“Loyalty Down begets Loyalty Up”

Judith M. Bardwick, Ph.D.

 

It is a big mistake to take people for granted or assume they are stupid or ignorant. You can fool none of the people over a long time.  Organizations can’t say employees are our most important resource and act like they are disposable.

The combination of feeling simultaneously vulnerable and exploited is potentially explosive to organizations and to the nation as a whole.  With time and an improving economy and a shortage of skilled labor as the boomers retire, the Psychological Recession will pass and employee’s sense of vulnerability will likely be replaced by anger.  For decades, management’s demands for increasing productivity were paralleled by a very visible amount of eroding commitment to employees.  It is quite logical that when employee scarcity increases their value and employees naturally gain bargaining power, they will become far more demanding and militant and political and so will the unions.

Many employers are putting employees at increasing risk through massive layoffs and off-shoring, a slow growth in wages, employees increasingly sharing the costs of health related benefits and a switch from defined benefit pension plans to defined contributions and cash balance plans.  When unions use these losses as a rallying cry for the workforce to mobilize and join up that will appeal to many people.  A stronger labor movement has huge political as well as economic implications.  With the help of sophisticated IT, organized labor’s political machine has been able to get millions of union voters, who usually vote Democratic, to the polls in recent elections.

Just as we can’t afford a Psychological Recession or a sense of Entitlement, we also can’t afford employee militancy.  We cannot afford internal adversarial relationships between employees and management.  Anger needs to be directed externally against the competition.  We need a new model of collaboration between employees and their organization, one based on mutual values, respect and trust.  The relationship between employees and between employees and management needs to be built on recognition of the interdependence of everyone in the organization and on the importance of all of the contributions the separate parts make to the success of the whole enterprise.  We saw some of that in the ‘80s – typically management and labor in troubled industries – but lessons were forgotten during the ‘90s years of irrational exuberance. But that kind of relationship is already a reality in most of the 100 Best Companies to Work For.

Stephen R. Hardis, former CEO and chairman of Cleveland’s Eaton Corporation, a century old manufacturing corporation, says The China Miracle is the result of American management failure and union’s unwillingness to increase productivity.  Three things matter the most: You need to get the plants operationally right; you have to invest in information technology to improve productivity and you have to fully utilize the know-how of your fully motivated labor force.

 While management, he continues, continues to justify their employees-be-damned approach to cost cutting because of their fear of cheap overseas labor, IF they did forge a partnership with their employees they could compete with China and other cheap labor sources in more instances than they realize.  There are advantages to not needing a supply chain that stretches to inner China and there is a marketing advantage that is a huge differentiation if you can build to order and not to forecast.  Then you can satisfy customers who require just-in-time deliveries.  Low interest rates make investments in productivity tools a great bargain if the work force rules allow you to take advantage of the benefits that can be gained.

There’s always the myth of the invincible competitor but market forces always make a lie of that.  After World War II, Sears was supposedly invincible but K-Mart clobbered Sears, and then Wal-Mart clobbered K-Mart.  Wal-Mart was projected to gain 110% of the retail market but they’ve been out merchandised by Target and Kohls.  The intellectual class is given to assumptions that some markets are too mature for exciting growth but new management breathed life into P&G, Avon and Pepsi which had become sloppily managed corporations.

Most of all, decisions can’t be made on the assumption of a static environment.  Success requires major innovation and change.  The great economist Schumpeter had it right:  free markets create Creative Destruction and if management was really held responsible for performance they would come up with strategies to overcome emerging challenges and they would not have to cheat on their people as often.

Employees need to see nations with inexpensive labor as the enemy and not their management.  Enlightened employers should, in their own best interest, partner with employees to keep the work in their plants and not take the “easy” but treacherous choice of deciding to outsource to manufacturers who have a history of ignoring intellectual property rights.

The key idea is very old: People are smart and they know when they’re getting the very short end of the stick.  Therefore, it is in an organization’s own best interest, to do unto them as you would have them do unto you.  Which organization makes more money – one in which employees say, There is nothing in this for me, or the organization in which employees say, This is a great place to work!  How people feel directly impacts what they do and heart always trumps head.  Feelings always win out over facts.

A prolonged sense of vulnerability matters in terms of performance because it leads to disillusionment and disinterest. That’s why the Psychological Recession has significant negative financial outcomes.

As organizations stop making commitments to their employees, employees stop being committed to the organization and they are no longer engaged in the organization’s work.  Commitment and engagement are key to retaining both employees and customers.  When employees are disengaged and uninvolved, employee turnover rises, customers leave and profits and share price decline.

On the other hand, retention rates, profits and share price rise when employees feel that a commitment has been made to them.  Organizations do far better financially when they make a commitment to employees and employees reciprocate with commitment and engagement.  Organizations must realize that reducing employees’ fear and cynicism by increasing the commitment to them is the only way for the organization to succeed beyond the short term.

On June 6, 1997, Anderson Consulting held a small meeting of executives and consultants at London’s Dorchester Hotel.  In a speech to the group, John Browne, British Petroleum’s CEO went against all the guru-advice and said he wanted long-term – life time employees.  As I recall, his listeners were polite but silent.  I doubt that any of us who were listening to him realized that his policy of a long-term commitment to employees instead of callous disregard would prove to be a shrewder, more profitable strategy.

Enlightened employers know that committed and engaged employees are the critical resource for continuous innovation, effectiveness and productivity.  They know that the people doing the actual work often know more than the people in the executive suite about what’s needed in order to succeed.  Respect for employees flows from respect for their contributions. When employers have respect for employees it is natural to make employees major stakeholders in a win/win relationship and let them earn a major stake in the organization’s success.  When that is achieved, a handshake is as good as a contract and there is collaboration and innovation instead of employee militancy or uninvolvement.

If the United States is going to continue to have a profound sense of optimism, and if Americans are going to continue to live the American Dream of upward mobility, we must fashion new forms of mutual commitment that serve both employees and organizations over the long term.  When my husband, Allen Armstrong, a retired Coast Guard Captain was a recruit he learned, “Loyalty down begets loyalty up.”  Nothing has changed because that’s human nature.

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *