12. The Culture of Partnership

“As they say on my own Cape Cod, a rising tide lifts all the boats. And a partnership, by definition, serves both partners, without domination or unfair advantage. Together, we have been partners in adversity—let us also be partners in prosperity.”

—John F. Kennedy, June 25, 1963, West Germany

“I have found no greater satisfaction than achieving success through honest dealing and strict adherence to the view that, for you to gain, those you deal with should gain as well.”

—Alan Greenspan

In this book, we have enumerated the specific components of management behavior that produce employee enthusiasm and high performance. Our aim is to provide guidance to managers and executives who seek to change themselves or their organizations. We hope that individual managers find our suggestions helpful in dealing with their own people and other units in the organization. But to bring about truly significant and lasting organization change, we must think of the components not just individually, but together as a system, one that is governed by an organization culture.

By a system, we mean that the parts interact so that changing one element without changing others significantly reduces the impact of the first. In fact, changing just one element might negatively affect the other elements, as when a company seeks to create a “participative” environment for a workforce that feels seriously underpaid. Management is then viewed not only as miserly, but as hypocritical. It’s better to be seen as a genuinely miserly boss than one who is also a phony.

By culture, we mean the standards and values that define how people in an organization are expected to behave, especially in their relationships: with each other and with external stakeholders, such as customers. It is not sufficient to put in place good practices, such as an effective compensation system. To have maximum impact and be sustained in their fundamentals as conditions change, business practices must be supported by deeply felt and explicitly stated values (“We do this because...,” “We will change this, but not that, because....” A good illustration of this was the Johnson & Johnson Credo, discussed in Chapter 7, “Organization Purpose and Principles,” which had guided the company in its policies and practices for more than 60 years.

In other words, the multitude of practices must be sustained by a strong and coherent organizational culture.

The essence of the system and culture we describe in this book is a “partnership” relationship. We explained in Chapter 1, “What Workers Want—The Big Picture,” that partnership is a business relationship plus. The plus is the human dimension—the trust and goodwill that allows people to go beyond what is required by strictly monetary calculations, formal contracts, and short-term interests. We have offered considerable evidence to demonstrate that a partnership relationship generates, on the average, the highest level of long-term performance for organizations. Partnership has both a vertical dimension, which consists of the relationships between workers and management, and a horizontal dimension, which is the relationships between individuals, between work units, and with other constituencies. It is people working together—up, down, and across—toward common goals.

Partnership has both psychological and economic components, such as employees’ confidence that they are making significant contributions to the organization’s success and that they are sharing in the financial gains of that contribution. It is a high-involvement model: involvement in what the workers give to an organization and in what they receive from it. Both parties’ interests are being served.

More specifically, here are the hallmarks of a successful partnership:

• Win-win. The parties recognize that they have key business goals in common and that the success of one party depends on the success of the other.

• Basic trust. The parties trust each other’s intentions.

• Long-term perspective. The parties are committed to a long-term relationship, one that can survive the short-term vicissitudes of business.

• Excellence. The parties set high performance standards for themselves and for each other.

• Competence. The parties have confidence in each other’s competence.

• Joint decision making. The parties make key decisions jointly on matters that affect them both.

• Open communications. The parties communicate fully with each other.

• Mutual influence. The parties listen to and are influenced by each other.

• Mutual assistance. The parties help each other perform.

• Recognition. The parties recognize each other for their contributions.

• Day-to-day treatment. The parties routinely treat each other with consideration and respect.

• Financial sharing. To the extent that the collaboration is designed to generate improved financial results, the parties share equitably in those gains. In tougher times, they share equitably in the required sacrifices.

These criteria can be applied to any business relationship: between employees and management, between work units, and to relationships with other business entities or individuals, such as customers and suppliers.

Some might argue that the term “partnership” does not fit the employee-management relationship. For these people, the term implies a fundamental equality between the parties that is rarely present in any practical sense in the employee-management relationship. Applying it to that relationship therefore might seem dishonest and manipulative—an attempt to subtly convince employees that their power is more than what it is.

