1978
n
A rock or a soft place?
My former colleague (the great) Sumantra Ghoshal – who unfor-
tunately died some years ago – would even argue (if inebriated)
that shareholders are not owners at all, at least not of the
company. He would argue something like the following (and a
posthumous pardon to Sumantra if I remember his argument
slightly incorrectly; he would often not be the only inebriated
party taking part in the conversation . . .): He’d say, if you own a
dog, and the dog jumps into your neighbor’s house and wrecks
the place, you are responsible for all the damage. However, if
you own shares in an oil company and one of its oil-tankers
shipwrecks and causes a billion dollars’ worth of damage to
the environment, you’re only responsible for the extent of the
monetary value of your shares; that’s the maximum you can lose.
Although Sumantra of course realized the legal reality of the
situation, his argument was that a shareholder’s ownership rights
are just as limited as his responsibilities. As a shareholder, you’re
an investor, which gives you the right to, for instance, dividends,
but it doesn’t make you the “owner” of the company in our tradi-
tional sense of the word.
Moreover, he would continue to argue that as an employee you
often give a lot more: your intellectual capital, loyalty, ideas,
rm-specic skills, investments, etc. And companies would do
well to solicit such “gifts”. And if as an employee you give a lot
more (than just money), and a lot more of yourself, perhaps
you’re also entitled to more, in terms of the company’s loyalties
and priorities.
Who should come first? Shareholders? Are you
sure . . . ?
Herb Kelleher – the founder and former CEO of American icon
Southwest Airlines – used to say: “We place our employees rst”.
It’s a fairly extreme thing to say, especially in corporate America,
that you do not place your shareholders rst. Of course, he would
always be quite quick to continue: “Because if you have happy
employees, you will get happy customers, and if you have lots
Business Exposed198
of happy customers, shareholders will inev-
itably become quite happy too.”
Now you could be inclined to say, “Ah, so
it’s all the same; at the end of the day all
parties’ interests are aligned.” And in the
long run that may be true, but in the short
run such an “employee orientation” – the choice of who comes
rst – can lead to rather different decisions than a “shareholder
value orientation”.
At Southwest they put their money where their mouth is; they,
for instance, provide perfect job security. Consider, for example,
Southwest’s response to 9/11, which triggered a global airline
crisis, prompting many companies to execute the hatchet on
their employee headcount. Southwest Airlines’ current president
and COO, Colleen Barrett, said: “Southwest has not had a
layoff in its thirty-year history and is not contemplating one
now” (after which employees collectively organized an internal
giveback effort, called “Pledge your Luv”, offering up to thirty-
two hours of pay during the last quarter of 2001).
In contrast, US Airways paid $35 million in lump-sum retirement
benets to its former top three executives, while 12,000 employees
were laid off and pilots agreed to $565 million in concession in
their own retirement plans. Rakesh Gangwas, briey chairman
and CEO (who received $15 million of the $35 million) declared,
a few days before resigning, that “the September 11 attacks had
allowed the airline to restructure and downsize in ways that
would have been impossible otherwise”.
Of course, US Airways led for bankruptcy in 2003, while
Southwest recovered in less than a year.
Placing employees rst may be sub-optimal in the short run but
in the long run it’s a different picture. You don’t become a better
organization by having “better shareholders” (whatever that
may be). You can most denitely become a better organization
by having better employees. Truly prioritizing the well-being of
your employees just might pay off nancially in the long run too.
‘‘
if you have
happy employees,
you will get happy
customers
’’
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