The future of the global workplace: An interview with the CEO of Manpower

The future of the global workplace: An interview with the CEO of Manpower

Jeff Joerres explains how a rapid pace of change requires both companies and employees to take a new approach to work.

Rodger L. Boehm

Web exclusive, November 2005




The global market for labor is changing in unprecedented ways. In developed markets, such as the United States and Western Europe, executives face a rapidly aging workforce and high labor costs. Meanwhile, executives in China, India, and much of the rest of the developing world increasingly encounter want amid plenty as a shortage of suitable candidates and the changes associated with the staggering pace of economic growth make it difficult for companies to attract—and retain—enough qualified workers.

Jeffrey A. Joerres, the president and CEO of Manpower since 1999 and its chairman as well since 2001, has a rare vantage point on these and other issues affecting the global workplace. With revenues of nearly $15 billion in 2004, Manpower is the world's second-largest provider of employment services, placing some two million workers a year into professional, industrial, and office positions with companies in 72 countries. Moreover, since 2003 Manpower's permanent-placement division has doubled in size. Through four acquisitions since 2000 (including the purchase of the permanent-placement operations of India's ABC Consultants, in October 2005), Joerres has guided the expansion of the company's employee-assessment, recruiting, and training services, as well as the addition of outplacement, organizational-consulting, and internal-auditing services (exhibit). In May 2005 Manpower signed an agreement with the Chinese government to provide, among other things, vocational training and Internet-based employee-assessment systems for local employment offices.

At Manpower's headquarters, in Milwaukee, Wisconsin, Joerres talked with Rodger Boehm, a director in McKinsey's Chicago office, about the changing nature of the global labor market, the state of corporate human-resources departments, and the difficulties companies face when they enter developing markets such as China and India.

The Quarterly: Running Manpower would seem to give you a unique view of global labor markets. What do you observe?

Jeff Joerres: The first thing is that major companies are trying to become more agile by using flexible staff. In our top ten global clients, for example, nonregular employees make up about 10 to 25 percent of the workforce. The data from the US Bureau of Labor Statistics—in other words, the US average—says that the figure is 3 percent. The difference between the two percentages indicates that big companies are ahead of the curve. Midsize companies haven't felt the squeeze yet, and small companies definitely haven't, but it's coming.

Big companies aren't using nonregular employees for abatement on their health insurance costs. They're calling us because they need talent and because they can't move fast enough. As the world gets more talent constrained and organizations get more competitive at all levels, you'll see this more frequently.

When I look ahead, I see the talent crunch creating structural changes in the workforce, and companies that aren't paying attention might find themselves healthy one year and in trouble the next—it will be that dramatic. The focus can't be just on the top 10 percent of your organization; your janitor had better be good and your clerks had better be good because the whole process is different. Companies will need to focus on the whole equilibrium of talent because they're running themselves so lean that if they get a little sand in their gears, the whole organization breaks down. Some leading-edge companies see this, but they're being quiet about it because they don't want to sound any alarm bells.

The Quarterly: How has the global market for temporary labor changed?

Jeff Joerres: For the biggest companies, temporary labor is no longer an incidental concern—it's now strategic. Particularly after the downturn in 2001, we saw major companies reevaluate themselves in an effort to become more efficient and more productive. They "leaned out" their entire organizations, thinned their product lines, stopped their nonessential projects, and started expecting more from their people. As they stretched the limits of their people, companies found they were getting by with a leaner organization. Now executives won't go back to the way it was—they can't, because their companies are publicly traded and investors won't let them.

Of course there's still plenty of incidental usage of temporary labor, but it's at smaller companies, and in many cases it's below the radar. However, for the large companies temporary labor is no longer about covering for vacationing administrative assistants—it's about workforce optimization. It's about deciding whether to stay in New Jersey or move to Chennai. The competitive pressures have been reformulated.

The Quarterly: What challenges do workers face in this environment?

Jeff Joerres: Think of a Webmaster. As my children would say, "That's yesterday." That was a pretty hot job not so long ago. Now, with the right software you can press a button and create a Web site, so the market for those skills is significantly lower.