However, that is neither the objective nor the point. Power inequalities exist in every organization: almost everyone has a boss, even CEOs who answer to boards of directors. But bosses vary greatly in what they do with their authority, and those differences lead to hugely diverse outcomes. In that sense, the use of power is a central concern of this book. So, although it is true that there is a large discrepancy in power between workers and management, it is also true that workers accept the legitimacy and the necessity of this. They are, in fact, disturbed when leaders don’t lead, such as when they are unduly hesitant about making decisions or have an unclear business strategy. But workers do not accept the legitimacy of being treated by their bosses as lazy or dumb—that is, unwilling or unable to contribute significantly to the success of the enterprise. It is not authority that is at issue here—it is the proper exercise of authority. Analogously, workers do not bridle at pay differentials. To some people, partnership might imply pay equality, but in our formulation, it is pay equity. We have never heard workers objecting to senior management being-paid more than them. They complain about senior management pay primarily when the gap with their pay is enormous, it appears to be unjustified by the performance of the organization, and that performance has caused the workers’ pay to suffer. Otherwise, they think, “Let the brass make as much as they can—I’m doing well.”

The partnership organization stands in contrast to three other major organization types. As with all typologies, no organization fits any type perfectly and all are, to one extent or another, mixtures. They are mixtures because, for one, the individual criteria that define a culture—such as those listed for partnership—while correlated, do not necessarily come as a package. A company that lays off people quite readily, can, in its day-to-day management practices, be quite respectful of workers’ talents and ideas and provide them with considerable autonomy on the jobs. This is not uncommon because the impact of modern management theory and research—which tends to focus on autonomy and other aspects of “human relations” on the job—has been quite considerable. They just don’t feel that their employees are particularly “entitled,” say, to a measure of job security, which is a fundamental feature of partnership organizations. Also, mixtures of styles are evident when organizations are in the midst of change because of changing business conditions or the advent of a new top management bent on revamping the organization’s operations and culture. And different strata of a workforce, such as salaried compared to hourly employees, might be treated differently, and individual managers and managements might act differently depending on the circumstances of the moment. Although we therefore never find complete consistency, strong tendencies allow us to identify most organizations, and the major units within them, as closer to one type or another (or, at least as moving from one type to another).

In addition to partnership, the major organization types are transactional, paternalistic, and adversarial.

Transactional. We have seen in the past few decades the emergence of an explicit philosophy and set of management practices wherein employees are treated essentially as commodities that have a “price” and are owed little or nothing but that price (that is, little or nothing beyond their paychecks). We discussed this management style earlier, especially in Chapter 3, “Job Security,” and depicted it both as a response to a more competitive world and as a reaction to the costs and inflexibility of company paternalism. Its most visible manifestations have been the downsizings, restructurings, re-engineerings, rightsizings, outsourcings, and offshorings of the past two or three decades—all terms usually signifying getting rid of workers. These have occurred most visibly in companies that had previously been well-known bulwarks of employment security, such as IBM, Kodak, Xerox, and GE. The transactional approach also manifests itself in the greatly increased use of temporary employees, independent contractors, and subcontractors who can be hired and fired at will.

Personal responsibility and personal accountability are among the catch phrases used to describe and ideologically justify a transactional approach to management. These terms are contrasted with an entitlement mentality assumedly bred in employees by organizations that operate paternalistically.

As we have pointed out, being treated as a faceless commodity—an interchangeable part to be disposed of at the first whiff of less-than-sterling profitability—has consequences for employee morale and performance. The employee response is not so much anger as it is resignation and an indifferent attitude toward work and the company, such as, “This is the way it is these days; company loyalty is dead, so why should I care?” Transactional management should not be confused with a “cruel” management that seeks to squeeze every last dime and ounce of sweat from its workers. Transactional organizations generally pay at or near the going wage rate and, as far as workload is concerned, are not, by and large, throwbacks to the infamous era of sweatshops. Essentially, it is an indifferent management—indifferent to the value of people other than to follow orders and perform the specific tasks for which they are being paid. They don’t expect more than that from a worker and, if they get less, the worker can be fired. There is, in the purest form of transactional management, no other connection or obligation to the worker, not even a negative connection. Why get aggravated and pressure the worker when he is not performing or is often absent or late? A manager might talk with him once or twice, and if the worker doesn’t improve, the manager just fires him.

A transactional orientation is not limited to the shop or factory floor; in our experience, it occurs as frequently in the executive suite. In Chapter 10, “Feedback, Recognition, and Reward,” we related an anecdote about a corporation whose executives felt themselves continually on a “slippery slope,” their past performance seemingly irrelevant to the CEO; it was, “What have you done for me today?” In interviews conducted with senior management of a Midwest manufacturing company, the attitude of their CEO was described this way by an interviewee:

Let me tell you something: he does not give a damn whether we stay or leave. He thinks he is the reason for any success the company has had and he can buy anybody to carry out his orders. Sure, when you’re hired, you get a big sales job, you’re a big hero then, “we really need you,” but you go “from hero to zero” in just a few months. He just can’t stand the competition from anyone who works for him. We’re like a commodity. He’s the only one with value.

