Whatever Happened To Corporate Loyalty?
The old loyalty is dead. While CEOs may be naive to think a new loyalty has replaced it, the text of the unspoken agreement between employer and employee has been amended.
December 1 1990 by Charles Jett
Maybe you cannot be loyal to or- expect loyalty from-anything that does not bleed when cut.” This cynicical response to our 1990 Survey on Corporate Loyalty is a stinging indictment of the prevailing attitude among managers toward corporate loyalty. No doubt loyalty has changed during the past decade. So much so that mere mention of loyalty now elicits a variety of wry grins and incredulous stares from those who have-in light of their own circumstances-redefined the term.
Unrelenting waves of corporate takeovers, mergers, LBOs, corporate downsizing, layoffs and the like have eroded what we once knew as corporate loyalty. Some CEOs and the companies they lead have so underestimated the power of loyalty that their organizations’ cultures are changing. And corporate leaders who believe their time can be better spent on questions of more tangible substance-production, marketing, or competition-may want to rethink and move the issue of employee loyalty to the very top of their to-do lists.
A finding from our nationwide survey helps define the issue: While nearly nine of every ten executives say, “I am loyal to my company,” nearly half also say, “I am always interested in other career opportunities.” A contradiction? Perhaps. Or maybe it signals the emergence of a new loyalty. Regardless, it is certainly an issue that demands more attention from more CEOs. Why? Because respondents to our survey are not first-line supervisors or entry-level employees. They are more than 500 top executives at the nation’s leading companies-a population thought impervious to flagging loyalty just a decade ago.
Some responses also indicate too much distance between CEOs’ perceptions and reality. For example, CEOs believe more so than any other group of executives surveyed that their companies are loyal to employees. But CEOs are by no means naive. Only one in twenty says loyalty is on the rise, and more than eight of every ten say boards of directors and chief executives should be concerned with the issue of loyalty.
HOW IT GOT THIS WAY
Just when did we reach this point in our views on loyalty? The vast organizational changes of the 1980s forced tough business decisions and the elimination of thousands of jobs once thought secure. Fully one third of middle management lost jobs during the decade due to the glut of takeovers and what seemed to be every company’s determination to become “lean and mean.”
Those who kept their jobs saw substantial change. The focus on cost cutting to enhance short-term profitability led to severe cutbacks or outright elimination of management development programs. Career tracks became less certain, less clear. Strong signals were being sent each way-from company to manager and back again-that loyalty had gone the same route as the buggy whip.
Many of the actions taken by companies seemed sensible for the times. After all, the nation’s business schools were unleashing hordes of ambitious and well-educated baby boomers into this environment. Through prudent use of emerging management information systems, managers could handle far more duties with smaller staffs than ever before. “Downsizing” became fashionable as well as profitable.
The message was clear: Individuals recognized the increased competitiveness of corporate management. Without exception, students and managers alike were increasingly aware of the de-emphasis on management development within many major corporations. Everyone seemed to be looking for a way to become a better career manager as competition grew upper-level management jobs. These trends and other observations led our firm to survey executive and corporate loyalty. The results help quantify the seriousness of the issue, and pose some questions that all of us should ask of ourselves and our companies
THE NEW LOYALTY
For example, our survey suggests that while one loyalty is dying, another is springing to life. In essence, the old loyalty is akin to an employee’s near blind faith in an organization and its leaders, and the new loyalty represents the increased importance of self-interest.
The top executives we surveyed feel that new contracts of understanding are being formed between employer and employee. These contracts affect both business operations and careers-as was the case with the old loyalty-but the relationship appears now to have more strings attached.
Clearly, the old standard of working hard and applying yourself no longer holds. This unwritten contract has been undermined. People with 20 years and more of good service are laid off-often with no more compassion than that afforded a new hire who doesn’t work out.
The new loyalty is a more specific contract. The employee still expects to be paid and to be given career advancement opportunities in return for providing services, and the company still expects performance and productivity in return for providing compensation and career opportunities. The difference from the past:
A realization that nothing is forever. Companies and managers would like longer relationships, or so they say, but are willing to accept less.
THREE CASE STUDIES
What is this level of acceptability within your company, within yourself? The answers are important because they affect productivity and our competitiveness worldwide. Briefly, let’s look at three examples of managing loyalty-one done right, one done wrong, and one that might yet be too close to call.
McKinsey & Company, a recognized management consulting firm, typically hires the best and brightest from the nation’s top business schools. The firm is not shy about the performance expectations of its new people. Simply put, the policy is: “Up, or out.”
McKinsey set a goal to hire exception ally talented people. And if these people didn’t become good consultants, the firm felt it was doing all parties equal harm by keeping them around.
On the surface, such a policy appears very threatening. In practice, however, it has developed an intensely loyal group of partners and managers and probably the most loyal alumni association of any business in the nation. It is interesting to note that most consultants who leave McKinsey do so voluntarily. Very few, in fact, are asked to find more suitable work.
The message: McKinsey was bold enough to make clear its expectations of performance. The firm put its cards on the table early on and established effective two-way communication on a routine and frequent basis. Departing McKinsey consultants benefited from their experiences, and they benefited further by leaving early enough in their careers to apply those job experiences elsewhere. Quite frankly, most simply find it difficult to be this honest with people.
