Heard “Heigh-ho, Heigh-ho, It’s Off to Work We Go” Lately?
from May/June 2003
by Bonnie Azab Powell
Being an authority on what makes a company attractive to employees can be burdensome when you’re a boss yourself. Just ask Robert Levering, co-founder of the Great Place to Work Institute, a research and management consulting firm, and one of the guys who compile Fortune’s annual ranking of the 100 best American companies to work for and similar lists for the U.K.’s Financial Times, Germany’s Capital, and the Netherlands’ Het Financieele Dagblad. The institute, which is headquartered in San Francisco—its courtyard, plants, and hand-hewn woodwork point to the former owner’s Zen leanings—“is a terrible place to work,” sighs Levering, 59. “We did a workplace assessment last year and turned up all the sorts of problems you’d expect from a rapidly growing company: overwork, poor organizational structure. We’re addressing them, but no, we wouldn’t have made our own lists.”
Is that really such a big deal, though? Companies that are on the lists revel in the PR, but does it really matter how happy their employees are? Are the institute’s lists any less accurate (or profitable) because of its poor organizational structure? Does the happiness of workers even merit boardroom concern?
Yes, says Levering, who explained his reasoning to Corporate Board Member’s Bonnie Azab Powell.
Given that unemployment is rising and most employees are happy just to have a paycheck, why should directors care whether their company is a great place to work?
There are two reasons. One benefit of being a great place to work is that it shows up on the bottom line. The Frank Russell Co. [a financial-services corporation] has done a study comparing the performance of the public companies on our 100 Best Companies to Work For list with the S&P 500 and the Russell 3,000. If you’d invested the same dollar amount in a portfolio of the “100 Best” stocks from 1998, exchanging them every year for the new list, by the end of 2002 you’d have earned an annual return of 9.86%, compared with the S&P 500’s -0.71% and the Russell’s -0.56%.
Being a great place to work increases employee productivity. You have lower absenteeism rates due to illness, and lower turnover. If you define a great work environment in terms of trust, as we do—a great place to work is basically one where you trust the people you work for, have pride in what you do, and enjoy the people you work with—that trust translates into a high level of cooperation and a greater willingness to give extra.
And in hard times, even the companies that have cut back dramatically are still in a very, very competitive environment, so it can be even more important to keep the really good people; otherwise you go into a downward spiral. Turnover is costly. About two years ago we did a big study of turnover rates, by industry and by job level, and we found them to be about 50% lower among the 100 Best Companies to Work For outfits than the industry average.
What distinguishes a great place to work?
I’ll give you the top three traits they share. The first is extremely good two-way communication systems. Management has to not only be accessible but also make sure that questions are encouraged, asked, and responded to. I interviewed [Hewlett-Packard chairman and CEO] Carly Fiorina about two years ago, soon after she got in, and one of the things that she was very proud of was the stack of printed e-mails sitting on her desk. She said that she had announced that she reads every single e-mail that comes to her. So she had probably a couple hundred sitting there. And she goes through them all and makes sure that every one is responded to in a relatively timely way. Why does she spend the time doing that? HP has lots and lots of issues, but if it’s going to get through them in a positive way, it needs all the employees on board. She knows that.
Second, good companies know how to make people feel appreciated. There are a number of ways to do this—Capital One Financial has a dedicated employee-appreciation budget, while Continental Airlines gives everyone a bonus when the company wins the most-on-time award. It’s partly about showing appreciation and partly a way of demonstrating that everybody’s in this together. Sometimes people talk about it in terms of being “like family.” Some hate that phrase and use “team” instead, but it’s genuine, it’s not just lip service.
Third, people like to have a sense of being cared for as not just an employee but a person. That’s illustrated mostly by stories about what the company does when something dreadful happens. For example, at Edward Jones, the No. 1 company on our list this year and last, an employee’s wife who was working at another company was really sick. Her company health insurance did not cover her, so Edward Jones just put her on theirs, no questions, and she was covered retroactively.
A lot of the companies on this year’s list have had layoffs. How do companies maintain morale among the survivors while the pink slips are going out?
Almost half actually reduced their number of employees in 2002. But they’ve managed to maintain good communication throughout the hard times. Typically they’ve done layoffs as a last resort, and employees understand the necessity of them. Take Xilinx, a semiconductor company that’s No. 4 this year. They made sure that the top managers reduced their salaries before they asked anybody else to take a cut. Top management gave up 20% and the average employee took 6%, and they avoided layoffs that way. The key thing is that people didn’t feel that they were kept in the dark.
Can a company be unethical and still be a great place to work? After all, Enron was on your list for several years.
Certainly Enron’s ethics got called seriously into question when everything came out, but I don’t think it was apparent at the time to most of the employees working there. It’s obvious now that trust in corporate management is at an all-time low, because we’re seeing ethics come up in the survey comments as something that people really value. Employees of Goldman Sachs, for example, wrote a lot about how they were proud of the way the firm had handled itself amid all the scandals. I read things like that from many companies this year.