All the other members of senior management expressed similar views. The turnover rate in this group was 80 percent, with only one executive having been with the company more than 18 months. They had all left voluntarily and were, by all reports, highly competent executives.

Paternalism. As the term connotes, this is a relationship between a company and its employees similar to that between caring parents and their children. In the United States, it dates largely from the late nineteenth and early twentieth centuries, the period that saw a great upsurge of industrial growth in the country, accompanied by a tide of labor-union activity but had for the most part died out by the last decade of the twentieth century. It has been replaced, in large measure, by companies with a transactional orientation.

Above all else, paternalistic organizations provided security for their employees in the form of protection against job loss and the provision of benefits that freed employees from medical and retirement financial worries. Additional amenities often included educational programs, recreational facilities, subsidized cafeterias, company loans, and, in its earliest days in “company towns,” low-cost housing. The great majority of employees joined such companies with the prospect of lifetime careers for themselves.

Companies that were labeled paternalistic were not all alike, not by a long shot. Most important was the difference between companies that indeed treated their workers well and those in which paternalism was a façade to conceal exploitative, even inhumane, management practices. The latter were especially characteristic of many “company towns,” where the company owned just about everything—housing, stores, schools—and employees had little alternative but to rent lodging, buy goods, and so on from their employer. Pay was low, and the company, in all its beneficence, would allow employees to draw a portion of their wages before payday in the form of scrip. The scrip coupons, however, were redeemable only in company-owned stores, and once an employee began using scrip, it was difficult for him to get out of debt to the company. A worker might owe 95 percent of his check to the company.

That kind of management must be distinguished from the paternalism of other corporations whose practices were truly benevolent and made these companies employers of choice for their workers, such as IBM, Eastman Kodak, Sears Roebuck, Corning, and Johnson & Johnson. These companies provided their workers with above-average wages, excellent fringe benefits, employee stock ownership or purchase plans, good working conditions, and, of course, job security. But despite, or rather because of, their benevolence, these companies were also subject to sharp criticism from a number of sources.

We mentioned one line of attack—namely, that paternalism is too costly and too inflexible in a highly competitive and rapidly changing business environment. This criticism came most strongly from those who bemoaned almost any worker “entitlement” and any constraint on management’s ability to manage for the highest efficiency.

The other attack came from the opposite end of the ideological spectrum—the left, especially labor leaders, who argued that paternalism was but a ploy, an insidious instrument for fighting unions and maintaining control over workers.

There is no question but that a major goal of paternalistic companies was control, in two senses. Through paternalism, employers attempted to prevent the unionization of their workers, but they also sought, to an astounding degree, to govern their personal and social lives in line with the employers’ conception of moral behavior.

Regarding unionization, paternalistic companies tried to provide for their employees financially at least as much as—and often more than—they could obtain by joining a union. That was the basic economic reckoning, but the economics gave birth to strong emotions as well: great trust in, and loyalty to, the organization by workers, further reinforcing their reluctance to organize a union. David Sirota, the lead author of this book, worked for IBM—a nonunion company—toward the end of its paternalistic era and can attest to the enormous loyalty that company was able to engender among the great majority of its employees.

It could be argued that, on economic grounds alone, it made no sense for these paternalistic organizations to fight unions. After all, the things they did for employees to avoid unionization might have cost more than a union could have obtained for them. Cases can be made on both sides of that argument, and we won’t get into that here. But the fact that the economic benefits to a company of benevolent paternalism are not that clear brings us to the noneconomic motivations for paternalism. Many of the people who founded and ran these paternalistic organizations also genuinely believed they had a mission: not only to care for their workers financially, but also to morally elevate them. In other words, they really did see themselves as parents.

To today’s students of management, the degree to which business leaders of an earlier era were driven by moral and religious impulses is truly amazing. These employers saw it as their duty to regulate workers’ activities both inside and outside the workplace.

