Value Creation: Attract and Retain the Best Talent

Let’s wrap up this module by moving beyond risk management. Risk management is very important and carries with it the possibility of avoiding huge liability. For instance, I teach periodically in Los Angeles, we have an Executive MBA program in Los Angeles. And last time I taught there, I read about this California case. We’ve got a physician’s assistant in a California hospital. She claims she was sexual harassed. For example, a surgeon stuck here with a needle and called her a stupid chick. One harasser said to me, You’ll give in to me. Her attorney described the hospital where she worked as a raunchy, vile, toxic workplace. And so she filed 18 written complaints against the hospital and she was eventually terminated.

Her case went to a jury and the jury, this was at the time I was teaching in California awarded her $168 million, 3.5 million for lost wages, 39 million for mental anguish and $125 million in punitive damages. Now again like other cases this might be reduced at an appeal or the parties might settle the case but this illustrates the liability time bomb that companies face when they aren’t involved in risk management. The problem is though, focusing too much on risk management can also prevent you from taking more positive measures that have huge benefits for the company. So lets look at a couple of examples. Remember the main goal here.

The main goal a company is not just to reduce damages from sex discrimination and other kinds of discrimination cases and damages from employment at will cases. Your goal here, your strategic goal, is to attract and retain the best talent. And so how can you do this, first of all, in the discrimination area? Well, here’s some advice, sexual harassment doesn’t have to do only with law, it doesn’t only have to do with morality, but it’s a business issue. It’s about having a productive workforce. An attorney recently gave this advice. He said that companies should have strong written policies prohibiting sex discrimination, prohibiting other forms of discrimination.

But he also said they should not say anything more than necessary, they should not say anything that goes beyond the legal requirements. Because if they go beyond the legal requirements then they could be liable for what they say in their policies. I strongly disagree with that. I think that it overlooks the fundamental strategic goal in the company by focusing too much on the law pillar. I think that companies in order to retain and attract the best talent should have strong policies that go beyond the law. So, for example, when you’re dealing with sex discrimination, obviously your company policies should include other forms of illegal discrimination under US federal law and these are common in discrimination laws around the world.

So, you want your policies to comply with the law but even where a particular type of discrimination is not illegal where you live, I think you should think in terms of prohibiting all types of discrimination, legal or not. And one way you can do this is use, for instance, in the United States, the categories of state and local law that describe illegal discriminatory behavior. Even though your state or your city does not include those categories, those give you a good guideline, number one, on what you can do to prevent discrimination of all types and then number two, it also gives you sort of a preventive measure, because those state and local laws might become federal law down the road.

And I suggest further that you look even beyond your own country. So let me give you this example. Let me ask you, based on what we’ve discussed today Is it illegal for a company to harass employees? Is it illegal for managers within the company to harass employees and bully them on the job? To ridicule them, to make fun of them publicly, to criticize their work in a very brutal manner. Is that legal or not? Please hit pause and write down your answer, and the answer is, in the United States, it depends. It’s entirely legal if It is not based on one of the protected categories.

So if the bullying, if the harassment is not based on national, origin, race, religion, sex, etc., then under US law, it is legal. However, In various countries around the world, workplace bullying is illegal. So as a US company, even though legally you could get away with workplace bullying, I would highly recommend that as a matter of company policy you prohibit that form of harassment. And you can look to other countries as a guideline in developing your company policies. What are the benefits of eliminating all forms of harassment? Well, here’s a 2015 McKinsey study of companies in the US, England, United Kingdom, Brazil, etc. And they have discovered in this study that there is a so-called diversity dividend.

For companies who have women and minorities in upper ranks, companies that have eliminated discriminatory practices and have promoted women and minorities. These companies achieve better financial returns. And another 2015 McKinsey study came up with these findings. Women constitute half the world’s working-age population but they generate only 37% of the gross domestic product. If the gender gap can be closed by increasing the ability of women to engage in paid work, by allowing them to have the skills and opportunity to perform higher-productivity jobs, and to occupy leading positions in the economy can increase global annual gross domestic product by $28 trillion by 2025. And this increase in the economic welfare worldwide is the equivalent to the combined US and China economies today.

So, huge potential payoff from eliminating discrimination and thinking more broadly than just the risk management part of the law. What about employment at will? What can a company do, thinking more broadly? Well, here’s a suggestion that will make your attorneys shudder. If you suggest this to your attorney, make sure the attorney is sitting down. The attorney might have a heart attack. The suggestion is think about eliminating your right to fire employee ease at will in the United States. Here’s a key study of a company that gave up its right to fire employees under the employment at will doctrine. The company’s named Lincoln Electric. Global manufacturer based in Ohio, they do not follow the employment at will rule.

They have not laid off an employee in the United States for over 60 years. And this job security that they give employees encourages employees, according to various studies, to make long term suggestions to improve productivity. A few years ago, the company made a costly mistake, during an expansion. And the employees had such a positive attitude toward the company, they volunteered to give up vacation time, and worked overtime, to help the company improve profits. This is the way a report at ABC World News put it. They quoted the CEO, people come to work here every day knowing that if they work hard and they contribute to the success of the company they are going to have a job.

Workers who don’t measure up are let go. In tough times hours are cut. Employees are guaranteed only 32 hours a week, but in good times, rather than hire a lot of new workers, Lincoln requires it’s employees to work overtime. So you notice a couple of things here. First of all rather than the typical approach where in good times companies hire a lot of people, in bad times they let them go. This has all kinds of consequences for company morale, for training, for recruitment, etc. These employees have a stable work environment. But notice also the sentence, workers who don’t measure up are let go.

This company policy doesn’t mean that employees who are underperformers are going to be allowed to continue, they are fired. Unlike many companies who under the Rand study I mentioned earlier follow the employment at will rule, but who are afraid to fire underperformers. So this combination of guaranteeing employment, but being tough on work standards has been very successful at Lincoln Electric. So just to conclude this module, we have looked at ways in which, you can become a more legally savvy worker or manager in ways that not only benefit your career but can benefit the company.

Hopefully, through the methods we’ve discussed you can close the gap between the law pillar, which focuses on risk management and the strategy pillar which focuses on creating value in a way that you can create the sweet spot among the three circles and increase your competitive advantage.