Ethics, or integrity, manifests itself in small things that impact people. It’s not necessarily the big issues like accounting, which are between the board and the Securities and Exchange Commission or the senior management. It’s expense reports. It’s how competition is carried on. It’s whether people abuse the perks. The company’s board and the top management really do set a tone. I remember a company from several years ago, Armstrong, which makes flooring and ceilings. Some of the employees told me that the CEO always went to their training sessions for new management recruits, where he gave out his home phone number and said, “If you ever see, in the time that you work here, anything that seems at all shady to you, on any kind of ethical thing, call me at home.” That’s the sort of environment that is very important to people.
You mentioned that directors can set a tone. Do you think it’s necessary that board members visit the workplace and meet the employees, the way Home Depot requires its directors to make store visits?
That’s a lot to ask, and I’m not sure how helpful it would be. If in fact it’s true that the higher the level of trust in the work environment, the higher productivity is and ultimately the more profitable the company is, then it might be more important that board members just make sure that workplace issues are discussed at the board level. If they’re really interested in the long-term benefit for shareholders, which is presumably why they’re there, they can’t ignore the workplace. They should ask questions like “What are you doing to assess the workplace?” Because they’re the outsiders, they should rely on commonsense answers, not on a bunch of HR jargon like “Well, we do an employee survey once a year.” What does the survey really ask? What are you comparing it with? What are you doing to address the holes?
So in addition to being the accounting police, you think directors need to be culture cops too.
Unless it’s a company that’s run by robots, you have to be concerned about what the people who work there think. Here’s an easy way for directors to get a feel for the workplace health. In the best workplaces, there’s always at least one thing that the employees feel is unique about the company. Something that’s very special, a specific policy or even something like Northwestern Mutual Life’s free lunch. It’s not so much that those employees couldn’t get lunch somewhere else, but they feel that it’s very special and unique.
Directors should ask management, “Why would a person want to work here rather than at competitor A, B, or C?” If the executives can’t instantly give you at least one thing that’s special about it, I guarantee it’s not a great place to work. It may be good. It may be that they’re keeping up with the Joneses. That unique thing can’t just be that they pay better, because that can be matched overnight.
What about boardrooms as workplaces? Directors are obviously happier if they are surrounded by other directors they trust and executives they believe in. But does that necessarily make them better directors, the way it does employees?
I think the same principles do apply to the boardroom. But the issue is trust, not the potential happiness of board members. A board where the members trust each other and also trust the management can accomplish more, because everyone is willing to cooperate more fully. To build that trust, management must share information openly, just as they must develop open communication to gain the trust of their workers. So board members should insist first and foremost on the accessibility and transparency of information. By doing so, they will both create a better work environment for themselves and best serve the interests of the shareholders relying on them to assess management’s trustworthiness.
What else distinguishes a great place to work from a good one?
Just having policies and practices isn’t enough. The communication structures are important in terms of institutionalizing something, but they can only go so far if they’re not done with the right attitude and the right intention. About 10 or so years ago, I went down to San Jose for a town-hall-type meeting that Bob Crandall, who was then CEO of American Airlines, was having with employees all around the country. I was traveling with Milton Moskowitz [co-author with Levering of a number of books, including A Great Place to Work: What Makes Some Employers So Good—And Most So Bad], and we both thought what Crandall was doing was a fabulous example of two-way communication.
He announced at the very beginning of the meeting that he’d stay there all night and answer any question. But what became clear after about the third question was that Crandall knew more about anything than any poor employee: more about how to load bags than the people who worked on the ramp eight hours a day, more about reservations than people who worked the lines. He just had this incredibly combative thing going. It wasn’t really a question-and-answer. There was no respect. At the end Milt said, “Boy, I’d hate to ask that guy for a raise.”
You’re surveying thousands of companies now for a list of the 100 best companies to work for in the European Union. Are European workers more demanding than their American counterparts?
Not really. There’s much less variation between countries than there is within countries, or within industries. A retailing store in the U.S. is more likely to have similar scores to a retailer in Belgium, say, than to a U.S. investment bank.
Why do American-owned companies pop up so often on the international lists the institute has done?
In Europe it’s known that many American companies are more progressive in their employment relationships than a lot of European ones. U.S. companies tend to involve employees more in decision-making, to be better about showing appreciation to people, and to be more up-front about communicating.
But again, any generalization is a generalization, and we’ve seen many excellent homegrown examples. This year I visited Ferrari, which was a cool, cool place. I’m not much of a car person, so it wasn’t like it was hallowed ground to me. But the workplace was fabulous. It was really exciting to talk to assembly-line workers who felt they were treated like skilled craftspeople, like artists. I’ve seen miles and miles of assembly lines, and a typical car assembly line is about 90 seconds per task, the same task over and over as the cars race by. At Ferrari, they’ve got 90 minutes to do a whole bunch of different tasks. They haven’t been reduced to a cog.
Has anyone ever approached you about doing a 100 Worst Companies to Work For list?
Sadly, no. I suggested that, way back when my first book was proposed. My editor’s answer was “We don’t have a big enough legal department for that one.”