David Humphrey, founder of Humphreysville, Connecticut, made his “mill girls” go to bed early and eat plenty of fresh vegetables. The Merrimac Mills in Massachusetts invented a boarding-house system, with girls living in supervised boarding houses run by housekeepers. The company also made the girls sign a contract that demanded everything from “propriety at all times” to regular church attendance.¹

Parental control evidenced itself as well in the way the firm was managed. When “papa knows best,” his control is rarely limited to employee relations. Paternalistic companies tended to be highly centralized in all manner of decision making, just as are paternalistic families. The independent exercise of judgment by employees was not particularly valued: all major, and often the most trivial, of decisions normally went to the boss for his approval. This centralization of power and authority—epitomized, too, by large central staff groups serving the boss (“the king and his court”)—added to the rigidity of paternalistic organizations.

The importance placed in paternalistic organizations on the carrying out of the wishes of “papa” resulted as well in an emphasis on loyalty as a criterion for advancement and other rewards. It would be a mistake to say that performance was not valued, but the “court” of the “king” had a large proportion of what can best be called retainers—persons who achieved their positions by showing absolute fidelity to the CEO and his wishes and views. Although high performers could also obtain high-level positions, their chances were limited if they were viewed in any way as too independent. These organizations, therefore, tended to be less attractive places to join and stay for persons with talent, ambition, and independent dispositions. Family members of employees often were given preference in hiring.

Another factor diluting the average ability levels in these organizations was their hesitation to face up to poor employee performance. In part, this was a result of the fear of unionization, but it also stemmed from the emphasis on loyalty rather than performance. There was much less hesitation firing—or otherwise penalizing—an employee who violated one of the organization’s moral codes.

Despite the performance issues inherent in paternalistic organizations, they survived well—some even thrived—when they faced little significant competition in their industries or regions. Many were virtual monopolies. The onset of international and domestic competition made this management style largely unsustainable.

Adversarial. The paternalistic pattern arose to a significant degree to avoid unionization, and most of them did. Say what you will about dependency, conformity, and the manipulation of workers, but the workers in these companies—the benevolently paternalistic companies—thought they were getting a terrific deal. Although they often had complaints about matters such as excruciatingly slow decisionmaking by management, their own lack of involvement in decisionmaking, and the criteria used to select employees for advancement, lifetime employment, excellent fringe benefits, and other amenities were powerful inducements not to make too many waves and to stay with the company until retirement and to encourage their children to do the same.

Other companies had employees who did make waves—big ones. These were companies whose employees fought to organize into unions to improve what they considered to be deplorable employment conditions. Once organized, they felt they had to continue battling to maintain what they had achieved and to further improve their conditions. This is the adversarial organization where workers believe that their company’s management gives them nothing unless they’re forced to and, if conditions are right, they organize into unions to get what they feel workers need and deserve. Among workers in these organizations, there is a sense that they and management share no common objectives; they are destined to be implacable and perpetual foes.

The “win-lose” view of workers in adversarial organizations almost invariably has its genesis in the beliefs and behavior of management. Workers work to earn a living and derive a sense of achievement from their jobs and satisfaction from their association with their co-workers. They certainly don’t come to work to fight. The few who do are quickly marginalized by their co-workers if there’s nothing to fight about. However, if a strong sense of unjust treatment exists, those workers can become the leaders of an incensed workforce.

Management also doesn’t come to work wanting to fight, but in adversarial organizations many do come with an extremely jaundiced view of workers, and they act as if a battle is inevitable. Workers must be fought, they believe, if their outrageous economic demands, desire to do as little work as possible, and wish to “run the place” are to be restrained. It’s necessary to be tough—very tough—with workers or “they’ll run all over management.” Workers usually respond with their own toughness; in their views and behavior in these companies, they are a mirror image of management.

Adversarial organizations differ from each other in how much conflict and travail they generate. These differences mirror the extent to which workers feel ill treated. At one extreme are the reactions of workers to employment conditions in the company towns previously described (the malevolent form of paternalistic management) or in the sweatshops of cities. These were the scenes of some of the most bitter and violent labor conflicts in American history.

At the other end of the adversarial scale are companies where labor relations can be described as tense, but not explosive. There is no love lost between the parties, but they learn to coexist and contain the costs of conflict. This relationship is more characteristic of today’s adversarial organizations than the bitter confrontations of the past.

In fact, over the past five decades or so, there has been a remarkable decline in the Unites States in the manifestations of conflict between labor and management. For one, there has been a huge reduction in work stoppages. Thirty-five years ago, more than one million workers were involved in 298 stoppages. Twenty years ago, there were 35 work stoppages involving 364,000 workers. And in 2012, there were just 19 major work stoppages involving only 148,000 workers.² The decline comes as no surprise to those familiar with what has been happening to the labor movement in general in recent decades. Today’s workers are much less prone than in the past to join unions: the total labor force in unions in 2012 was 11.3 percent, as compared to approximately 35 percent in the 1950s.

