CORPORATE LOGIC IN THE 1990S
1994 Arthur W. Page Society Spring Seminar

by Daniel Yankelovich

I like the theme of this seminar on employee relations: "Can This Marriage Be Saved?" The question is not a rhetorical one. It is a real question whose answer will remain uncertain for a long time to come.

All indications are that many managements have strained the bonds of the relationship between themselves and their employees to the breaking point. In recent years, management’s focus on shareholder value, reengineering and TQM have transmitted a confusing mixed message to employees. It is not the message management intended to transmit. But it is the message that has come through.

One part of the mixed message is: "Our corporate vision reveals an exciting path to future success in the new global economy. We know the only way it will become a reality is if you, our people, buy into it, and give it every ounce of dedication and commitment you have to give. Our success depends on you."

The other part of the mixed message is: "Our #1 goal in the company is to maximize shareholder value. In the pursuit of that goal, you, the employee, are expendable. We expect loyalty, dedication and top performance from you, but you must understand that we owe you nothing in return."

One classic symptom of failing marriages is the experience of being whipped around by contradictory signals. All of you recognize the strain, confusion and conflict this mixed message produces; that is why you are holding this seminar.

To set the stage for your discussions, I would like to examine this mixed message more closely because I suspect that a large part of the answer to the question "Can this marriage be saved?" will come from decoding it properly.

Let me begin with a brief backward glance to understand how we got to the present state of affairs, and then focus on where we go from here.

How We Got to Where We Are

The threat to the relationship arose, I believe, from a change in priorities originating on the employer side when in the 1980s, American management greatly narrowed the scope of its stewardship.

My business career started in the early 1950s, four decades ago. For the first two decades I watched our corporate clients broaden their view of their stewardship role and its responsibilities. By the early 1970s, the typical top management definition of its role was to balance the concerns of multiple constituencies: shareholders, employees, customers, suppliers and the community, both local and national.

Then, in the 1980s, this outlook narrowed. Abruptly, the concern with balancing corporate obligations to a number of constituencies gave way to a single-minded focus on one constituency: shareholders. This was a giant step backwards from the trends of earlier decades.

For most large corporations today, the method of choice for creating shareholder value is cutting costs, which translates into restructuring, downsizing and slashing benefits for employees.

Employee Response. It has taken a while for employees to react. But gradually, they are beginning to adapt to the new situation. Experiences with downsizing plus employers' chipping away at benefits -- for health care, retirement and job security -- have taught employees not to assume a secure job environment either at the middle management level or on the line. Our firm's annual Trend Tracking Study, DYG SCAN^sm shows five patterns of employee response:

1. The first response is that employees no longer believe their job is for life.
2. The second is that they no longer believe in employer loyalty and concern.
3. Third: employees are losing confidence that they will be rewarded for learning and expanding their skills. They are beginning to suspect that expertise gained through effort and experience on the job is no longer seen by employers as valuable but as making one a more expensive employee.
4. The fourth shift reflects a budding recognition on the part of employees that the new corporate emphasis on quality translates into downsizing. In TQM and other quality enhancement programs, improved quality is equated with fewer, not more, employees. So Shift #4 is the devaluation of the employee by the corporation.
5. It is no surprise then that the final change in employee thinking about work is that work has become a less reliable source of satisfaction and rewards other than money.

In the aftermath of the recession we are witnessing a gradual downward revision of expectations about accumulating material wealth to achieve success. There is less conviction that possessions signal status. Increasingly, people are coming to feel that it is how you live your life that counts, not what you own.

In other words, people are lowering their expectations about what they can get out of their jobs. They are putting their emotional investment into values and lifestyles that depend less on work and money.

With the downward drift of expectations, success is being redefined in terms of quality of life, where quality of life means good relationships, less stress, being healthy and looking good, and living in a clean, healthy, safe environment.

We are also measuring a shift in attitudes toward big companies. The trend today is to see merit in working for small companies. Small companies may not be more secure, but they offer rewards and satisfactions that big corporations don't give. The employee’s contribution is seen and known. Employees are "in the know," and have a say in decision making.

