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John Lee
Management Consultant
Laguna Beach , California

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How to Drive A Stake through the Hearts of Shareholders

A recovery without jobs? Halfway through the current recession, it's clear things would have been different if companies had invested in stakeholders and not shareholders. We fired the very people who can turn this around.
Written Oct 14, 2009, read 962 times since then.
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Recently, I received an email from a reader of an article of mine who thanked me for being an Evangelist of Ethonomics.  Evangelist of Ethonomics? I thought, hmmmm. . .  is that what I am? Sounds like a 60s kind of guru, a cross between John Maynard Keynes and Aristotle.

According to Wikipedia, Ethonomics goes down as the “provisional name for the discipline of formally mapping and defining the prioritization of values within value systems.”

Okay, it’s about values and when you look at values you make choices; you prioritize. No real help here. I needed to dig deeper for a definition that would characterize what this means to business.

I found the answer was in the February 2009 issue of Fast Company magazine:

“The end of the modern financial system as we know it has cleared the way for an era of ethical economics, or ‘Ethonomics.’ We live in a world that's resource-constrained but ingenuity-rich. So an upstart generation of entrepreneurs--and innovators within the world's biggest companies--are founding businesses that are good for the world as well as the bottom line. They are practicing social change through urban revitalization, sustainable agriculture, green IT, alternative energy and online community-powered investing. Any business that claims to be truly sustainable and innovative should be increasingly efficient with energy and natural resources, transparent and accountable, and good on balance for people and other living things. Ethonomics is a hybrid of technology, design, and social responsibility.”

After reading this, I was feeling pretty good about being an Evangelist for Ethonomics. Ethical economics boils down to making business decisions that are balanced between the quests for profit and being a responsible member of our Earth-community.

Before we have a heyday painting this concept totally “green” and arguing the facts and theories about global warming and environmental stewardship, let’s focus on the part that’s all about doing what’s good, on balance, for people.

Social responsibility means we all have an obligation to do what’s right for society even as we advance our businesses and ourselves. Ethonomics infers this is something we must do. 

For most of us still employed, greater than half of our waking hours each day are spent on the job. That is an enormous portion of one’s life. Wouldn’t it be nice if we could insist that those hours were rewarding and fulfilling and not be full of drama and fear. Think of the productivity we could generate if every morning we couldn’t wait to get to work and make a difference.  Under the promise of Ethonomics, this might just be possible.

After all, our “recovery” is not going to return us to where we were two years ago but will be a journey to a new place with new values, forged from the bitter reality of financial hardship.  If we’re lucky, our destination might be a place where businesses are run to benefit all persons who have a “stake” in its success.

A company forms its culture from the behavior and attitude of its employees. But, most traditional hiring decisions are based in part on how the individual will fit in, instead of on how he or she will contribute. A healthy company celebrates diversity - not only of race, ethnicity, and other preferences – by allowing itself to morph and evolve with the employment of those who bring differences as well as similarities.

Every person in a company is a symbol of the brand promise – what the company stands for. Each person can deliver it or deny it to customers. The true identity of a company is not in the product or service it provides but in the men and women, who proudly design it, make it, and deliver it, and, stand by it.

Who would deny that any company’s greatest asset is its people? A thriving company has to have great people – a micro-society undergoing constant change to be better. Every interaction among the players modifies the company operation if only a little. A healthy company is on a journey, continually in flux, searching for momentum towards its mission while maintaining and adjusting its values.

But, occasionally, there’s a bump in the road that causes a knee jerk reaction. The emotional and financial casualties of the current recession have caused companies to reprioritize their values.  Massive layoffs resulted in quick attempts to preserve equity – an ugly rationale to justify the firings. 

Somewhere in our recent past, we accepted the premise that success means earning more, spending more, acquiring more, and leveraging more – no matter what the consequences. We cheered on business as though a blood sport. We convinced ourselves it was a good thing when the bottom line increased shareholder equity. 

We bought into the premise that a good company always shaves expenses at every opportunity to bring more value to its shareholders even if the company’s most important asset – its employees - suffered.

There are only two basic ways to increase net operating income (which ultimately trickles down to shareholder equity on the balance sheet) – increasing revenue or decreasing expenses. It’s a teeter-totter balancing act. One grows a business; the other diminishes it. So when sales are down, you cut expenses. But span of time enters into this calculation as well. You can’t sustain cutting indefinitely; you can’t cut your way to success.

When you cut expenses such as personnel, you might be all right short term. But sooner or later, the cuts will start to erode product quality and customer service. Customers start to notice longer delivery times, endless telephone call waits, errors in billing, and the absence of caring, knowledgeable people – where did they go? All for a temporary bump in shareholder value.

A shareholder does three things – buys and sells stock, and votes at the annual meeting. It’s very American to buy stock in the hopes of increasing one’s wealth, but it's only a passive activity to the stock issuer. Investors do not care about the value-systems of companies in which they invest.  Their sole objective is financial profit.

Corporate officers are too beholden to Wall Street and the coterie of analysts who bray about the economic woes or fortunes of a company directly to its owners. Of course there is a fiduciary responsibility of officers to act in the best interest of the owners, but “best interest” is open for interpretation. Since the stunning collapse of Enron and others, the 2002 Sarbanes-Oxley Act has essentially punished the many for the sins of the few. Public companies are trapped into worrying more about compliance than about doing great things with great people. Executives cower in fear that they might overpromise when making forward-looking statements and be held personally liable.

What if the leaders of these companies had hunkered down when the recession started and looked to their employees for innovative ways to stem the bleeding? I’m suggesting that a little less desperation for the bottom line might have saved jobs, lessened the spooking of the American people, prevented some of the subsequent decline in consumer spending, and helped the credit markets rebound quicker. Sadly, the reality is in good times, employees are valuable; in bad times, they’re expendable. Few companies leverage the innovation potential of their employees.

In spite of our American tradition of competitiveness, social responsibility may suggest that no one should win if someone has to lose.  Should shareholders of a company’s stock benefit from a lay-off?  In the new post-recession economy, we must find a way to do what’s right for society, to give back, even if it means making a little less profit.

There is talk of a “jobless recovery.” One CEO I recently talked with told me it will be difficult to increase hiring when “we were so successful maintaining with the survivors.”  I don’t believe businesses can do anything more than just survive without an entrepreneurial plan for growth that absolutely requires putting America back to work. If hiring started increasing tomorrow, it would start media frenzy. Every bit of favorable news about our economy is contagious. It builds consumer confidence and is the tonic to get people spending again. Where there is demand for products and services, you need supply. To get supply, you need workers. To thrive, you need innovation. To innovate, you need motivated workers.

The only qualification to be a shareholder is you must own a share of stock. To be a stakeholder, you must have a stake in the future of your company and what it becomes – that’s both owners and employees alike.  Let’s make it clear that we no longer want to just survive.  We want to thrive. Let’s look forward to being active stakeholders in this New Era of Ethonomics that’s just visible on the horizon and welcome our new Age of Innovation into the workplace.

Perhaps, as we rebuild, we will find the courage as leaders to leverage this stakeholder equity and promote engagement that can really allow great people to do great things – to soar on the upward spiral.

Remember, it all starts with us!

Learn more about the author, John Lee.

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