Today hot jobs turn cold almost as fast as a product's life cycle changes. So if the cycle used to be three years, now it's nine months. Every industry has its own speed of compression, of course, but underneath the compression is a never-ending treadmill of improving your skills, and it's quite sobering for people to find themselves on the cold list when 12 months before they were on the hot list. This makes the retraining of employees immensely important.

The Quarterly: How have companies fared with their retraining efforts?

Jeff Joerres: Too many companies view retraining as window dressing. The largest companies have good training programs, but they don't mandate training, because there isn't time in the day given this lean machine they've created. Companies provide access to training materials but no longer say, "Take four weeks off and go to our training school in Pasadena." Training is offered at night, on weekends, over the lunch hour, and employees are ignoring it. Individuals may choose training if it is tied directly to a stipend, but they haven't embraced training, and they need to.

The Quarterly: Does organized labor have a role to play in training?

Jeff Joerres: Absolutely. The core of what unions stand for is wages, benefits, and job protection. But what about job protection through better training? Ultimately, unions face the same problem as everyone else: the need to train and "up-skill" their workers. So I think that, increasingly, you're going to see unions asking themselves, "How can we protect the talent base of our members? How can we make sure they aren't losing their jobs because they don't have the right skills?"

The Quarterly: Is anyone doing training well today?

Jeff Joerres: At the governmental level, France's notion of retraining—having companies set aside money for a training fund—is the most proactive approach we've seen. We're starting to hear more about retraining in the United Kingdom and in Australia—countries that have an aging problem. But they're still further away.

The Quarterly: Many other countries have aging populations. How will this pattern affect the nature of labor in the coming years?

Jeff Joerres: Demographic issues are hard to solve because they require a partnership between government, which is only in office for a period of time, and business, which has its own quarterly issues to deal with. But don't forget the individual. Think of the 60-year-old in Europe who has worked all of his life dreaming of retiring on his country's social plan. Suddenly, he has to work five more years because the government extends the retirement age. Or he has to do something different.

One of the biggest challenges we've found is that the majority of these individuals are interested in part-time jobs—not full-time temporary jobs—and those are very different things. People want to work Wednesday afternoon and Thursday morning, not for four months on a project. Getting individuals to think beyond part-time work and to take more responsibility for improving their skills will be absolutely key.

The Quarterly: How do you get someone to move away from that mentality?

Jeff Joerres: Governments can help with tax schemes, training, payroll subsidies—but, ultimately, I'm afraid there will have to be pain associated with this issue before it becomes institutionalized. Without pain, it's just too easy to keep putting it off for somebody else to solve. But it's not just demographics—you can't forget the pure talent gaps. You're going to find 40-year-olds in the same position as someone who's 60, because the 40-year-old simply lacks the skills the company needs. People can't turn on a dime and change a skill set. You can't be a machinist one day and a nurse the next when you're 60. So the demographic crunch is coming, and it will be exacerbated by the talent crunch.

The Quarterly: What's the future of HR departments at a time when some companies are outsourcing that work?

Jeff Joerres: Outsourcing the transactional side of HR—things like payroll or administering the 401(k)—to someone with the right expertise is probably the best thing a company could do. But outsourcing the things that create the company's culture or the engagement that employees feel with the company would be dangerous and very shortsighted.

The new challenge for HR is to move beyond transactions and into areas where HR can bring competitive differentiation. The CEO is asking, "How do I get my employees to feel engaged with my company? How do I make them feel more strongly tied to my company's mission?" And then, "How do I optimize my talent?" This is where HR professionals need to step into the batter's box and make a difference on everything from the in- and outflow of people to how connected people feel to the company. Nobody's solved this yet, and I've talked to people at some very large companies that are really wrestling with it. IBM is around the fringes—the closest to it we've seen.

The Quarterly: Is employee engagement more difficult for companies that operate in emerging markets?

Jeff Joerres: Employee engagement—or employer branding as it's also known—is important anywhere you compete, whether it's Chicago or China. But it works at different speeds in different markets. To some extent, engagement doesn't matter when it's all you can do to feed your family. So when companies moved overseas, many of them focused only on labor arbitrage and didn't worry about why an employee would pick your company over another.