What accounts for this extraordinary quiescence on the labor front, this near-disappearance of visible adversarial behavior? Many reasons have been proposed for the decline in union membership, such as the shrinking percentage of the workforce engaged in manufacturing, which historically has been more heavily unionized than the service sector; the greater ability of companies to move operations to other parts of the country and overseas, thus heightening the dangers to workers of joining a union or engaging in militant union activities; the increased participation of women in the labor force, many of whom hold part-time or temporary positions and are more difficult to organize; and weaker enforcement in recent years of the laws governing the rights of workers to organize.

But one systematically conducted study attributes the decline in union membership almost entirely and simply to the waning interest of workers in unions. Reviewing attitude surveys conducted from 1977 to 1991, the researchers find that the percentage of workers responding affirmatively to questions about their interest in joining a union dropped significantly in that period. This was paralleled by an increase in their satisfaction with their conditions of employment. Because interest in union membership and dissatisfaction correlate highly both with each other and with actual union membership, and because union membership has been declining in the United States since the 1950s, it is probably safe to assume that interest in unions has also been declining since then and that satisfaction has been increasing.³

What accounts for these trends in union interest and satisfaction? First, basic employment conditions for workers are, on the average, much better than they were in past decades. Other than conditions in benignly paternalistic companies (always a relatively small percentage of the economy), there really is no comparison between then and now. American labor has won a lot through their unions, such as higher pay, better benefits, more time off, better and safer physical working conditions, and other employers, in part to avoid unionization, have had to improve the conditions they provide their own workers.

Further, government at the federal, state, and local levels protects workers in the form of wage and hour, occupational safety and health, and antidiscrimination laws. Workers also receive financial support in the form of unemployment insurance and welfare benefits. Unions have fought long, hard, and successfully for government to take these measures but, ironically, that very success has reduced the need for unions in the eyes of its potential members.

Few of today’s transaction-oriented companies are unionized—even those that aroused some anger in employees as they shed paternalistic practices. The loss of labor’s clout has allowed them to move to a transactional mode without too much worry about being organized.

These companies are still pretty good places to work. There is an important difference between adversarial and transactional management as these modes play themselves out day-to-day in the workplace. The sins of adversarial management in the workplace can be described as largely sins of commission—what they do in their relationship with workers—while those of transactional management are those of omission—what they don’t do. In a transactional organization, in its purest form, managers don’t pay enough attention to workers as human beings; in adversarial organizations, they pay all too much attention, and of the wrong kind, because they are told that there is no way to get high levels of production from workers other than to drive them through close supervision and punitive measures for not performing. Employees of a transactional manager may complain, in frustration, “He doesn’t know I exist,” but those of an adversarial manager want the manager off their backs. Workers don’t join unions to get more attention from management; they join for protection from behavior that they consider abusive, and there is much less of that in American industry today. And keep in mind that in some companies today where “entitlement mentality” is a pejorative (referring, say, to the expectation for job security), workers’ day-to-day treatment—such as the amount of autonomy they have in doing their jobs—can be exemplary, approximating that of partnership organizations.

In a word, in the current environment, union representation is, by and large, no longer perceived to be as valuable as it once was.

Much of American industry has therefore reached the point where neither the confrontational pattern of adversarial relationships nor paternalism appears to suit current conditions. Today, the choice facing organizations in managing their workers is between an arm’s length transactional relationship and an arm-in-arm partnership relationship. Or, rather, it is a decision about the degree to which they will move in either or both directions, because a blending of the two, although not ideal, is possible.

It is tempting to choose the transactional path. Why assume so many of the commitments that partnership requires if management doesn’t have to?

Well, management doesn’t have to, but our basic proposition throughout this book is that committing to employees in fundamental respects pays off big time over the long term. In considering our argument, we ask that the reader keep in mind that our reference is to the commitment that partners have to each other, not to that of parents to children. A major difference between partnership and paternalism is that partnership is a business relationship, so a high level of performance by both partners is a condition for its sustainability. If one party can’t or chooses not to perform as expected over a period of time, the partnership dissolves or significantly changes to reflect the performance difference. Thus, performance matters tremendously in partnership, but it’s not defined by the question, “What have you done for me today?,” as in a transactional relationship.

