Reality versus belief about corporate success

Frank Koller, the author of

, emailed me this week in response to reading (on VoxEU) about the book I edited on the teaching of economics,
.

Frank’s book is about businesses with no-layoff employment policies, and particularly about a company called Lincoln Electric – I’d never heard of it but it’s the global number one in arc welding. Lincoln has a formal guaranteed employment programme as well as rewarding employees with bonuses and incentives. The company history sets out its longstanding (since 1895) commitment to employees and customers as well as shareholders. According to its latest results, published last week, employees got an average bonus of $33,915, the 79th annual bonus in a row, a bonus pool of $99.3m (the pool normally represents 32% of pre-tax profits).

[amazon_image id=”1610390539″ link=”true” target=”_blank” size=”medium” ]Spark[/amazon_image]

Spark has sold very well but the depressing news is that Lincoln’s CEO John Stropki told Frank that not a single other senior US executive has asked him the secret of the firm’s combination of phenomenal financial success with employment practices so good they sound like something out of a fairy tale. Why the lack of interest? Maybe – and this is where economics comes in – it’s because the reality demonstrated by Lincoln and the handful of other companies with such a strong commitment to what by now seem to be extraordinarily good employment practices is inconsistent with the belief system so many people hold about the way business works and the imperative of free markets. If so, the charge sheet against the narrow version of economics grows even longer.

[amazon_image id=”1907994041″ link=”true” target=”_blank” size=”medium” ]What’s the Use of Economics?: Teaching the Dismal Science After the Crisis[/amazon_image]

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5 thoughts on “Reality versus belief about corporate success

  1. Great piece, Diane. The evidence is now huge of the commercial benefits from good employment practices and making your staff happy. The government’s Engaging for Success programme has collected pretty convincing evidence on this, and there is clear analytical work from Alex Edmans at Wharton.(http://www.happy.co.uk/great-workplaces-make-more-money-2/). And the success of companies from Google & Zappos to John Lewis, who focus on creating great workplaces.

    It is an ongoing mystery why, given the evidence of commercial benefit, creating good employment practice and great workplaces isn’t the prime focus of more companies.

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  3. Thanks Diane. I’m looking forward to reading about the Lincoln experience. Research we did with the New Zealand government (http://www.publicworld.org/files/pandp.pdf) showed similar results elsewhere, and highlighted both the reasons it works and the framework that is required to make it work. We are looking forward to working with health and social care providers in Britain over the next year to show how employee engagement in those services can combine making both savings and quality improvements on the scale required.

  4. I would pass a law to convert all private companies into partnerships / co-ops, overnight. The only differences: the firm is now run for the sake of its employees (“partners”), a certain percentage of profits goes straight to employees, and they have a major say in the running of the firm.

    I’m still waiting for anyone to tell my how the current, more common alternative – i.e. firms run for the interests of a few rich directors & shareholders, paying employees as little as they can get away with, employees with zero say in anything – is better? Because it’s not better, it’s much, much worse.

    But money equals power, and the world is run for the interests of the super-rich. (You might try not voting for the parties they fund.)

    Check out the massive success of the John Lewis Partnership in the UK.

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