The Human Asset Manifesto

The Times They Are A-Changing – Why Private Equity Firms Must Adopt A Human Asset Model

Several months ago I was having discussions with a number of people in the private equity industry. At that time I was suggesting to them that valuing organisations solely on the basis of their cash flows had its limitations and that they should also consider utilising human asset/capital evaluation and assessment techniques.

I was told that while my proposal was entirely rational, the industry had its own way of doing things, and that given the normal investment time horizon, measuring human assets would be a nice to have, but not in any way necessary.

Since then, the industry has undergone a fundamental change partly as a result of what is happening within, but more importantly because of the pressures and changes on the outside.

As the industry moves from the acquisition of niche or medium-sized entities into the acquisition of larger companies that hire thousands of people, as long as it is perceived to be more preoccupied with investor returns than the public good, it will always be a target for its many detractors.

Criticisms will surface and barbs will be thrown irrespective of the honesty and integrity with which the industry does its business. The problem is that much of the public is already predisposed to thinking that it is merely a collection of asset-strippers whose only purpose is to line their pockets.

This will only serve to make future large transactions more difficult as governments and regulatory authorities come under pressure to curb or otherwise increase the scrutiny of each transaction. Moreover, there are some governments that will readily yield to populism and hold themselves out as guardians against the excesses of Anglo Saxon capitalist greed.

Others, such as the unions, will also take their pot shots knowing full well that their protestations in no way need to reflect the actual facts.

As they say, perception is reality. Therefore one has no option but to deal with that reality.

One of the principal tenets of The Human Asset Manifesto is that organisations should lead social change or otherwise risk being dragged kicking and screaming into making that change.

As of right now, the industry has a golden opportunity to adopt that social leadership position, or otherwise spend the coming years bickering and warding of unnecessary if not unenlightened intrusions into its activities.

So, what would such a move entail?

The first and most important step would be to establish a framework within which the human and social issues that impact each business are placed at the very core of its strategy. One only has to witness the problems KKR and Goldman Sachs are facing in their attempt to acquire the Texas utility company TXU, to realise just how important this is.

The full ramifications of such a step is best understood when we look at a company like BP, who for all its nice CSR programmes, failed in its mission to protect both people and the environment.

Leading social change means ditching the CSR niceties and fundamentally refocusing priorities such that they reflect the concerns of the wider community.

A second step is that of demonstrating a belief in the value of people by establishing guidelines for assessing and developing employee skill sets to match the needs of a restructured organisation.

The above does not preclude making people redundant. However, adopting such a people-focused approach might come in more than handy in union negotiations.

Ultimately, only by viewing their targeted acquisitions as networks of human assets – managers, employees, customers, suppliers, and the public – which must be aligned in pursuit of a common vision, will the industry be able to meet the considerable challenges ahead.

Private equity firms have proven their leadership in corporate takeovers and restructurings. If the industry is to continue its impressive growth, then it will also have to prove its leadership in respect of social change and optimising human assets.

The People Gap 2 – Leadership Might Be Sexy But How People Oriented Is It?

This is the second in a series of articles on the gap between what organisations say about the importance of people and what they actually do to reflect it.

Without a doubt, for better or for worse, leadership is the sexiest topic in management. There are probably more books on leadership than on all other business topics combined. It is the topic with the greatest buzz and the one that elicits the most interest.

What is behind this obsession with leadership?

From a social perspective, there has probably never been a time when people were more individualistic and intent on pursuing their own personal ambition. No other era in history has allowed so many people to think beyond an ordinary existence.

Thus, it would be entirely natural to consider leadership in terms of its appeal to the individual, the hero, that single person who can presumably make all the difference by changing the course of an organisation or even history itself. Throw in a few other human traits such as vanity, a quest for glory, and the desire to stand at the top, and suddenly the obsession with leadership looks like something that has been engineered into our DNA.

There is also a very practical perspective.

The number of knowledge workers and highly qualified staff has increased exponentially over the past twenty years. MBAs and advanced degrees are now the norm rather than the exception. What this means is that the path to leadership for the many who consider themselves suitably equipped is less well defined and certainly more difficult and competitive than ever.

As a consequence, irrespective of the way in which it is viewed, be it lightened or unenlightened, leadership is more often than not far more concerned with the leader than it is with the led and that particular approach is embedded in our subconscious.