Kodak is an example of a good company that sacrificed loyalty during the past decade. Many employees thought a lifetime job at Kodak was as certain as death and taxes. However, on January 17, 1986, this myth exploded when 500 surprised, angry and confused employees experienced the harsh reality of being fired. What about loyalty?
Some consider Kodak historically loyal to its employees-a long record of cradleto-grave caring. The jobs were always secure. Unfortunately, this kind of contract of understanding isn’t as strong as it appears. Wouldn’t it have been more loyal for Kodak to inject reality into this contract by not perpetuating the myth of lifetime employment security? Isn’t it more loyal to employees who will not be moving up the ladder to gracefully and compassionately terminate them early enough to pursue careers elsewhere?
There is nothing wrong with a great company like Kodak taking steps to meet international competition. But its immediate business needs and its traditional concern for employees didn’t jibe. The company and its employees have learned a painful-yet productive-lesson about direct, upfront communication.
One of Tom Watson, Sr.’s principles in building IBM was fostering respect for its people. For years, the company practiced a full-employment concept, holding onto its people in good times and bad to ensure a quality work force for the ultimate long-term benefit of the company.
Then in the mid-1980s, somewhat harder times came. John F. Akers, IBM’s CEO, embarked on a massive retooling of the company’s approach to business. Simultaneously, he tackled the redirection of IBM’s talented work force.
The result: some 37,000 jobs eliminated since 1985, some 20,000 employees reassigned, retrained and redeployed at high short-term costs, and three waves of early retirement programs prompting the departure of one third of the company’s senior executives. Costs were trimmed by more than $1 billion. Is this loyalty?
IBM made clear its intentions and did not fear bold moves to restructure the organization to meet competitive challenges. Even though IBM’s people are perhaps more readily hired than the people laid off from most companies, the company was not loyal under its old standard. Yet, it appears the company is better positioned now for the 1990s. The culture has changed, and the new loyalty is more openly talked about and practiced. The jury is still out, but IBM just might be in better step with the times than ever before.
BUILDING CORPORATE LOYALTY
Returning to our survey, let’s see what can be learned about today’s executives’ perceptions of loyalty. The typical respondent to our survey is a 49-year-old male from the Midwest who holds an advanced degree and serves as a chairman, chief executive or chief operating officer. Others are vice presidents of various staff and operating functions. Most have worked for more than one company before assuming their current position.
These executives believe that company loyalty is positively affected when:
- Upper management provides an organizational structure and management style promoting teamwork and professionalism;
- Employers and employees behave more as associates or partners; and
- Employees see clear career advancement opportunities.
- Most of the executives place a high value on loyalty and believe that:
- Employees learn loyalty lessons by example from managers;
- Productivity increases when managers demonstrate loyalty to employees;
- Career advancement within a company requires visible acts of loyalty; and
- Employee turnover drops when companies demonstrate loyalty.
These same executives also reveal that actions one might expect to affect loyalty in fact do not. For example, they say hiring from outside the company is not disloyal to company employees and increasing compensation is not an effective means of creating loyalty.
So what can be done to improve or turn around the decline of corporate loyalty in American business?
Most executives say loyalty should be a topic of discussion not only in every boardroom but at every level in every corporation.
The first step toward improving corporate loyalty is to make it a permissible issue for open discussion in your companies. Consider making loyalty to your employees part of your organizational mission.
CEOs should use some common-sense guidelines in nurturing a healthy corporate loyalty within their organizations. Seven principles are paramount: (1) Recognize that top management generally gets to where they are by being good career managers-by practicing loyalty to themselves. Nothing less should be expected of quality people who are climbing the same corporate ladder. (2) Establish an environment of “career partnership” between the company and its employees. Clearly articulate what kind of managers the company is trying to develop. Establish contracts of understanding between the company and its people. Insist on routine and frequent two-way dialogue between the company and its employees regarding the status of the contract.
It’s also important (3) to periodically put the cards on the table regarding the status of the business and the kinds of people needed to support its growth and maintenance. (4) The firm must recognize that each individual including the company itself has the opportunity and the right to consider others to fulfill its needs. In essence, if either party fails to provide quality service to the other, then each should be expected to seek or provide that service elsewhere. Management must (5) be aggressive in moving people around in the organization, both to improve and expand their skills and provide variety in their jobs. If possible move them up; where appropriate move them laterally; where necessary move them out. Create (6) a little tension in the company which can be relieved only by quality performance and meeting expectations. Encourage company employees to set the same standards and create a level of tension for the company to perform for them.
Finally (7), beware of the political loyalists, who can be recognized by their tendencies to look good at the expense of others and their reluctance to give credit where it is due. A sure sign is their unwillingness to hire or promote high-potential people who they may find threatening. Political loyalists are easily spotted by subordinates, and are rotten apples capable of subverting even the most well-intended plans to improve the loyalty environment. Get rid of them.
Some clear truths exist today about how we run our companies. Perhaps our survey findings about corporate loyalty should not surprise us as much as our slowness in recognizing the changes and taking action on this issue. The need is imperative. After all, more than 80 percent of the CEOs in our survey say you can improve productivity by showing loyalty to employees.
Sure, it’s a tough subject to get your arms around. But maybe for the first time we need to admit that loyalty has changed, problems do exist, and that as CEOs we’re not as close to solving these problems as we should be. Today might be a good time to spark discussions and actions within your company. What you hear could change the way you do business.
Charles Jett is a partner in McFeely Wackerle Jett, a Chicago-based executive search firm.