Been reading a good book, Leaders Eat Last, & thinking about companies who prioritize profits over people - can not - and will not - succeed in the long run. Advertising is a people business, and yet people are almost never the priority in an agency-land. Like trading a risky stock portfolio - playing the shareholder game can be profitable in the short run - but fails to yield the returns of a company focused on people first. 

"There's a growing body of evidence that the companies that are the most successful at maximizing shareholder value over time are those that aim toward goals other than maximizing  shareholder value...Employees and customers often know more about and have more of a long-term commitment to a company than shareholders do." - Justin Fox and Jay Lorsch, HBR

Example: Jack Welch is the poster child of management in his tenure as CEO at GE. Shareholder value became a managing principle. Welch fired the bottom 10 percent of his GE managers whose divisions contributed the least to the share price and rewarded the top 20 percent with stock options. Welch's "Rank & yank" policy wasn't the only reason for GE's performance though, which matched the trajectory of the S&P 500 over the same period. As Simon Sinek writes, "A rising tide lifts all ships." Welch and his counterparts used people as expendable resources to benefit investors. 

Contrast with Costco, run by James Sinegal from 1983 - 2012. He believed in a culture where people were the priority: he refused to believe that success in retail required minimum wages salaries and benefits. He ignored analysts like Emme Kozloff, who called him 'too benevolent" when Sinegal refused to pass on health-care costs to employees. 

If you invested in GE & Costco in January 1986, you would have made 600 percent on your investment in GE (tracking right along with the S&P average). You would have made 1,200 percent on Costco. GE had the biggest rollercoaster, but Costco was a steady, slow growth even amidst a difficult economy. Today Costco provides the highest wages in the retail business and company subsidized health insurance to 90 percent of its employees. It is the second largest retailer in the country & seventh largest int he world: and it is a legacy that has continued past Sinegal's tenure. "Instead of minimizing wages," says current CEO Craig Jelinek, "we know it's a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyality."

GE maximized short term opportunity, where numbers mattered more than people: not built to last, so it didn't. Costco played the long tail game of empowering people, who in turn work harder for the company - resulting in long term profit.

In the long run: People > profit.

 

Comment