This is indeed unfortunate.

Long before their companies collapsed in ruin, corporate titans such as Bernie Ebbers of World Com and Ken Lay of Enron were celebrated and regaled for their leadership qualities. In direct contrast to these shooting stars one could ask the question; “Does anyone know who the President of Switzerland is?”

The answer happens to be Micheline Calmy-Rey. I had to look it up. With the exception of the Swiss and perhaps a smattering of people over the border in Germany, Italy, and France, I would guess that very few people would have known that.

The Swiss actually have a collective leadership, a Federal Council, which consists of seven people. Each year, a member of that council is selected to act as its nominal head and de facto President of the country.

Switzerland is the world’s strongest and most participatory democracy. It holds regular referendums on all sorts of issues and its citizens can challenge the laws at anytime.

Swiss leadership is about the led and the result is a country that consistently ranks as one of the wealthiest (in terms of GDP per capita) and most competitive in the world.

Organisations should take note of the Swiss model. Leadership by definition should be about facilitating and enabling others to be the very best they can be. It is for this reason that the current obsession with leaders should change to an obsession with the led.

Until such a change is effected, the nature of the current focus on leadership will only serve to perpetuate the people gap.

Is Work As We Know It Compatible With Liberal Democracy?

The idea that people must go to work to give up their freedoms and their ability to be creative, and accept a subordinate role to those who have invested money, is completely contrary to our social evolution and the very nature of humanity. The Human Asset Manifesto, Jonathan Ledwidge

Wal-Mart is one of the most successful and profitable organisations of its kind in the history of modern business. As such, stories in the media about the less than favourable experiences of Wal-Mart’s current and former employees do deserve our attention.

We talk of liberal democracy in terms of elections, a free media and an independent judiciary – and these are very important. However, the policies and actions of Wal-Mart and others like it challenge the very notion of liberal democracy and the social equality it supposedly engenders.

Yet, Wal-Mart is not the only guilty party. Day after day millions of workers trudge to work to engage in activities which for all intents and purposes require that they leave their brains at home. As it so happens, their rewards are more often than not commensurate with the lack of inspiration and creativity that their job demands.

If one is cynical, then one might be of the opinion that this equation is in perfect balance – an unfair day’s work for an unfair day’s pay. However, one might also want to consider that this also quite adequately illustrates why employee surveys routinely show that people are very rarely engaged or motivated by their work – which of course is a hindrance to innovation and productivity.

The long term consequences of the kinds of actions that produce such outcomes can be decidedly unpleasant. Wal-Mart is only now beginning to recognize this as a result of the class action lawsuit being filed against it by some 1.5 million current and former female employees.

In the book Maslow on Management, the author describes the term Enlightened Economics as; “the assumption that everyone prefers to be a prime mover rather than a passive helper, a tool, a cork tossed about on the waves”. Thus, an Enlightened Organization encapsulates the very essence of liberal democracy, by providing an environment where employees are willing to participate and enjoy the freedom to do so.

This ideal is emphatically supported by none other than Ben Bernanke, Chairman of the US Federal Reserve. In a statement to the Greater Omaha Chamber of Commerce on Tuesday, Bernanke noted; “Equality of economic opportunity appeals to our sense of fairness, certainly, but it also strengthens our economy. If each person is free to develop and apply his or her talents to the greatest extent possible, then both the individual and the economy benefit.”

This brings us back to the Wal-Marts of this world, low paid minimum wage jobs, the working poor, and growing social inequality. Indeed, Bernanke further stated; “We also believe that no one should be allowed to slip too far down the economic ladder, especially for reasons beyond his or her control.”

This is as good a pretext as any for organizations to examine their role and impact on the social fabric of society, why leading social change is wholly compatible with success and ultimately even the preservation of liberal democracy.

History shows that the disadvantaged will not tolerate their condition indefinitely.

I came across a very fine example of an organization focusing on people and leading social change while reading about Rosenbluth Travel, a firm whose motto is; “put your employees first and watch them kick butt”.

Against what many would have deemed to be their better judgment, Rosenbluth opened a new office in a depressed area of rural America. The community was extremely grateful for the investment and the opportunity for regeneration – and Rosenbluth’s new employees did not hesitate to show their appreciation. That office quickly became one of the most efficient in the entire Rosenbluth network.