These are important values to both the boomer and post-boomer generations -- one of the few common values that bridges the startling generation gap between the boomer and the younger post-boomer generations. Each living generation in America is shaped by its own unique experience. My generation was indelibly shaped by the Depression of the 1930s. The experience of the two generations born after World War II has been vastly different. Boomers in their 30s and 40s were raised in a climate where the psychology of affluence dominated and they got a full dose of it.

Our firm has made a careful study of the psychology of affluence. Some of its major shaping influences were:

... the assumption that the need for self-sacrifice is a thing of the past,

... the assumption that there is no need to choose, that "you can have everything,"

... the assumption that self-expression, self-fulfillment, self-satisfaction are moral rights, and

... the assumption that "me and my needs" come first.

These assumptions helped to shape certain Yuppie attitudes such as the desire to do things "my own way," to want to exercise maximum control, and to manipulate other people for one’s own ends. Characteristically, Yuppies are needy and demanding people who crave attention and who insist on their prerogatives.

These unappealing traits only mildly irritate the people in my generation because, after all, these are our kids. It is partly our fault that they are so self-centered, so we tend accept them more or less tolerantly.

Not so the younger generation, the so-called Generation X. They are furious with the Boomers and the Yuppies. They burn with resentment. In sharp contrast to the Yuppie generation their own shaping experience was not based on the presumption of affluence -- the conviction that there is plenty of everything for everyone including jobs, security, money, parental attention, automatic raises, sex without AIDS and a secure future.

The twenty-somethings also want these goodies. But they fear they will miss out on them because the Boomer generation that preceded them, like swarms of locusts, is devouring everything in sight.

These younger people are very practical and less self-indulgent or ideological than Boomers. They want to succeed and will do anything they must to make it. They tend to be cynical about large corporations and suspect that it is suicidal to depend on them.

Having grown up after the psychology of affluence was beginning to wane, and lacking the kind of doting family the Boomers enjoyed, as workers they tend to be a little enigmatic -- either hostile (chip-on-the-shoulder), or private, closed off and reserved. They are not an easy generation for employers to understand.

In brief, then, employers confront a very pluralistic workforce, not only in terms of gender and race, but even more, in terms of three generations --   50+, 30-50 and the 20-somethings, all of whom have had different formative experiences and who now therefore have different outlooks.

Here, then, is where we stand today:

• A stress-producing mixed message has created a miasma of employee mistrust.
• The workforce is adapting to new corporate priorities essentially by withdrawing their trust, withdrawing their emotional involvement and withdrawing their commitment to employers.
• Psychologically speaking, three generations of people coexist in the workforce, each with its own values and outlook:
  1. Pre-boomers in their 50s and 60s who are resentful because they feel the rules are changing on them in mid-game.
  2. Boomers and Yuppies in their 30s and 40s who are shifting their ambitions and self-preoccupations from the workplace to cultivating their own "quality of life" garden.
  3. And post-Yuppies in their 20s who are mistrustful, resentful, practical, and desperately craving their piece of the action but fearful that the Yuppie generation may have stolen it from them.

Where We Go from Here

That is where we are now. Where do we go from here? What about the future? Will the gap between large companies and employees grow ever wider until it becomes unbridgeable, or can companies rebuild trust in the relationship to the point where once more people are willing to risk identifying themselves with their employers?

As in all obdurate questions, the answers hinge on two factors -- the will and the means. Is there a will to save the marriage? If there is a will, does management know how to do it?

To me, the more important factor is the first one, the matter of will: if companies truly want to strengthen the bonds between themselves and their people, they will find the means to do so.

The question of will is particularly troubling. My belief is that in the next several years some managements will develop the will to save the marriage, but many others will not. Understanding this point is, I believe, indispensable to addressing this issue in a constructive manner.

Let us go back and look more closely at the mixed message that corporate management is transmitting to employees. It roughly translates into sending employees the contradictory message: "We don't need you, you are expendable," and at the same time saying to them, "we desperately need you, you are indispensable."