Fast-forward to today. For the top companies—the Fortune 20—labor arbitrage is over. It's already annualized and baked into their profits, and most of the low-value-added jobs have been eliminated. Now, doggone it, they're back to the basics: talent. The high-value employees who remain are looking around and asking, "How much do I really enjoy my colleagues? Why should I stay here when there's another company asking me to do this for more money?" And it's exponentially more difficult for companies because you've got to answer those questions for employees within the culture of China or India.

Here's an example. Within three months, we had four clients talk to us about a city they're going to—Brno, Czech Republic, a great place for talent. Brno has fewer than half a million people. What if four companies with 1,000 new jobs all dropped into a city of that size within three months of each other? You've soaked up the whole labor market. So executives have to be careful about arbitrage and really look at the things that make their company attractive.

The Quarterly: What is your assessment of the market for skilled labor, including managers, in China and India?

Jeff Joerres: China's biggest challenge is line management. You can get 1,000 workers, but who's going to manage them? How do you find a quality assurance manager? There's nothing like that in China. Companies have entered into partnerships with Chinese universities and technology centers, but there's still frustration. Multinationals are spending money and not getting the returns they had hoped for. There are obviously many reasons, but a big reason is that the labor market in China is so active.

To make it even more difficult for multinationals, local Chinese companies have gotten into the game. Until about a year ago, you would see a 50 percent disparity in pay between managers working for multinationals and for local Chinese companies. Now Chinese companies say, "Not so fast. I'll pay what they're paying," and the Chinese people, who now have more confidence in their own institutions, are willing to work for a local company because they've already got that multinational stripe on their shoulder. So a multinational takes a double hit—it doesn't have the talent in China, and when it tries to develop employees, the Chinese companies pull talent out of its organization as if it's a minor-league baseball team.

But beyond line management, companies must understand that if they're in China to arbitrage labor, they're going to be very disappointed in the long run. Be there because the market is good, and be prepared to deal with the talent shortage because it is absolutely going to get worse, and the government knows it.

In fact, the government passed a law that expands special manufacturing zones beyond the major cities because the flight of workers from agricultural jobs into the cities has created some pretty rough, desperate cities. Multinational companies that were used to setting up on the coast—whether it be Guangzhou or Tianjin—will now have to move west. It's a whole different culture, and it will be even harder for companies to find management talent there because they don't know the ropes.

The Quarterly: What is your view of the labor market in India?

Jeff Joerres: For India, finding management talent is less of an issue. The problem we hear when we talk to Indian companies or multinationals doing business there is that the attrition rates in call centers and transaction-processing centers are out of this world. In fact, when a company says it has an employee turnover rate of 30 percent in the call center, it's often not counting the first 60 days. If it counted the first two months, the annualized rate would be 300 percent.

Companies need to get more sophisticated in assessing employees and to work on differentiating themselves in the eyes of prospective hires. But speaking more broadly, companies need to understand, in a pragmatic way, that labor markets are ultimately local and have local characteristics. There are important differences between Bangalore and Delhi, for instance, or between Chennai and Mumbai. Some of the differences are self-fulfilling. Bangalore has been known as the IT capital, so it has a huge influx of IT companies. Chennai is known more for blue-collar workers, and it has attracted customer service and support centers. Delhi's government influence has caused generalist talent to gravitate there. As companies saturate these cities and start to set up shop outside them, the companies are going to have to go through a new development cycle and learn how to convince professionals in Bangalore to move to Chennai. This will be new for India because, historically, there hasn't been a lot of geographic movement in the population.

The Quarterly: What mistakes do you see companies making with respect to labor when they enter developing markets?

Jeff Joerres: The most classic mistake—one that's perpetrated again and again—is to start by bringing in an expatriate management team. It's seductive because when you bring in expatriates, communication throughout the organization is right and everything seems to be working fine. Executives make site visits and it all feels right. Then, about three or four years later, the CEO is thinking, "OK, we had this big growth spurt but now we've plateaued." So the CEO puts in new expats and still can't get growth out of the company.

If you're going to be in a developing market, you've got to invest in nationals—in your own way and in keeping with your company's culture, of course. It's fine to bring in expatriate teams for a short time to make sure the culture of your company is transferred to the new location, but that's it. Expats simply won't have the local market knowledge that the national managers have.