If a partnership or collaborative approach is so clearly preferable, why is it, in its comprehensive or near-comprehensive form, characteristic of such a small minority of companies? (One estimate is about 10 percent.) Why has the dominant tendency in the United States been toward transactional relationships? The answer lies, first, in the attractiveness to American executives of avoiding commitment to workers because this allows management to shed workers with minimum cost and travail (to the company). And other aspects of commitment might seem to be more trouble than what they are worth, such as the need to communicate and listen in meaningful ways to workers.

The need to listen brings us to a second reason that partnership is often unattractive: many senior executives’ strong belief in the need for control through top-down management. (Transactional management more often than not includes a top-down structure and style.) Partnership differs from all three other models of management in its willing—in fact, deliberate—distribution of authority to the workforce. Although it is näive to speak of equality of power, in a collaborative setting, the worker’s influence on the way the job is performed and on the decisions made in the immediate work environment is much greater than within any of the other three models. For some executives, distributing authority to the non-management workforce is, at best, silly—after all, what can workers contribute?—and to others, it’s frightening because they equate such decentralization with organizational anarchy (the unstable laissez-faire management described earlier). There is, of course, no evidence that most workers want authority outside of their work areas; they want a leader steering the ship, but a leader who recognizes that the day-to-day workings of the units of the ship are best left to those most knowledgeable of the work in those units.

A third impediment to the acceptance of the partnership approach is the short-term orientation of many senior managers as they seek rapid gains in profits and in the company’s stock price. Obtaining collaboration takes time and thus requires a longer-term perspective. The research evidence we present in this book about the positive impact of collaboration on business performance is about long-term results. We made a similar point earlier in relation to a company’s purposes and principles (which, by the way, often contain a commitment to collaboration): if the purposes and principles are not to be mere window-dressing, a long-term orientation is almost invariably required.

Fourth, the attractiveness of transactional management is enhanced by its compatibility with an anti-entitlement ideology. As we have pointed out, collaboration is often confused with paternalism where performance is, indeed, often secondary to entitlement as a criterion for rewards.

Therefore, strong forces militate against a partnership approach and these have, over the years, been reinforced by the viewpoints of some union leaders who deeply distrust any approach that is not adversarial. Unions are still a force to be reckoned with in certain industries and companies.

A number of unions and companies, however, have chosen a collaborative path and have achieved impressive results. In these cases, the parties recognize their common interests, such as improving product quality, and they establish mechanisms that enable them to work together on those while reserving areas of contention for the collective bargaining process. Research suggests that positive union-management relations are, in general, associated with higher organization performance.⁴ Bringing that relationship to yet a higher level—actively working together to identify and solve performance problems—can yield truly dramatic results.⁵

Labor-management collaboration, which began in earnest in the United States in the late 1970s and early 1980s, is particularly relevant to our broad argument because it underscores the growing inappropriateness of highly adversarial relationships in a fiercely competitive business environment. There is no inherent contradiction between being unionized and establishing a worker-management partnership. A good example of this is Southwest Airlines. Southwest is not only unionized, but—and this comes as a surprise to just about everyone—it has the highest percentage of unionized workers of any airline in the United States! President and chief operating officer of Southwest Colleen Barrett says the following:

We treat all as family, including outside union representatives. We walk into the room not as adversaries but as working on something together. Our attitude is that we should both do what’s good for the company.... [Unions] have their constituency, their customer base. We respect that. We have a great relationship with the Teamsters and they have a reputation for being tough negotiators. We try to stress with everybody that we really like partnerships.⁶

Marcie Means, a customer service agent and union activist at Southwest, offers a worker’s point of view:

Southwest has helped me make a wonderful contribution in my world. I am not looking to abuse the company or take advantage. I just want the right thing. There are things we need to have represented. But there is no need to threaten the company.... It’s fine to strike if you can’t settle your differences any other way. But we don’t need to strike.... We don’t want to fight. We belong to this company. It’s a system that works, that’s been working for years.⁷

The spirit suggested by these comments contrasts starkly with most U.S. airlines, where the relationship between management and unions has frequently been highly adversarial. Any objective analysis of this history reveals that the quality of labor-management relations has largely been a consequence of the attitudes and behavior of management. When management treats workers and their organization as enemies, they are treated as enemies in return. It’s as simple as that.

Partnership does not require a complete identity of interests between the parties. There can be differences, but what partnership does—what an atmosphere of trust and mutual respect does—is allow these differences to be settled in more realistic, constructive, and often innovative ways that serve the interests of both parties.