The contradiction is remarkably blatant. I don't believe I am overstating the case. In many companies today, this is exactly the mixed message employees are hearing and it is demoralizing them.

The source of the contradiction is that today's management is driven by two very different logics: a logic of the 1980s and a logic of the 1990s. They have begun to adopt the logic of the ‘90s without, however, having abandoned the logic of the ‘80s.

The logic of the ‘80s goes something like this:

"We have entered a period of brutal global competition,"

"In this environment, our compensation as top management depends critically on our performance."

"Performance these days is measured in terms of share price, with an ever larger chunk of compensation coming in the form of stock options from which we benefit only if the price of the stock goes up."

"The best way to raise the price of the stock is to accelerate the company’s rate of profitability. Companies whose profits grow slowly have low multiple share prices; companies whose profits grow at a fast rate enjoy much high price-earning multiples."

"Greatly improved profitability, in this environment, means only one thing: cutting the fat to the bone."

"There are many bad features of the new global economy, but one of its good features is that a large corporation can call upon a global labor force -- and not just for unskilled labor: you can get top-notch Russian scientists for $35 a month. There is a huge pool of highly motivated, low-cost labor available in other countries, if one is willing to think globally."

"For this and other reasons, the domestic labor market is weak and likely to remain so. The unions have lost much of their clout, and with the downsizing of middle management, there are plenty of good people available on a part-time or freelance basis to whom we don’t need to give benefits or raises."

"Through restructuring and reengineering we can reduce our labor costs to a minimum, with wondrous impact on our margins."

This logic leads to the first part of the mixed message to employees: "you are dispensable."

But there is a newer logic, the logic of the ‘90s, that leads to the opposite conclusion. It starts the same way: "brutal global competition ... greater emphasis on performance ... rich rewards that come only with outstanding profit performance." But then the logic diverges and develops along a different line of thought which goes something like this:

"For profitability in today's global marketplace, we cannot count as much as in the past on rapid growth through expanding markets. We have to be strong enough to achieve profitability and growth through strengthening our share of market, at someone else’s expense."

"Strengthening share of market calls for a strategy that will lead to a superior level of customer focus: knowing the customer and serving his product and service needs better than the competition is the name of the game."

"The only way -- the only way -- you get superior customer focus is if your own people are highly motivated. Employees who are just going through the motions and doing the minimum they have to do to protect their jobs cannot deliver superior customer focus."

"A global marketplace is full of opportunities as well as threats. Through leveraging our core competencies, we have developed a vision of a dynamic, creative, highly profitable organization -- but everything depends on implementation: our people have to share our vision and give their utmost in skill, dedication and commitment."

This logic leads to the second part of the mixed message transmitted to employees: "You are indispensable; we need you."

Some companies still follow the first logic. They do not have the will to save the marriage because they do not believe it is important to do so. These companies do not adopt an adversarial stance toward their employees. Rather, their attitude is a wholly impersonal one, reflecting their conviction that labor costs are solely a function of capital. You manage people in the same way you manage money.

But, in reality, employees are not the same as plant and equipment and other capital expenditures. People react; machines do not. Moreover, people react differently than planned. When they feel expendable or exploited, they react by holding back as much of themselves as they can without risking their jobs. They may sell their raw labor for capital, but not their dedication or loyalty or commitment.

Most of the companies we research talk the second logic, the logic of the ‘90s. But they do so without having yet abandoned the logic of the ‘80s. At this particular moment in our history, they coexist with both logics operating simultaneously. Living with one foot in the ‘80s and the other in the ‘90s, they too do not truly have the will to save the marriage, because every step they take in accord with the second logic is offset by contradictory actions they take in accord with the first logic. Their trumpet emits an uncertain sound. They are the companies who are sending the mixed message. Their employees are confused, mistrustful, fearful of the future.

Only those companies who have not only embraced the logic of the ‘90s but have also abandoned the logic of the ‘80s have the will to convey a clear, positive, single message to their people that has a reasonable chance of rebuilding trust.