Paradoxically, one reason some companies are using expatriates less frequently now is that the lean machine is at work again. Executives look at their expat bill and say, "Too expensive. I can't keep doing that." They're arriving at the answer in a different way, but I think they're going to be solving a much more systemic problem by not overusing expats.

The Quarterly: What lessons has Manpower learned about entering developing markets?

Jeff Joerres: The first day we opened in Moscow and Saint Petersburg, in 1997, we opened as a temporary-help company. We had 500 people lined up outside our doors. We assessed them, interviewed them, and put them out to multinationals. And by 12 o'clock that day the companies called and said, "Well, they're no longer temps—we just hired them permanently." We switched to a permanent-placement model pretty soon after that.

So when it came to China and, to some extent, India, we made the decision that, at least for now, we don't see temporary staffing as our major role. Instead we find companies permanent managers and assess a fee. And the reason is that if we put 1,000 people to work as temporary workers at a dollar an hour and then assess a markup, the math simply doesn't work for us.

About the Authors
Rodger Boehm is a director in McKinsey's Chicago office.

Daniel Yankelovich: The Thought Leader Interview

Daniel Yankelovich: The Thought Leader Interview
by Art Kleiner

America’s most eminent pollster says the current epidemic of business scandals must be healed through a shift in norms, not laws.

What happens to businesses when they lose the public’s trust? According to author, researcher, and social trend analyst Daniel Yankelovich, they sacrifice a particular type of asset, intangible but all too consequential: the benefit of the doubt.

Dan Yankelovich has played a dual role in the sphere of American thought. On the one hand, he has been a keen-eyed outsider: “the founding father of public opinion research” (as television journalist Bill Moyers put it) who has surveyed and interpreted citizens’ and consumers’ attitudes since the 1950s. (He founded the market research/public opinion research firm Yankelovich, Skelly and White in 1958, and created the New York Times/Yankelovich poll in 1975.) On the other hand, he is also a consummate insider. A long-standing advisor to corporate and political leaders, he has either sat on or presided over the boards of CBS, US West, Brown University, the Concord Coalition, the Educational Testing Service, the Fund for the City of New York, and the Kettering Foundation. As both insider and outsider, he has been a consistent advocate of moral integrity, especially on the part of organizations. His credentials make him a critical player in the ongoing debate about the meaning of corporate scandals and business legitimacy.

We found ourselves participating in that debate recently at this magazine when Booz Allen Hamilton and the Aspen Institute collaborated on a global study of corporate leaders’ attitudes about ethics and values. (See “The Value of Corporate Values,” by Reggie Van Lee, Lisa Fabish, and Nancy McGaw, s+b, Summer 2005.) The researchers quoted Mr. Yankelovich as saying that the public’s widespread cynicism toward businesses today is the third wave of public mistrust about corporations in the past 75 years. The first wave occurred during the Great Depression of the 1930s; the second, sparked by the Vietnam War, lasted from the early 1960s until the early 1980s. Then American business restored its reputation, claims Mr. Yankelovich, “regaining much of the prestige and trust it had lost…. But it is now squandering that trust once again. As it does so, the groundwork of mistrust laid down in earlier years will make it far more difficult to recover.”

This quote comes from his book in progress, tentatively titled Stewardship Ethics, to be published by Yale University Press in early 2006. In the book, Mr. Yankelovich argues that the legal and regulatory actions of recent years, including the Sarbanes-Oxley Act and the recent spate of SEC investigations (more than 600 involving fraud in 2004), will not prevent future scandals. The real culprit is social norms: attitudes about appropriate and inappropriate behavior. When people indulge in “creative accounting” or hide perks and rewards from sight, they do so because they have tacit permission from the norms of the day: After all, everybody’s doing it. “You cannot fight norms solely with laws,” concludes Mr. Yankelovich. “You need to fight norms with other norms.”

