Although my undergraduate degree is in economics, I have been an HR practitioner for many years and I, therefore, usually write about HR centric topics. Recently, I have begun to ruminate on how business focus on profit, over all else, impacts employees and our world.
Drawing on my Greek roots, "nothing in excess" was one of the three phrases carved into the Temple of Apollo at Delphi. Companies need to refocus to restore that balance.
We often talk about employee engagement, resilience and experience. Rationally, most businesspeople and corporate executives understand that the people, more than any other ingredient, is the most important part of the organizational recipe. Yet, the employer-employee relationship has changed over many years in ways that contradict this understanding.
While, in the past, employment was a long term contract with an employee acquiring skills 'on the job' and rising through the ranks, today it is "dominated by short term contracts for highly skilled professionals and technical workers" (Smithson and Lewis, 2000, Lester and Kickul, 2001). No longer do employees retire from the same organization where they began their careers. According to the Bureau of Labor Statistics, the average employee tenure in 2018 was 4.2 years. In many companies, the psychological contract that once existed has been broken.
Employers and employees often have conflicting expectations regarding what should be delivered to fulfill requirements of the business. Pre-pandemic, today’s employees were already becoming demoralized by watching their salaries rise slowly, stagnate, or even be reduced. Profits were soaring, and corporate boards and executives were rewarding themselves with large compensation packages. When the pandemic hit profits, we saw record layoffs in a short period, but have we seen executive compensation reduced accordingly?
I am not suggesting that corporate executives are not worth what they are paid. That is not my expertise, nor my focus. My concern is that the implicit contract between employer and employee has been broken, and must be repaired. Employees have grown tired of being flexible and working long hours, only to get disappointed when that flexibility is not reciprocated. All indicators point to the pandemic making things WORSE with work from home arrangements, not better. Employees expect more and so should the companies they work for.
Employees and employers should aspire to have deep and lasting mutual engagement, but the aspiration will rarely lead to attainment of that goal, because the employer/employee relationship has lost its balance. What has caused the balance of power to shift and get skewed?
The Balance
Most problems have multiple causes. Once such cause for the relationship imbalance is the shareholder theory that is credited to Milton Friedman, the University of Chicago economist and Nobel laureate. In 1970, Friedman argued that because the CEO is an “employee” of the shareholders, he or she must act primarily in their interest, which is to give them the highest return possible. I believe Friedman’s theory gained momentum because it seemed to absolve corporations, and the boards and executives in charge, of difficult moral choices, as long as they made profits. How do you maximize profits by minimizing expenses (salaries being the largest expense in many/most industries) while sustaining the implicit employer/employee trust relationship? The short answer is: you can’t.
READ: The Evolution of the Modern HR Business Partner
Simon Sinek’s book “The Infinite Game”, built upon Professor James Carse’s work. Sinek posits that the power of a company is not determined only on the day’s stock price. If a CEO concentrates only on share price and making shareholders happy, they are not working to their firm’s advantage.
My suggestion is that the fundamental flaw in the interpretation of Friedman’s theory is that all business activity is a short-term enterprise, and profits should be maximized at any cost. But, if you destroy the bond between employer and employee, and employees no longer want to engage, how does that maximize long term profits for the shareholder? If you truly believe that corporations are comprised of the people that work there, then surely you would agree that without them, the company would founder and die, taking with it the growth, profits, stock price, and dividends (whether public or private).
We tend to see the world in terms of successes and failures, winners and losers. This default win-lose mode can sometimes work for the short term; however, there are longer term consequences. When those consequences include mass layoffs to meet profit goals, harsh or inequitable work environments, the result is a lack of psychological safety. Hence, the balance is skewed and the implicit contract is broken.
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HR’s Focus
As HR practitioners, where do we go from here? Do we continue to focus on employee engagement or resilience knowing that we may need to facilitate policies that appear to further the profit motive only, such as a reduction in force or a salary freeze? The immediate answer is… never give up on doing the right thing, for both the company AND the employee. Because, they are the same thing. They are an ecosystem that cannot survive without the other. Although it sometimes feels like an uphill battle, HR must continue to be the conscious of the organization. Our role is to support the business through a people lens, striving for balance in every decision.
The longer-term answer is much more complicated. Sinek suggests that companies need to have a “just cause,” where they would willingly sacrifice their interest to advance that cause. The “just cause” is about being for something more than the company, itself. In that scenario, companies don’t play to win – whether its market share, financial growth or stock price.
This fundamental shift in philosophy and principles can shape company culture and trust, and rebalance the relationship between the employer and the employee. The “just cause” can restore the moral bankruptcy that has become pervasive in today’s corporations. I’m not referring to capital M(oral), where companies are found to have engaged in illegal, unethical, immoral behavior that causes lasting and permanent damage that can be immediately quantified, such as Enron, Worldcom, or Tyco. While those may be long in the past, I’m concerned about the more recent slide towards the little m(oral) violations, where you cannot immediately quantify the outcome, and put those responsible in prison or the unemployment line.
These little m’s include not making the every day moral decisions for long term viability that engage employee’s in the work they are doing, for the long term. When moral leaders stand up, others will follow. In this way, the employer/employee bond, balance, and relationship can be re-established and restored.
Becoming Doughnut Companies
According to Kate Raworth, economist and creator of the Doughnut Model of Economics, the aim of economic activity should be “meeting the needs of all, within the means of the planet”. Instead of economies (or businesses) that need to grow (for the sake of growth and increased profits), whether or not they make us thrive, we need economies that “make us thrive, whether or not they grow”. This requires us to refocus our perception of what an economy should accomplish. We can extrapolate the concept to the microcosm of the corporation/company. Instead of companies that rely on growth to drive further profits, we need companies that “make us thrive, whether or not they grow.”
With a “just cause” and a doughnut model of economics, can companies find better balance in their ecosystems? Would employees, customers, and shareholders all thrive in the more balanced world, where there is less volatility and more trust? When that shift begins, employee psychological and physical health will improve, and company culture will begin to be restored.