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Value of virtue

By Nikki Mandow

Friday 7th February 2003

Text too small?
One of my favourite Big Corporate stories is the one about the 10 major company chief executives put in a room where 10 unidentified mission-values statements have been pinned on the walls. Each chief executive is asked to identify his/her own company's statement. Not one can.

There's been a lot written about values in the international business media in these last post-Enron/Worldcom months. Some of it's been nauseating, some edifying. But the basic gist is: short-term profitability is out, corporate responsibility (financial and social) is in.

Even the not-normally-fanciful Economist magazine recently wrote that the most successful chief executives in this new world order will be those with "inner strength and a constant set of values that everyone knows and can rely on".

So, the big bosses in the top echelons of business power worldwide have spent their Christmas holidays dusting off their values statements, making sure management knows them off by heart and are seen to be putting them into practice. The trend has even hit New Zealand, providing good business for companies like Auckland-based Values at Work, a values-based corporate consulting company. For the time being at least, values are share price enhancing.

But is this just a fad? Values at Work founders Dougal Thompson and Michael Henderson, authors of a book (of the same name) due out in March, say every company they see has values but for around 90% of them these are little more than a plaque on the wall.

Does that matter? Who knows? On one hand, calculate the average revenue per employee of the top five companies in Fortune magazine's "100 best companies to work for in America" list and the range is between $US80,000 and $US146,000 - all are well below the US average of $US160,000. Although this simplistic measurement doesn't take into account savings from things like reduced staff turnover and stress-related absenteeism, it suggests productivity isn't necessarily enhanced by being nice to staff.

On the other hand, there are logical arguments that taking care of your employees and others in society is in the genuine long-term interest of companies and their shareholders. In Built to Last (yes, I know Unlimited's always going on about this great management book), Jim Collins examines successful companies like Sony, Wal-Mart, Merck and others and finds behind each story core values rigorously kept over time and communicated throughout the organisation. (Interestingly enough, it doesn't seem to matter what the values are - different companies have different ones.)

Thompson and Henderson go further: it's the alignment between an organisation's values (whatever they may be) and the personal values of its employees that engenders success. They quote figures suggesting if you get your company's values in line with your staff's, you can lift commitment by up to 36%.

Want more evidence? In 2000, the US's Vanderbilt University and management consultants Hewitt Associates compared Fortune's "100 best companies" list with a set of companies matched by industry and size. The conclusion: operating performance for the "best" companies was 13% above the matched group over a seven-year period, return on assets was 29% higher and the ratio of research and development expenses to assets was up 44%.

Maybe, with the benefit of post-Enron hindsight, in the end it simply comes down to common sense. A company seen to be living by some sort of values is more likely to be trusted by staff, suppliers, customers and even regulators. That helps when times are hard. Second, a "good" company has a competitive edge when attracting staff and customers. Take Natural History of New Zealand, the world's second-largest maker of wildlife films and number 18 in Unlimited's "Best places to work" survey for 2002 (some great reading starting on page 32 of this issue). Natural History gets 400-500 unsolicited CVs from around the world each year and has staff turnover of 0.07%. Wow.

Which leads to an interesting thought. What if the values pundits are right and values are important? One of the key things that came out of interviews that "Best places to work" researchers John Robertson and Associates did with chief executives and staff of the top 20 workplaces in the Unlimited survey was the strong sense of identity staff felt with their company and what it was trying to achieve. Employees believed in their company's values and identified with them. In one case, staff told stories of jobs being reshuffled to accommodate the needs of a seriously sick employee without firing them; in another they talked of board decisions - good or bad - automatically communicated down the ranks. In the case of GlaxoSmithKline (ranked 15th in the survey), employees still praised the company despite recent restructuring-linked job losses.

This is good news for New Zealand. It is easier to have and communicate values in a smaller organisation than in a bigger one (think about the logistics of communicating a vision to 27,000 staff). And New Zealand is a country of small companies.

Maybe Enron has given us a competitive advantage after all.

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