Mr. Yankelovich is currently the chairman of three organizations: DYG Inc. (a market research firm tracking social trends), Public Agenda (a not-for-profit public opinion research firm, cofounded with former secretary of state Cyrus Vance), and Viewpoint Learning Inc. (which designs and conducts special-purpose dialogues for business and public policy organizations). His books include The Magic of Dialogue: Transforming Conflict into Cooperation (Simon & Schuster, 1999); Coming to Public Judgment: Making Democracy Work in a Complex World (Syracuse University Press, 1991); and New Rules: Searching for Self-Fulfillment in a World Turned Upside Down (Random House, 1981). He visited s+b’s New York office in June to talk about the link between profitability and corporate reputation, and the challenge of putting an “ethic of stewardship,” as he calls it, into practice. We thank Steven Rosell, president of Viewpoint Learning, for his help in arranging this conversation.

S+B: You’ve been quoted in our pages and elsewhere as saying that the United States has just entered a new phase of public mistrust of business — and that it looks likely to last a while. What led you to this conclusion?

Yankelovich: One thing is trend data. Our firm does an annual study of public attitudes in the U.S., in which we ask, “Can you trust businesspeople to do the right thing, most or all of the time?” In 2002, 36 percent of those polled said yes. This year, it’s 31 percent. The last time we saw lows of that sort was in the 1970s.

Then the levels of trust went back up; by the early 1990s, majorities of people we surveyed were saying that they trusted business to do the right thing. People saw innovativeness, creativity, and improved productivity in American corporations: They saw the success of companies like Microsoft. It no longer looked like Japan was taking over. And so there was an enormous sense of relief: Yes, American business is basically credible. Then, as more people invested their retirement money in stocks during the 1990s, the concept of shareholder value took on a loftier meaning. It came to mean preserving the interests of long-term middle-class investors.

And then came the end of the bubble. The people who got hurt were precisely the people who had assumed they were supposed to benefit from shareholder value. They realized that “shareholder value” had come to mean stock options for management tied to short-term earnings.

S+B: Hasn’t this tension with shareholder loyalty been present since at least the 1980s — the era of the films Wall Street and Other People’s Money?

Yankelovich: There was one difference. In the 1980s, business could not hide behind a moralistic notion of shareholder value. When people can rationalize their work as positive and ethical, then they can do the most unscrupulous things while feeling honorable about them.

For example, I’m always appalled at how unethical university officials can be. They believe that “We are good people; therefore, by definition what we do is good.” And then they do things that would make an Al “Chainsaw” Dunlap blush with shame. Similarly, when shareholder value became a quasi-ethical rationale for self-enrichment and cheating in the 1990s, that gave businesspeople who took part in this a feeling of self-justification.

S+B: How did loss of trust then show up in the survey data?

Yankelovich: We saw it in the statements consumers made. Today, when asked what quality they like most in the businesses they patronize, people talk about plain old garden-variety honesty: saying what you mean. They felt that the worst thing Enron did was to show bad faith to its employee–shareholders — sucking them in and then leaving them bereft.

In general, loyalty to customers and employees is now perceived as a one-way street. Companies are perceived as demanding loyalty; but they then outsource jobs, leave towns, and lay people off even when the company is doing well. Citizens and consumers have come to see these practices as meaning that the company doesn’t give a damn about either customers or employees.

S+B: Does that mean that these are counterproductive practices?

Yankelovich: Not necessarily. But if they are accompanied by scandals, misbehavior, and conflicts of interest, then they translate directly into a low level of employee commitment. Only 20 percent of the employees we survey say they are giving the very best they can to their jobs. And the longer people have stayed at their company, the lower that commitment tends to be. Meanwhile, in a global economy, especially for the United States, committed employees can make a big difference. You can see the extra edge that companies like Starbucks and Southwest Airlines get from their employee commitment.

There is another pragmatic consequence. In times of high suspicion, leaders are presumed guilty and all sorts of rotten motives are attributed to any ambiguous action. Business leaders don’t get the benefit of the doubt that they ordinarily enjoy from the public. And they often don’t recognize when this tide has shifted. It can carry all the way to the destruction of the firm.

I think the acquittal of Arthur Andersen [on June 1, 2005] is an interesting case in point. In the original 2003 trial [in a U.S. District Court], the jury was even instructed, in effect, to not give the company the benefit of the doubt; they were told they could convict even if they believed the company acted unknowingly. Then, two years later, the U.S. Supreme Court decided that this instruction made the firm, in a technically legal sense, not guilty. By that time, it was too late; the firm had already been destroyed. It was down from 28,000 employees to 200.