Let’s return to Southwest Airlines. How does Southwest Airlines see its relationship with its suppliers? Here is a comment from a director of an airport; airports, of course, comprise a key group of suppliers of services to airlines:

[Southwest] makes the airport part of their team. We make a presentation to them, and then they turn around and make one to us, saying here’s how we see us working together.... It gives you the impression that this is a group I really want to work with, as opposed to [other airlines] where you wonder if you can get them to call you back. With Southwest, you want to see what you can do for them. I think it pays huge dividends. My reaction to how I’m handled by Southwest is that it makes me want to bend over backwards.

—Kevin Dillon, Director of Manchester (NH) Airport⁸

The spirit of this remark is not much different from what we hear from enthusiastic employees whose companies treat them as partners. People, especially employees and suppliers, don’t expect that kind of treatment from a company. When it happens, the positive effects—the willingness of people to go all out in their performance—are profound.

This description should make clear why we consider Mayo Clinic an exemplar of partnership organizations. No, it’s not a Utopia, as we remarked earlier in reference to outstanding companies. It is composed of human beings with all their many frailties. Our goal is not to change people in any basic sense but rather to change their work environment so that what is good and decent about the great majority of workers—their better angels—naturally emerge and become predominant in the conduct of their work lives.

Mayo Clinic is a world-renowned leader in medical care, research, and education. Providing its services to more than a million patients annually in three locations, the clinic is recognized by a greater number of well-known national assessment organizations than any other major U.S. hospital or clinic. It is consistently ranked at or near the top, for example, in US News Best Honor Hospital Roll. Further, Mayo Clinic has been on the list of Fortune Magazine’s “America’s 100 Best Companies to Work For” ten years in a row.

The Clinic has been studied extensively by Sirota. On the basis of our research there, we can say that Mayo Clinic exemplifies as few other organizations do what we mean by a genuine partnership culture. It is this culture that is fundamental to understanding Mayo’s renowned accomplishments and the extraordinarily high morale of its employees. (In the 2011 employee survey at that institution, 89 percent expressed satisfaction with working at Mayo. The norm for that question for that year was 73 percent.)

The senior author of this book, Dr. David Sirota, published a paper in 2010 about the Clinic.⁹ He wrote it because that time was the beginning of the intense debate in this country about healthcare reform, and the achievements of Mayo Clinic had direct relevance for a number of provisions of Obamacare (the Patient Protection and Affordable Care Act). In addition to providing affordable healthcare insurance for millions of Americans, the major aims of Obamacare were to improve healthcare quality and reduce the rate of increase in healthcare costs. Mayo was frequently touted, a number of times by President Obama himself, as a model for both high-quality and cost-effective care.

Dr. Sirota’s paper, amplified and updated for this book and presented next, does not comment directly on the pluses and minuses of Obamacare. Rather, it seeks to demonstrate how critical the culture of an organization is—yes, it takes more than legislation—for true organizational excellence.

Although, historically, there have been periods of great national, social, and economic upheaval, it can reasonably be argued that there are few if any periods since the Industrial Revolution in which the velocity of change has been as great or the changes as large and numerous and long-lasting as what we see today. Think of information technology and the changes in hundreds of directions that it has wrought in just a few short decades, and with no end in sight. Or globalization and the way it has facilitated worldwide competition, innovation, and low-cost production and the international flow of capital at light-speed. Or global warming and the immense impact it—and mitigating it—will have on the way we will lead our lives and how institutions, including businesses, will function.

Adaptation of organizations to changes in the business environment happen in two contexts: the needs of the human beings that are affected by the changes and the organizational culture. As we will point out in our final chapter when discussing resistance to change, it is inaccurate to assume that people instinctively fear and resist change. There are many positive changes that are eagerly welcomed, such as the success of a new product or business strategy that will bring business expansion and enhanced job security and opportunity for employees. But there are changes that are threatening—they can be deeply threatening—such as the emergence of a competitor with dramatically lower-cost products or new and innovative products that better meet customer needs. In today’s fluid, highly competitive world, those types of challenges are inevitable for the great majority of companies.

