Loyalty May Become Cool Again

December 30, 2002
Although Deborrah Himsel had been with Avon Products, Inc., for only a fewyears, after the terrorist attacks on September 11, she saw how loyal aworkforce of long-term employees can be.

    Avon created and marketed a special pin whose proceeds funded a trust to helpfamilies hurt by the terrorist attacks. By the end of September, the pin was ina special catalog insert, and within 10 days more than $7 million was raised.The money was distributed to families before Thanksgiving of that year.

"I was swept away"
    "If you only have people who have been in the organization a few years,they haven’t developed that sense of loyalty to the corporation to be able topull together and overcome the challenge," says Himsel, Avon’s vicepresident of organizational effectiveness in New York. "I had only been in theorganization four years, but when I saw the pride in the corporation, even I wasswept away."

    Avon has lots of employees with long tenures--many with more than 30years--and emphasizes developing current employees to provide a pool of in-housetalent to meet future needs. The end result of this strategy is apparentwhenever there is a crisis in the world or a downturn in business. Avonemployees pull together to overcome the challenge, says Himsel. She believesthat it is the long-term, committed, loyal employees who lead the way.

    The idea of employees spending their entire careers at a single company wasmostly derided in the 1990s as an out-of-date concept from a paternalisticcorporate past. An unintended consequence of this new thinking may be a marketof people with a free-agent mentality moving from job to job just to increasetheir own paychecks while showing little interest in the future well-being ofwhoever their current employer happens to be, say Richard Smith, who works inNew York as a vice president at Clark/Bardes Consulting, and Blair Jones, asenior vice president at Sibson Consulting in New York.

    For example, during the 1990s and early 21st century, says Himsel, she andother HR professionals noticed the same thing. "People were coming withmultiple job offers and playing one against the other," she says. And thequestions that job interviewees asked focused more on short-term financial gainfor themselves, as well as vacations and perks, than on the long-term value ofthe position or what the work entailed, she says.

Shattering employee loyalty
    Jones and Smith say that the pendulum now must swing back in the direction ofoffering employees something more than a paycheck. There was a time when bothemployees and employers had an unwritten contract of mutual and intertwinedloyalties. "There was a measure of reciprocity between employers andemployees," says Smith. The company told the employee "you’ll have a jobfor life," and in return the employee had to give 100 percent loyalty and notleave for a higher paycheck.

    But the compact between employees and employers was shattered in the late1980s as corporations withdrew promises of lifetime employment and flattened theorganizational structure. The corporate message to workers was loud and clear:Employees are responsible for their careers, and they cannot expect the companyto take care of them.

    While the upheaval of the 1980s and 1990s was definitely needed, say Jonesand Smith, it had some unintended consequences. The relationship of employee toemployer evolved from mutual loyalty to one that was purely financial, saysMichael O’Malley, vice president at Clark/Bardes. "Shattering employeeloyalty made every employee a free agent looking out only for their owninterest," he says.

    Then in 1997, management consulting giant McKinsey & Company coined theterm "the war for talent." In 2001, the book The War for Talent waspublished by three of the company's consultants--Ed Michaels, Helen Handfield-Jones,and Beth Axelrod. The message of War for Talent was that top-performingcompanies were obsessed with talent and recruited endlessly--finding and hiringas many top performers as they could.

    While it had many good points, says Jones, as the "talent mind-set"became the new U.S. corporate orthodoxy, there were some negative consequences,too. Free-agent types were viewed as being superior to those more inclined tothe "institutional" mind-set, and the war for talent convinced companiesthat bringing in people from the outside was necessary for high performance,says Jones.

Measuring internal vs. external employees
    Companies are now questioning whether pursuing the hire-from-the-outsidestrategy delivered the results they needed, says Jones. One of her clients is soconcerned about the issue that it has commissioned Sibson Consulting to conducta study to see if it has had better performance from internally grown employeesor from those that were brought in from the outside. "They are actually tryingto look at the success profiles of internally promoted people versus peoplehired from the outside," says Jones.

    The war for talent also escalated compensation costs, say Jones and Himsel,as employees shifted their emphasis from long-term value for the company toshort-term financial gain for themselves. "The employer/employee relationshipbecame much more mercenary in the 1990s," says Jones.

    And a perverse result of the flattening and thinning of corporate ranks, theshattering of employee loyalty, and the glorification of free agents is thatsometimes a few employees can essentially hold their employers hostage. It’snot unusual for companies to find themselves completely dependent on aparticular employee for things such as sales and revenues or a body ofknowledge, says Smith. "I haven’t seen so much influence being held by sofew people in 20 years," he says.

    The end result of this corporate dependence is that these employees canessentially name their price and get it because the corporation has no otheroption.

    Even employees inclined to be "institutional types"--i.e., who wanted tobe careerists at a company--started to believe that they had to move around toget ahead. Employees who wanted to stay at a company began asking themselves,"What’s wrong with me?" says Jones. "Being loyal became a negative,"she says, with employees beginning to believe that the only way to get ahead wasto move from company to company.

    And while the war for talent actually advocated nurturing talent, in practiceit led to the notion that corporations could avoid developing their ownmanagers, relying instead on bringing in free-agent "outsiders," says RakeshKhurana, an assistant professor at Harvard Business School and author of Searching for a Corporate Savior: The Irrational Quest for CharismaticCEOs.

    The companies of this generation that have had sustained long-lasting valuehave been those that placed a premium on developing in-house people, such asWal-Mart, GE, and Procter & Gamble, says Khurana. Jack Welch, after all, wasa GE careerist brought up through the ranks. "A lot of companies are ignoringtheir own in-house talent," says Khurana. "Many could probably get someonebetter for their organization for a lot less money."

    Himsel, of Avon, believes that both employees and employers are looking atbuilding more of a long-term relationship. Companies are now seeing thatcommitted employees lead to increased productivity, she says. And after therecent corporate scandals, potential employees are looking more carefully at acompany’s reputation and potential career opportunities, and not just focusingon short-term financial gain. However, she points out, companies will not returnto promising employees a lifetime career.

"People went overboard"
    "Loyalty will not be easy to rebuild," says Jones. "People are moreskeptical because of what happened in the 1990s." And, says Smith, even ifcompanies wanted to build from within, they would be hard-pressed to find a wayto do it. "Companies are working with skeleton crews," he says, "and withthe baby bust, the ranks are too thin to build replacement talent." He saysthat because employers broke their promises to employees in the past, anyattempt to rebuild trust and loyalty would be viewed skeptically.

But some argue that employees are loyal and always have been. "We have notfound a decline in employee commitment since 1987," says Ilene Gochman, apractice director in organizational measurement at Watson Wyatt Worldwide inChicago. Watson Wyatt does a survey of employees every year, she says, and thenumbers reflecting employee commitment have not gone up or down. "The numbersare flat," she says.

    Jones points out that there is a nut of truth in every new managerialphilosophy. Bringing in new people from the outside to supplement skills yourorganization may not have is a good thing, she says. The problem is that thependulum moved too far in the direction of bringing in outsiders and now mustswing back. "The spirit of the war for talent was a good thing," says Jones."The problem is that people went overboard."

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