Merck’s recent Vioxx episode didn’t destroy the company, but it was a terrible blow, and disproportionately harsh; no company has had more of an ethical commitment over the years. Vioxx, their very profitable arthritis drug, was suddenly linked with heart attacks and strokes, and the CEO, Raymond Gilmartin, immediately ordered the drug recalled. He undoubtedly assumed that he would get the benefit of the doubt. But that wasn’t enough, not in this climate. The stock crashed and in June 2005, he had to leave under a cloud.

The forced resignation of American International Group CEO Hank Greenberg in March was terrible for AIG. The accounting scandal that ousted CEO Franklin Raines in January was a huge blow, certainly, to Fannie Mae. When Fannie Mae’s new CEO, Daniel H. Mudd, took over, his first statement said that he was put in office to restore trust.

Profits and Stewardship

S+B: An observer might say that these troubles apply only to corporate leaders who misbehave, flout the law, or deserve punishment in some other way.

Yankelovich: Well, for a number of years, the theme song in business was “a few bad apples” were causing all the problems. But it’s very hard to maintain that premise with so many scandals making headlines. It’s useful to distinguish dramatic scandals, where people go to jail, from everyday scandals that involve inherent conflicts of interest, and that get settled through large fines. The mutual fund industry, for instance, routinely pushed its clients into the funds that paid the biggest brokerage fees. That wasn’t just a few bad apples; that was general practice. So was the rigging of bids in the insurance industry. Companies that exempt themselves from these trends do so because they take a stewardship approach to their customers and their employees. Those companies can probably develop a competitive edge as a result.

I know that most American corporate leaders do not correlate stewardship with their company’s growth. And I think I understand why. Consumers learn that General Electric has done some wonderful things for Zambia. The reaction is: “Oh, that’s nice.” But they still reach for the Westinghouse lightbulb that costs five cents less. Business is familiar with that reality.

Also, the corporate social responsibility movement unintentionally helped to create a backlash against itself. It would be too strong to say it poisoned the well. But social responsibility had nothing to say about growing a company. It drove executives crazy because it was a movement of assistant professors who didn’t know anything about business and who adopted a tone of moral superiority about profits. Their attitude toward profit ranged from casual to distrustful.

S+B: What’s the stewardship view of profit, then?

Yankelovich: It goes back to an older American tradition of enlightened self-interest. You can do well by doing good. I admit I used to be very suspicious of enlightened self-interest, but I have a nostalgic yearning for it now. In 1999, I conducted a 50th-anniversary survey of the Harvard Business School class of 1949. They were mostly in their 70s then. When they articulated the guiding principles they followed in making decisions, they said things like: “Work hard,” “live by the rules,” “distinguish right from wrong,” and “practice self-discipline and self-sacrifice.” Self-respect is more important than winning. And being a leader means putting others’ needs ahead of your own. That’s enlightened self-interest.

S+B: You’re 80 now, so you would have been in that class yourself, wouldn’t you?

Yankelovich: I was at Harvard at the time, but in the Graduate School of Arts and Sciences, not the business school.

Those attitudes were replaced in the 1960s and 1970s by unenlightened self-interest: Win at any cost. Strip away regulations and constraints. Anything that isn’t illegal is OK. Conflict of interest isn’t a real issue, except for a few straitlaced dummies. Everybody bends the rules, and you have to do so to survive. Someone caught in an ethically questionable situation might say, “Well, I didn’t do anything wrong. I didn’t break the law.” For someone from my generation, ethics doesn’t have anything to do with breaking the law. Essentially, there was a dumbing-down of morality that came in with the baby boomers in the 1960s.

S+B: But some writers — like William Strauss and Neil Howe, the authors of Generations [William Morrow, 1991] — argued that the baby boomers were the most moralistic of all. They saw their parents as morally obtuse, preaching sacrifice while actually being greedy.