From a philosophical perspective, divorcing the world of work from the idea of people, people development, sustainable living, and our notion of liberal democracy, is a fool’s errand. In the long term, organizations can only hope to optimize people potential and investment returns by adopting a human and social model of their business and leading social change – meaning they will have to move beyond their nice CSR programs.

British Airways – The Case For A Human And Social Makeover

In the almost 25 years since its privatisation, British Airways has achieved some remarkable results. At times when other European airlines were resting on state aid and their US counterparts resorted to bankruptcy protection, BA remained financially independent.

It achieved this by relentless cost-cutting and outsourcing and there can be no doubt that much of that was absolutely necessary. However, that drive for efficiency has come at a cost as the airline has experienced ongoing industrial disputes and employee unrest that have severely dented its image.

Two summers ago BA’s outsourced catering company, Gate Gourmet, went on strike. This resulted in severe disruptions in operations and a significant loss in revenues. Last year BA got caught up in a row over the wearing of religious symbols at work. The recent reversal of its corporate policy on that issue only serves to underline the futility of that whole episode and how unnecessary it was to court the bad publicity that accompanied it. Finally, just last week, the airline’s cabin crew voted overwhelmingly to go on a three day strike.

In time, these and future disruptions will have their own impact on operational and financial efficiency, ultimately neutralising them and destroying value.

While cost-cutting can bring immediate benefits, unless it is underpinned by a human and social model of the organisation, it leaves an organisation open to the risk of disruptions. Such a model recognises that the value of an organisation is largely determined by the quality of the relationships between its various stakeholders or human assets – cabin crew, pilots, caterers, managers, the public etc, and their individual and collective interests.

Approaching efficiency from a human and social perspective provides organisations with a more sustainable and effective business model where it is values that drive the efficiency and productivity necessary for success.

This value-driven approach is essentially the framework adopted by Toyota in the development of Lean Production – a business model based entirely on providing people with the skills and the collaborative environment necessary for them to give of their very best.

Another example is that of US airline Jet Blue, who use “homesourcing” to boost productivity and efficiency. While most companies outsource i.e. place people around technology, Jet Blue decided to take an alternate route by building technology around people, allowing as many of its employees as possible to work from home.

There is no magic formula for developing a human and social model for a particular business. It requires a thorough analysis of the needs of its human assets, and the principal factors and values that drive the quality of the relationships between them. However, if BA wants a future that is financially and operationally sustainable, and if it wants to regain the hearts and minds of its customers, then what it needs is a human and social makeover.

Excessive Executive Pay Can Increase Corporate Social Dysfunctionality

You cannot divorce organisations from the societies within which they exist because it is those societies that supply the employees, the customers, and the social infrastructure necessary for their success.

Consequently, where it becomes apparent that an organisation is is run for the primary purpose of enriching the chief executive and a few others, it risks a severe disruption in the social harmony that is a prerequisite for success. That is especially true when polls indicate that more than 80 percent of Americans think corporate executives are overpaid.

In a recent editorial, The Financial Times cautioned that the excesses and conspicuous consumption brought about by current executive pay levels were placing the very balance of society at risk. In one extract, the editorial noted:

Plutocrats can spend all their money on mansions, yachts and servants, but if they do so, then pressure for higher taxes and collective labour bargaining will return and grow. Great wealth is often the result of great talent. But it is also a privilege granted by the rest of society and, if it is abused, society will not hesitate to take it away.

The Financial Times is not the only publication that has expressed concern over the possible negative impact of executive pay.

The Washington Post editorialized December 22 in support of “Just Capitalism”, remarking, “Executive overpayment running into the billions sends a terrible signal about the justice of the capitalist system.” The newspaper warned that unless executive pay and the “industry of consultants [that] exists to legitimize super-sized executive pay” are reined in, “the growing material inequality in the nation will be compounded by the corrosive perception that the rules are unequal, too.”

Work Foundation, an independent think-tank notes that the “excessive” pay levels of Britain's top chief executives amount to a “perversion of market principles" because they bear little risk…Growing pay inequality, with top directors getting pay rises of 10 times the inflation rate, "corrodes the basic concept of fair reward that underpins a thriving society”.

Then of course, there is the widespread scandal surrounding the backdating of stock options, the full extent of which is only now becoming apparent.