Let me inject a personal note. A number of years ago, in studies of the workforce, I found it necessary to introduce the concept of "discretionary effort." Discretionary effort is the amount of effort individuals expends over and above the minimum needed to keep their jobs. Discretionary effort refers to all of the various forms of initiative, interest, motivation, creativity, responsibility, dedication, and loyalty that individuals themselves control.

Some jobs require very little discretionary effort; others depend on it critically. Quantity of production depends only partly on discretionary effort: systems can to some degree compensate for low levels of it. But what the logic of the ‘90s recognizes, by implication, is that quality and customer focus depend utterly on discretionary effort.

Everyone of us knows from daily experience how frustrating it is when the companies we personally depend upon -- banks, phone companies, airlines, car rental companies, insurance companies, etc. -- substitute a computer-driven system for employees who don't give a damn and don't know what they are doing. What the logic of the ‘90s recognizes is that in a world awash with bigness and technology, the competitive edge will go to those businesses whose employees care about the customer rather than just go through the motions. In the future, the edge will belong to those who know how to mobilize their employees' discretionary effort.

What the logic of the ‘90s is telling us is that the key to competitive success is the management of discretionary effort. Holding and expanding market share takes a high morale, highly motivated, performance-driven workforce. Only those companies who have reached -- and thoroughly internalized -- this conclusion will have the will to make the changes needed to save the marriage.

Implications for Action

In this final section of my remarks, I will identify three courses of action that managements who have the will to save the marriage can take to restore the bond of trust between themselves and their employees that has been so badly frayed. These actions are particularly appropriate for companies who have gone through a recent restructuring, but they are applicable to all companies.

Because time is limited I will not be able to elaborate these suggestions.

1. Treating people as considerately as dividends.

The first course of action is for companies to give the same kind of care and attention to their employees' job security that they now give to the security of their dividends. This may sound like sarcasm. But it is not. It is a serious practical test of a company's real priorities.

When I joined my first corporate board 20 years ago, I remember how impressed I was with the amount of time and effort management devoted to dividend policy. I was bit startled at the disparity between the time dedicated to discussion of dividend policy and discussion of employee policy: a ratio of about 20 to 1.

Initially, I assumed the reason was that employee job security was less at risk. But when companies began restructuring in the 1980s, employee security was typically far more at risk than the dividend. Yet the 20 to 1 time ratio persisted anyway.

When it comes to the dividend, corporate management has no trouble understanding how a yo-yo policy, with the dividend going up and down all the time, can undermine stockholder trust. There are times when the dividend must be cut, just as there are times when employees must be cut, but most managements fully understand the need for a stable dividend policy.

There are, of course, differences of philosophy on this issue. For example, in the negotiations between TCI and Bell Atlantic, one of the reasons for the breakdown was the difference in dividend policy. John Malone of TCI urged that Bell Atlantic cut its dividend because it had other uses for the capital. Malone had compelling business logic on his side. But so did Bell Atlantic's CEO in recognizing the harvest of mistrust, confusion and disillusionment among stockholders that would result from such an action. He refused to consider Malone's proposal.

I am not arguing the pros and cons of this particular decision. What I am proposing is that companies raise their level of concern about the job security of their people to the same level of concern they have about their dividends.

2. The Jenkins Principle. If they do so, they will then be able to apply what I call the "Jenkins Principle," which is my second proposed action for rebuilding trust.

I stumbled upon the Jenkins Principle more than 20 years ago. I had been invited by the grocery industry to study why a particular supermarket chain (Publix Supermarkets in Florida) which paid their employees less than the wages offered by unionized chains was nonetheless totally immune to being unionized, and was highly profitable and successful in every way.

The CEO of Publix was a man named George Jenkins.

In the course of our investigations, virtually every employee we interviewed repeated one particular phrase over and over again when referring to Mr. Jenkins. Typically, employees would recount anecdotes about some considerate act that he had performed for them, and they would then comment, "He didn't have to do that." For example, one employee told me that when he was ill, Mr. Jenkins had visited him in the hospital twice. The first time was impressive enough, but twice!