Yankelovich: At the heart of the cultural revolution of the 1960s was the thought: “We’re not dominated anymore by a psychology of scarcity. We can afford more attention to our own aspirations and self-fulfillment.” Sacrifice for others, which they saw as often hypocritical, was only praiseworthy if it was necessary. That theme spread in the 1970s with remarkable speed. It was a widespread transformation of values, and it led to many positive results: a less intolerant, more pluralistic, less one-size-fits-all society.

But there were also negative results. The preoccupation with self led many people from repudiating unnecessary sacrifice to discarding the ethic of sacrifice altogether. The emphasis on relative values, as opposed to absolute values, left people somewhat bereft of common agreement about right and wrong. The current explosion of religious belief represents a search for something absolute to believe in. But in the larger culture, particularly the business culture, there is no overarching sense of shared morality.

This cultural trend then converged with the policy trend that we’ve already mentioned: the perversion of shareholder value into the primacy of short-term earnings. And there was a third trend: deregulation. Deregulation had its main effects on the gatekeepers: law firms and accounting firms. They learned quickly that the firms that got hired most were those which showed clients how to skirt the edge of the law. A report by the American Academy of Arts & Sciences concluded that there wouldn’t have been a fraction of the recent scandals were it not for the collusion of the gatekeepers. [See Jay Lorsch, Leslie Berlowitz, and Andy Zelleke, Restoring Trust in American Business (MIT Press, 2005).]

The three trends of moral relativism, short-term shareholder value, and deregulation combined to put, for example, a huge amount of temptation in the path of banks, mutual funds, and Wall Street.

Un-Gaming the System

S+B: You bring to mind a former investment bank executive I talked to recently. He said salespeople at his firm habitually showed up at six a.m., not to put in longer hours, but to poach clients who called their absent colleagues. He said he quit because he got sick of working in a place where that was common practice.

Yankelovich: That kind of gaming the system has been entrenched in the financial industry. And on top of that, there have been unconscionable conflicts of interest — to the point that most advice from Wall Street in the 1990s was tainted. Citicorp and JPMorgan and others paid billions of dollars in fines, and it wasn’t for nothing.

S+B: But then if everyone’s doing this kind of thing, how can a company abstain? Assuming that you can avoid illegality, aren’t these the kinds of practices that take hold precisely because they lead to competitive advantage for companies and individuals?

Yankelovich: I think they lead to competitive disadvantage. There are a number of companies, for example, that practice what I think of as the “tailgating” approach: Put an ethical spin on what you do, but play hardball all the way. I have tracked some of these companies, and if unenlightened self-interest were truly a source of competitive advantage, then their stock prices would be booming. But they’re not. As far as I can tell, they tend to lag behind their industries financially.

Many executives seem to understand that stewardship ethics is a path to growth, success, and competitive advantage. But, like everybody else, they compartmentalize. They have one set of practices under the heading “shareholder value,” and another set under the heading “social responsibility,” and it doesn’t add up to a coherent whole.

S+B: What would you say to a corporate leader who was trying to create a more trustworthy company?

Yankelovich: It isn’t just a matter of being an ethical person. You need to be very deliberate — about, for example, the way you listen. Monsanto got into its trouble with genetic engineering in the late 1990s because they didn’t listen carefully. They were oblivious to the perceived threat posed by what the Europeans call “Frankenfoods.” This was out there to see in the same way that the current climate is out there to see. It’s not all that subtle.

The boardroom in many companies is pretty isolated. People in corporations generally talk primarily to one another. And there are subcultures in the United States, like Detroit’s auto industry, which are almost unbelievable in their propensity for groupthink, isolation, and not listening. I worked for the automobile industry when Robert McNamara was president of Ford, and they haven’t changed for 50 years. They still have their blinders on.

So the role of dialogue as a vehicle for listening to stakeholders seems to me to be a particularly important way of developing stewardship values.

S+B: “Dialogue” has come to mean a very specific type of conversation. How would you describe your approach to it?

Yankelovich: In my book The Magic of Dialogue, I defined dialogue as having three indispensable elements. First, park status outside — so that people feel free to interact with each other as equals. That’s not easy to do. Second, suspend judgment while listening. Dialogue is the opposite of debate. You can’t win or lose. You don’t rush to judgment; you leave yourself open to actually hearing with empathy what other people say. Third, unearth and reveal assumptions. Make explicit the framework from which you’re operating. Remarkable things happen when people talk under those conditions.