Organizations need to change to cope with a changing environment and, in this endeavor, culture counts tremendously. The organizations that have done this best are, ironically, those which, like Mayo, have core values that are unchangeable. Those values include, as Collins and Poras have demonstrated (see our discussion in Chapter 7), a “more-than-profits” purpose and, from our point of view, they also include a set of principles that make it clear that “we are all partners in this endeavor.” Being partners has, as we have shown in this chapter, a number of different attributes, including open communications up, down, and across the organization, joint decision making, mutual assistance, and respectful interaction. There is no way most external threats can be handled by one person or a small group of people, and it is only partnership that allows a company to draw on talents, ideas, and enthusiasm from throughout the organization. And unchangeable core values provide the partners with a steady and shared compass for navigating the inevitable storms of business life.

Essential as well to genuine partnership is financial sharing. This means sharing in the sacrifices that need to be made to meet external challenges and sharing as well in the gains that an effective response will bring. When people do not feel they will be in jeopardy as a result of change (not “thrown under the bus,” as it were), resistance is obviously greatly reduced, and their contribution to the change process commensurately enhanced. Just as obviously, we understand that among the outcomes of a change effort may be actions that are harmful to groups of employees, such as a downsizing to cut unsustainable costs. We have shown, however (in Chapter 3), that, although not an ideal circumstance, these measures can be undertaken with good planning, care, and generosity, thus greatly mitigating the damage.

We are, in essence, asking management: do you want your employees working with you or against you in responding to change in the business environment? This might seem like a rhetorical question—isn’t the answer obviously “with you”?—but there are many executives who would answer, “it doesn’t matter.”

These executives are normally brought in to “save” a poorly performing company “from itself,” especially when its business environment has changed. They quickly and radically centralize authority, assume that the organization’s people are the problem, certainly not the solution, and ram change down their throats, with no consideration either for the talents they can bring to help or their needs. And why involve them in the change process because “people inevitably are going to resist change”? This mode has had a number of well-known practitioners, Albert J. Dunlop probably being the most famous—or infamous—of them. Mr. Dunlop’s most widely publicized feat was at Scott Paper. After stints at several other companies, he was brought into Scott in 1994, as the company’s first outside CEO, with the expectation of quick action to restore the company to health. Scott’s revenues and profits had been disappointing for years. Like many old-line American companies, Scott was slow to react to aggressive competition from rivals such as Procter & Gamble.

And quick action they got. Dunlop came to Scott with a reputation as a turnaround specialist that endeared him to many on Wall Street. The reputation was quite extreme, even for his specialty, earning him the nickname “Chainsaw Al” for his tactics of rapidly slashing workforces and ditching assets. In less than a year at Scott, Dunlap eliminated almost one-third of the company’s 34,000 hourly and salaried employees, through layoffs and asset sales. And, eighteen months after he joined the company, the company was sold to Kimberly-Clark; by that time, the market value of the company’s common stock had increased more than 200 percent (more than $3 billion), and Dunlap’s personal wealth had increased by nearly $100 million, reflecting his compensation and Scott stock holdings and options.

We will not here debate or make moral judgments about Dunlap’s actions or results. Suffice it to say that they are highly controversial, and on business—not just humanistic or ethical—grounds. For example, Peter Cappelli, the George W. Taylor professor of management at The Wharton School and director of Wharton’s Center for Human Resources, argues that, “[Dunlap]... is persuading others that shareholder value is the be-all and end-all. But Dunlap didn’t create value. He redistributed income from the employees and the community to the shareholders.”¹¹ (In addition to his other actions, Dunlop ended Scott’s decades-long practice of contributing $3 to $4 million a year to community organizations and matching employee contributions to United Way.) Despite his assertion that his goal was the rebuilding of Scott for the long term, others speak of Dunlop’s intention from the very beginning to prepare the company for a quick sale.

Our point is that there are strikingly different ways of dealing with the need for change. We said at the outset that this book will not be of much interest to people whose goal is short-term, even if not as extreme as Dunlap’s restructuring and sale of a large corporation in eighteen months. This book, instead, is written for those interested in building an enduring institution with enduring value. The Mayo brothers are an obvious example of what we mean by that, but so are private-sector executives and companies that have been discussed throughout this book, such as Ken Iverson at Nucor, Herb Kelleher at Southwest Airlines, and Jim Sinegal at Costco. Central to their ability to meet and overcome serious short- and long-term business challenges is their culture, in two senses. For one, in times of change they all maintain—indeed, often intensify—their already strong focus on understanding and meeting the needs of their customers. So they don’t cut there. Second, rather than treating employees as the problem, they enlist them as strong, knowledgeable, and natural allies in the battle. Among their prime assets, then, for dealing successfully with change are their unchangeable core values.