Excessive executive pay rewards will only serve to increase corporate social dysfunctionality by fracturing the relationship between employees and managers and causing their objectives to diverge. This will negatively affect organisational creativity and productivity.

Further, such excesses will also affect an organisation’s relationships with its customers and the wider community, and in the longer term further impair its value.

Executives should view executive pay and rewards as an important aspect of their relationship with all their human asset stakeholders – employees, clients, suppliers, managers, and the wider community. Consequently the management and credibility of the process, as well as how and what it communicates should be considered essential aspects of stakeholder/human asset management as well as the organisation’s overall business strategy.

Is Diversity Hurting Your Organisation?

You cannot divorce organisations from their environment and the societies within which they operate – people don’t leave who they are behind when they walk through the office door. As Drucker so famously stated; “You can’t hire a hand, the whole person comes with it”.

Organisations are therefore not immune from the debate on the topical issues of diversity, multiculturalism, and integration, even as those same issues continue to shape and influence how we live and how we relate to each other.

What is certain is that diversity without integration is not good – it is harmful to society and therefore by definition, it is harmful to organisations and their business.

A study by Putnam of Harvard University recently highlighted the problems associated with diversity. In an interview with the FT, Putnam stated that as diversity increases, the level of trust between people decreases.

There is no doubt that this lack of trust makes integration, in every sense of the word, quite difficult, and actively impedes collaboration, teamwork, and organisational success.

This is not an altogether pleasant reality for those of us who advocate diversity, and who believe that its potential for good far outweighs any negatives. Putnam’s study, and his own belief in greater integration as the answer, thus demands that we first comprehend what true integration actually entails, before we can effectively realise the great benefits of diversity.

Fundamentally, this means going beyond the common platitudes of teamwork, shareholder value, integrity et al – those are nice but are so bland that employees tend not to attach any deep-abiding meaning to them. It also means divesting ourselves of sugar-coated political correctness.

Diversity has human and social elements – age, race, gender, religion etc. As such, the integration of diverse groups is best achieved when the following questions are addressed within a human and social context:

What are the organisation’s values?

What is the organisation’s higher purpose or BE?

Who benefits from the organisation’s activities?

How does the organisation contribute to the well-being of the wider society?

How does the organisation assist or enable employees to fulfil their personal objectives?

How does the organisation assist or enable employees to fulfil their professional objectives?

To what extent are the organisation’s objectives consistent with those of its employees?

If your organisation is not addressing these questions then it is clearly not exploiting the value of diversity and of its human assets.

Would Your Organisation Have Hired Bill Gates or Steve Jobs?

The following is an extract from a feature article I wrote for the November edition of the Powerchex newsletter. Powerchex is an organisation that manages recruitment risk.

It has always been the tendency of organisations to recruit graduates with the best grades from the best universities.

On that basis, people such as Bill Gates and Steve Jobs, a couple of college dropouts who have transformed our world, would not have been given the time of day by most corporate recruiters. The same could be said of Richard Branson – he dropped out of high school at the age of 15.

There is no question that vetting of staff and managing the risks inherent in hiring is important. Criminal syndicates and unscrupulous individuals make it an absolute necessity. Yet, organisations have become so obsessed with reducing risk that they no longer hire actual people – they recruit qualifications, certificates, and institutions. The annual hiring of graduates has become little more than a search for androids – devoid of the human bits that make people innovative, creative and value adding.

The hiring of staff lower down the food chain is no less bound by convention and the paramount need for safety.

How often do you see job ads that want people who can “hit the ground running”? What in effect this means is that the only requirement for the advertised role is that the candidate has done exactly the same job somewhere else and that essentially should now be able to perform said task fast asleep on one leg (I mean no offence to the physically challenged).

In such instances, the job ad might just as well have been entitled “Widget Wanted”.

As a consequence of hiring androids and widgets, people that do exactly as they were programmed to do from the outset, and there is not much room for anything else.

As a writer once remarked, a ship in a harbour is safe, but that is not what ships were built for. In a similar vein, human beings were never built to be androids and widgets.

Click here to read the full article.

How Leaders Can Create A Sustainable Business Model By Promoting Social Harmony

Leaders are increasingly required to respond to the incessant demands of governments, statutory organisations, corporate bloggers, NGOs, and a more educated and discerning public on the actions of their organisations. These groups, now more than ever, are defining the very nature of organisations and ultimately what they can or cannot do.