What does this familiar phrase, "He didn't have to do that" mean? It is a question well worth pondering. There is always an unwritten contract that dominates the relationship between employers and employees. It is more powerful than any written contract can ever be. All employees develop in their minds, however inarticulate they may be, a set of quid pro quos -- expectations about what they must give on the job and what the employer must give in return. As long as these expectations are met, the marriage is intact. It may be mundane, as marriages often are. But it is stable. Once the unwritten contract is violated, however, the marriage is at risk.

The recent wave of restructuring, reengineering and the use of TQM as a way to cut jobs has violated, or threatens to violate, the unwritten contract. That is the principal reason the relationship between companies and employees is so dangerously at risk today.

One way the damage can be repaired is for management to compensate by applying the Jenkins Principle to job security for the survivors. There are many different ways to do this. For example, my friend, Sidney Harman, the founder and CEO of Harman International, has started a number of small ancillary businesses as a way to absorb redundant employees. One of these businesses utilizes the wood byproducts from making loudspeakers. Another involves opening retail outlets to sell the company’s products and related ones. Employees working on the line are given the opportunity to work with customers when there is not enough work for them in the shop. Also, instead of farming out certain services, the company lets their own people perform them. And finally, the company has initiated a number of on-site training, retraining and self-education programs.

The people who work at Harman International recognize that this is something "the company didn't have to do." They see it as a measure of management concern with their well-being and security, which it is. In a crunch, they are likely to trust management and give it the benefit of the doubt.

3. Learning how to do dialogue. My third and final suggestion is a bit more abstract. It is to help management accelerate the transition from the traditional command and control styles of management that have been losing favor in recent years to the new coaching/teamwork styles.

Most managements are trying to make this transition. It is a very difficult one, and it is fatally easy to make mistakes. Many companies assume that the shift away from command and control means a much more democratic style in which decisions are group decisions rather than individual ones.

This is the kind of misunderstanding that can cripple a company’s effectiveness. I personally know companies that are falling on their faces in the effort to make decisions in a more democratic manner, and others where the CEO has an autocratic style but is brilliantly successful in having made the transition.

The single best way to make the transition is by cultivating the high art of dialogue. The key to the new style is to learn how to substitute dialogue for the traditional form of top-down communications. Most companies do know how to conduct genuine dialogue at high levels of the corporation. But between the top level and lower levels, there is a huge fall-off.

In a coaching/teamwork style, it is necessary to achieve a corporate culture of straight talk and truth telling, to give people more autonomy and responsibility and to mobilize people's discretionary effort. Without learning the art of dialogue, it is difficult if not impossible to realize these values.

Genuine dialogue occurs when both sides modify their position to accommodate each other. The philosopher Martin Buber wrote that in dialogue between I and thou, both I and thou are changed forever. In real dialogue, both sides engage in a process of give and take in which they present their points of view, fit these into the framework of the other, constantly check for feedback, accept all that they can accept, create common ground, acknowledge and accept differences, and open themselves to compromise.

The process of dialogue is far different from selling or persuading or educating or imparting information. It is far more intense than casual conversation. It is at once an act of empathy, listening, and communicating. It is the gift of seeing an issue from a variety of points of view -- a gift indispensable to leadership.

Mechanically, it is not easy to establish dialogue with thousands of employees, but it can be done. Not only is it worth doing, it is, I believe, essential if trust is to be restored.

Summary

These three types of action -- obliging management and corporate boards to be as thoughtful about people's jobs as they are about dividends, finding ways to do things you don't have to do to demonstrate your loyalty to employees, and learning how to engage in dialogue other than one-way communications -- are illustrative of the great variety of methods available to those managements who have the will to strengthen the bonds between themselves and their employees.

I have less concern with the creativity of management to develop sound ways to take these and other actions to strengthen the bond than I do with management having the will to take these kinds of actions. Developing the will starts with the insight that managing people is not the same as managing money.