The Case for Employees as Stakeholders

This post is the third in a series on stakeholders’ value creation in volatile times.

As traditional and social media unfailingly reiterate, we are living in turbulent and potentially dangerous times. Traditional spheres of political and economic power are mutating rapidly. Established values are being shaken. The certainties of yesterday are falling away. Managers and employees are increasingly stressed out and disengaged.

The gap between economic winners and losers is widening. Some evidence suggests that wealth inequality measures are the greatest ever recorded. This can lead to the social and political unrest stirring in many advanced economies. (See my October 24, 2016 post, “Value Creation in Volatile Times: The Case for Ethical & Socially Responsible Companies”.)

Governments have registered only limited success in addressing these dangerous tensions. Conversely, multinational corporations with their vast resources, global footprints and market orientation are well positioned to alleviate them. While companies depend on profitability for their existence, corporations are increasingly recognizing that the interests of each stakeholder - shareholders, employees, vendors, customers, the larger community and the environment- complement synergistically the others and lead to the creation of even greater, sustainable, value. For many, this starts with their employees.

Corporate leaders often repeat: Our employees are our greatest asset! As so eloquently put in the slogan of Dofasco (part of ArcelorMittal), one of Canada’s oldest and most efficient steel makers, Steel is our product. People are our strength. Research confirms this adage by showing the link between superior human resource management and superior organizational performance. “Along with the intellectual and knowledge property they create, human capital has become the most important intangible asset most corporations possess.” (Jay A. Conger and Edward E. Lawler III, “Human Resource Management: The Role of Boards”, The Handbook of Board Governance, Wiley, 2016, p. 501)

Successful corporations hire the best talent, and devote considerable resources to retain them and keep them engaged. They invest the necessary time and effort to hire the right candidates who not only possesses all the required competencies (see my November 12, 2015 post, Great Leaders: The Competencies Imperative), but who also share their business purpose, values and culture. They stress employee empowerment and engagement. These companies - such as Starbucks, Southwest Airlines and The Container Store - are future-looking, playing the long-game. They invest in better trained and more service-oriented workforces. They promote teamwork and a team culture characterized by sharing and collaborating. A good team always produces better results than individuals working alone. Incentive programs are often team-based. Compensation policies are transparent, fair and generous; senior executives don’t earn disproportionately more than the average pay of all employees. Some provide their employees with a share of their profits (profit sharing or equity). Forward-looking companies create purposeful work environments that challenge and encourage their employees to learn and grow.

The benefits accruing from having engaged and collaborative employees as full-fledged stakeholders are evident. V. Kumar and Anita Pansari cite the following statistics in their article, “Measuring the Benefits of Employee Engagement”, (MIT Sloan Management Review, June 16th, 2015). Businesses with more engaged employees:

  • Outperform disengaged employees by over 20%
  • Have 10% - 15% higher profits versus 0% - 1% in companies with disengaged employees
  • Are 87% less likely to have employees leave the organization

We are in the midst of an historic transition where many companies are starting to recognize that the best way to create value in the long term is to integrate the interests of its multiple stakeholders in a single strategy. The most successful corporate leaders see beyond the sole imperative of quarterly profits. Forward-looking companies understand that sustainability depends on their ability to understand and accommodate the needs of all stakeholders, starting with their employees. The most successful ones (such as Tata, Google and Costco) do already …



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