up and realise we’ve promoted someone who believes their title more than their impact, or inflated someone’s ego while their skillset has quietly flatlined.

The Rise of a Toxic Persona: A Cautionary Tale

I worked with a client who was hired into a senior strategic role—brought in to elevate the performance and commercial impact of a function. Very quickly, they discovered that a direct report—someone already embedded in the organisation—had an outsized view of their own capability. Their title didn’t match their impact. Their confidence outpaced their competence. And worse, they had become resistant, defensive, and increasingly difficult to work with.

But was that entirely their fault?

Here’s what had happened behind the scenes: over several years, this employee had delivered well in certain client-facing areas. Customers liked them. Internally, the organisation had praised them, without nuance. No one had challenged their blind spots around strategy or commercial thinking. Instead of feedback and development, they were given a bigger title as a reward. But no one stopped to ask whether they had the capability—or interest—to grow into it.

When leaders don’t challenge, assess, or develop performance holistically, they don’t just avoid a hard conversation—they create a distorted feedback loop. The employee hears: “You’re doing everything right.” They start to believe it. Their ego grows. And over time, a good contributor transforms into someone who demands status, pushes back on feedback, and resents new leadership.

Toxicity, in this case, wasn’t innate. It was cultivated—by silence, by avoidance, and by the slow erosion of accountability.

My client is now facing a series of realignment conversations, relationship-building efforts, and necessary coaching questions to support the employee to potentially see a different perspective of their performance. None of this is going to be easy—and none of it was created by them. The senior leadership team has lost control and are quietly hoping this employee will move on. The role responsibilities still matter—but not with the inflated title or salary that’s currently attached.

So now, my client is left managing the fallout of what leadership chose not to confront.

And this isn't just one isolated case—it reflects a broader pattern of leadership gaps that fuel disengagement and underperformance. According to Gallup’s 2024 State of the Global Workplace, 70% of the variance in team engagement is directly tied to the manager. Arj Bagga, VP of HR Advisory at Gartner, reinforces this by noting that two of the top four reasons people underperform are the organisation’s fault—not the individual’s. The biggest culprits? Lack of job clarity and a poor working environment.

The cost of disengagement is staggering. With 77% of Australian employees not engaged at work, Gallup estimates the productivity loss to Australian businesses at $233 billion annually.

This isn’t just a people problem.

It’s a leadership problem.

The Cost of Avoidance

As Clifton Sellers said, “The fastest way to lose trust with great employees is to ignore the problems caused by bad ones.”

Unchecked, toxic behaviour doesn’t stay isolated. The ripple effects are significant:

• Ambiguity breeds entitlement, resentment, or passive resistance.

• Lack of feedback allows poor behaviour to harden into habit.

• Overpraising creates blind spots and inflated self-perception.

• Capability gaps widen, damaging performance and morale.

• Teams lose respect for leadership and disengage.

• Toxic patterns spread, turning culture into damage control.

So, What Can Leaders Do Differently?

Prevention is better than damage control. If you want to avoid developing ego-driven or toxic employees, it starts early—with the right systems, culture, and leadership habits in place.

1. Ensure Role Expectations Are Clear

Vagueness is a breeding ground for misalignment. Define not just what success looks like, but how it’s measured. Make expectations visible, specific, and evolving.

2. Give Balanced Praise (Objectives and Behaviours)

Recognise results and the way they’re achieved. Overpraising one area while ignoring another creates blind spots. Celebrate effort and character alongside outcomes.

3. Provide Constructive Feedback

Don’t wait for annual reviews. Make feedback a regular, two-way dialogue. Be honest, compassionate, and specific. Feedback isn’t criticism—it’s care in action.

4. Develop Skills if a Gap Exists

If someone is underperforming, ask why. Do they lack clarity? Skills? Support? If there’s a gap, close it through coaching, mentoring, or learning—not through silence or avoidance.

5. Ensure the Environment Isn’t the Problem

Toxicity often reflects culture. Are there structural issues, power imbalances, or unresolved tensions? Leaders need to assess and take responsibility for the conditions they create.

6. Hold People Accountable

Accountability is a form of respect. When done well, it fosters trust—not fear. Don’t wait until behaviour becomes unmanageable. Intervene early, consistently, and fairly.

When to Involve HR

If a leader steps into a team and inherits a challenging dynamic—especially with a long-tenured employee—early support from HR is critical. Don’t wait for toxicity to escalate. HR should be a partner in evaluating capability, supporting courageous conversations, and creating a path forward—whether that’s development, role redesign, or exit.

Let’s be clear: toxic behaviours should never be excused. But they are often enabled. And if we want to lead with empathy, transparency, and courage, we need to hold the mirror up—not just to our people, but to our systems, habits, and leadership patterns.

Leadership is about clarity. And clarity is kindness. The sooner we say the hard thing, the more likely we are to keep a good employee from turning into a destructive one.