Wednesday, May 27, 2015

Longevity Factor #4: Long-term Employees

Relationships are at the core of how old companies operate and the development of long-term relationships with employees is no exception. Many employees of these companies become lifelong, loyal members of the organization and often describe their relationship with the company as being part of a family. Often there are multiple members of the same family working for the company and some talk about their parents and grandparents also working for the firm.

Whether talking about efforts taken to retain employees or investments in their training and development, century-old companies clearly believe retaining employees for the long-term is a differentiating factor. And it may, in fact, be a very important element in these companies’ longevity, but it does not appear to be statistically significant when compared to philosophies reported by younger companies. When testing the longevity model with young companies, they also indicated it was important to them to build long-term relationships with employees. Though young companies put slightly less importance on practices relating to employee retention, it was not a statistically significant difference. The only practice that was statistically significant in the responses of old and young companies was the effort old companies take to teach employees about company history and traditions (perhaps because younger companies don't yet have much history or many traditions).

One explanation for the lack of significant difference in old and young companies’ self-reported behavior toward employees could be that many companies now realize retaining well-trained employees is of great benefit to their business.  Another possible explanation for the similar responses to the questions relating to employee relations practices is that younger companies intend to operate this way, but have not yet been tested as to whether they will stay true to this intent during tough times. Will they use workforce cutbacks as a primary method of responding to business downturns, or will they actually keep employees on the payroll during tough times the way the older companies have? Either way, it is clear that companies surviving for over 100 years believe in practices that will build long-term relationships with employees.

There is evidence that many of the best companies, whether young or old, have realized that treating your employees well and avoiding turnover is just good business. In the 2015 FORTUNE issue highlighting the 100 best companies to work for, Geoff Colvin says: “Here’s the simple secret of every great place to work: It’s personal. It’s relationship-based, not transaction-based. Astoundingly, many employers still don’t get that, though it was the central insight of Robert Levering and Milton Moskowitz when they assembled the first 100 Best Companies to Work for list in the early 1908s. ‘The key to creating a great workplace,’ they said, ‘was the building of high-quality relationships in the workplace.’”

Old companies invest in the training and development of their employees and they are especially deliberate about teaching employees the history of their company in addition to the technologies and skills employees will need to keep the company successful into the future. Because of this investment made in their employees, the old companies make every effort to retain them. Labor economists would say it doesn’t make sense to spend company resources on employee development if you don’t expect them to stay with the firm to see the payoff for that investment.

Many of the old companies reported keeping employees on the payroll even when they didn’t have enough work to keep them busy on their regular tasks. They might do this by having them engage in maintenance work or development activities, and some firms even “lent out” their employees to non-profit organizations during slow business times. When business picked up again, these firms didn’t have to worry about recruiting, screening, selecting, and training new workers, all of which takes time and resources. The old companies choose to invest their resources in employee retention rather than replacement. Such employee retention practices build great loyalty to the company on the part of employees and enhance company performance. This is also an area where we see the interconnection of the longevity factors: If the company hadn’t been financially conservative during the good years, it wouldn’t have the resources to keep paying employees during a business downturn and thus be able to quickly respond to the upturn when it comes.

Since many of the old companies are small, they report that they can’t always compete with the pay and benefits offered by larger firms, so they find other ways to make employment with their company attractive. This may be through flexible schedules or other (often informal) family-friendly practices along with profit-sharing or bonuses when business is good. Some have gone so far as to have employee stock ownership plans – even privately-owned firms can set up such plans.

Old companies believe long term employees bring a wealth of "institutional memory" to address issues and opportunities that arise. After years with the company, employees identify very closely with the firm and its goals. Even without any type of formal ownership in the company they develop an ownership attitude - it's their company. The resulting integration of personal and organization goals and objectives has a major impact on the company’s success: employees conduct their work and use company resources as if they were their own.

This identification with the company on the part of employees is a powerful advantage for a business. But it also makes it very difficult for executives brought in from outside the company to be successful. At best, employees take a "wait and see" attitude: Will this new leader take the time to learn the company patterns of behavior or come in with the attitude that s/he has a better way? It can take a very long time for an old company to accept an outsider who joins the company in an executive position. It takes a special executive to be willing to come in and pay the dues necessary to be successful as an "outsider." As a result, most old companies only bring in an outsider to fill an executive position as a last resort.

One of the important distinguishing characteristics of the 100-year-old companies is the development of leaders from within. Most old companies reported having a systematic process for leadership succession: they like future leaders to first have experience in other companies, but they must then work from the ground up, including hands-on experience in company operations. Once leaders thoroughly understand the business and have built their own personal networks of relationships both inside and outside the company, then they are expected to think for themselves rather than blindly following tradition. One 100-year-old company’s CEO expressed that the development of his successor was his most important task - and he wasn't anywhere close to retirement age at the time he made this statement. The majority of 100-year-old companies report they have already identified who their next leader will be and are working very deliberately to develop him or her. This practice is especially important for family-owned firms.

Developing leaders from within the firm appears to be one of the key differentiating factors in sustaining a business for the long term: these old companies are concerned not just about reaping the crop for today's harvest, they are cultivating the ground for the future and this factor is especially apparent in the area of leadership development.

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