S+B: How did you move from your background as an analyst of polling data into being a convener of in-depth conversations about corporate responsibility?

Yankelovich: Over the years, sitting on various for-profit and nonprofit boards, I saw the extent to which corporate social responsibility is acknowledged with skepticism and cynicism. I saw there were lots of corporate insiders, and lots of social scientists, but not too many people combining those two perspectives. So I began stepping into that role.

S+B: Would it be accurate to say that a corporate social responsibility approach, intentionally or not, will inevitably lead to more rules and laws, whereas a stewardship approach favors more informal, conversational measures?

Yankelovich: I wouldn’t put it quite that way. I think that our culture is biased toward laws and rules. Cultures work best when there’s a thick layer of moral norms — shared values and habits of behavior — undergirded by a relatively thin base of law. In the United States, we’re over-lawyered, overregulated, and under-normed. We’re attempting to deal with our business scandals through law. But the problem is a normative problem, and it needs to be addressed through normative means.

Beyond the Smell Test

S+B: Suppose you’re talking to a strategically minded executive who sees the value of a normative approach to stewardship — but who also works in an environment where people are showing up at six a.m. to steal each other’s clients. What do you suggest?

Yankelovich: In my experience, any normative change in a corporation starts with the CEO. It’s very difficult to change the culture if the CEO isn’t taking the leadership role.

If you are a trusted executive, presumably you have a relationship with the CEO and with key board members. So you might suggest to the CEO that there be a corporate retreat. Bring in outside voices — employees, customers, government regulators, and investors — to get a picture of what cost or price the company is paying for practices that you think are OK. And then rethink your stand on stewardship.

To do that, I think you have to engage these outsiders in genuine dialogue. Not spin, not with a preconceived end in view, but open up the conversation and raise some hard questions: Which of our practices are doing more harm than good? Which are causing us to scant important constituents, like customers and employees? Then, what kinds of good things can we do? How can we address some problems of the larger society in a profitable way? If we do so, what impact will that have on our growth and reputation?

Among baby boomers, in particular, there is a predisposition to want to feel good about oneself. The notion of legacy is being raised as people get older. The earlier American tradition of doing well by doing good is coming back, because it is very important to self-respect.

In just about every company, there are already one or two officials who can be counted on to take an ethical view. They’ll say, “Look, I don’t care whether it’s legal or not; it doesn’t pass the smell test.” But the purpose of these dialogues is to ratchet the company’s view up another level, in the direction of stewardship ethics.

S+B: What companies have explicitly tried to ratchet themselves up and profited accordingly?

Yankelovich: I know stewardship is very much on the mind of A.G. Lafley, the CEO of Procter & Gamble, because we’ve talked about it. They’re hardheaded people at Procter & Gamble, and they’re studying the potential competitive advantage of being seen as a company of integrity.

S+B: If the Harvard Business School class of 1949 held a view of leadership as —

Yankelovich: Putting other people first…

S+B: And if the class of, say, 1979 focused on —

Yankelovich: “Putting myself first…”

S+B: What about the class of 2009?

Yankelovich: They’ll be different from the boomers. I’m not sure that I fully understand how, but they resonate more with my generation. They have a hunger for ethical absolutes, for self-respect, and for ways of doing business where you can feel good about yourself and where you don’t get worn out.

The pressures are terrible on young people today. How can you live a civilized life? How can you get something out of a business career other than just pressure and work? There’s a revulsion in the air against the “win at any cost” ethic. It’s debilitating. And I think I’m writing my next book for the post-boomer world.

At the same time, there’s nothing inherently narcissistic about the baby boomer generation. They happened to come of age in a time when there was reason to shrink norms, and to try to substitute laws for them. Now the culture, as a whole, is trying to rediscover its ethical bearings. I actually believe the chances for overcoming the ethical crisis are better in the business sector than in other spheres of American life, and that success here will help to dispel ethical confusion in the culture at large. That’s why there’s more need than there ever has been in companies — to compare, to discuss, to share frameworks, and to build bridges.

Reprint No. 05309

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Art Kleiner (kleiner_art@strategy-business.com) is the editor-in-chief of strategy+business.