The Human Asset Manifesto recognises that organisations are part of the fabric of our societies, and that their actions significantly influence how we live. It further recognises that the activities of organisations, including that of their leaders and managers, are increasingly being scrutinised and even curtailed, based on their human and social impact.

Consequently, The Human Asset Manifesto maintains that the only way for organisations to create a long-term and sustainable business model, is to make human and social factors the foundation of their business strategy. By definition, this requires them to promote social harmony amongst all competing interests groups, both inside and outside of the organisation. Leaders and managers can achieve this in five main ways:

1.     Organisations should redefine themselves as Human Asset Organisations – networks of employees, clients, suppliers, investors, and the wider community. Within this context they can recognise that optimising the value of each asset segment, those both inside and outside the organisation, is critical to optimising the value of the entire network, and by so doing maintain a healthy social balance.

2.     By redefining itself as a Human Asset Organisation, an entity should also redefine its primary objective or BE – the higher purpose for which it exists. This will ensure that its strategies and decision-making are geared towards optimising social harmony across a broad community of interests, effectively improving the continuity and sustainability of its business model.

3.     Individuals are best motivated and engaged, and thus more innovative and productive, when they find a greater purpose in their life – when they have determined their BE. Thus once an organisation has determined its own BE, it should seek to attract, recruit and retain individuals who share that BE. By enabling individuals achieve their desired purpose organisations improve both their own value as well as that of the wider society.

4.     In an environment where they are constantly targeted with an endless array of products, consumers are increasingly inclined to respond to value propositions that embrace positive social values. By engaging in Social Value Marketing organisations can promote and accelerate the acceptance of these positive social values while defining their own unique market space.

5.     An organisation that is focused on social harmony and achieving a higher purpose will by the very nature of its activities look to cultivate like-minded and ethical investors – those concerned with the quality and not just the quantity of returns. This would significantly enhance the organisation’s ability to make positive social decisions and ultimately improve the allocation of capital to good causes.

Five Ways For Organisations To Add Value By Improving Social Harmony

The essence of The Human Asset Manifesto is that human and social factors are the greatest determinants of success and competitive advantage. Thus by definition, in order to fully leverage these assets, organisations must create an environment within which they are nurtured and flourished. Here are five ways in which leaders can improve social harmony in their organisations. 

1.     Young people assimilate technology more readily and far easier than their mature counterparts. Providing the young with greater opportunities to interact, contribute and assist in the decision making process directly leverages these capabilities and improves their integration into the work environment.

2.     Mature employees are a great store of corporate knowledge but 70% of what is in their heads is not recorded in any corporate manual or database. By demonstrating their recognition of the value of that store of knowledge, organisations can significantly improve the extent to which mature employees collaborate and share their expertise with others.

3.     In general, men still constitute the vast majority of senior executives and thus organisations continue to be dominated by male perspectives on management. However, women naturally have a more collaborative and social approach to people and are thus more suitable to the 21^st century business environment. Organisations that allow women to express themselves as women, releasing them from the confines of the male dominated perspective will increase their levels of collaboration, teamwork and engagement.

4.     Continuous reorganisations are nothing more than a vain attempt to impose rigid and static structures on an environment that is human and dynamic – and they are extremely disruptive. By focusing instead on cultivating greater communications and linkages across the diversity of social groups, organisations can ensure that they better leverage each others unique capabilities.

5.     It is commonly acknowledged that people are the most valuable asset within an organisation. The only way that organisations can fully reflect and demonstrate that they truly believe this is to make the development of people, people skills, and teams the primary responsibility of every manager as well as the basis on which they are recognised, promoted, and rewarded.

Women and Younger Employees The Most Overlooked Segments And Biggest Opportunities For Adding Value In Business Today

Ask nearly any company in the world what their secret to success is or what their most important asset is and without even having to think, they will reply “Our Employees.” And, while that would seem to be a very logical belief, in application it is only partially true. “Company leaders are quick to say that their employees are their most important asset and yet a close look at their organizations reveals a totally different story,” says Jonathan Ledwidge, author of The Human Asset Manifesto. “In reality the most valued employees tend to be older male employees that are most like the current company leadership – and that is a real mistake,” according to Ledwidge who says “Companies that want to succeed in today’s rapidly changing marketplace must embrace women and younger employees to have a chance of succeeding.”

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