No, it is not just a tinge of sadness at watching a two-hundred year old ‘institution’ being subsumed, or watching another major company fall into overseas hands. Rather it is a deeper curiosity as to the thinking behind the bid and a concern about the longer term outcomes. I cannot help wondering what the human cost will turn out to be.

Of course the sweetened bid is attractive for Cadbury shareholders. (Sorry, but the pun is absolutely unavoidable!) The offer is around 20-25% more than the share-price at the time the merger was first mooted, and they receive a substantial cash payment, as well as shares in Kraft. There may be some future risk associated with the latter, but it is not much more than they would have probably faced anyway. So it is extremely unlikely that they will not approve the deal.

On the other hand the deal is perhaps not so good for Kraft shareholders. Apart from a diluted stake in an admittedly larger organisation, they also face the risk of the enormous additional debt the company is incurring to pay the price. The debt level substantially increases the future risk.

Kraft directors are justifying their bid by promising future efficiency savings of $600 million p.a. within 3 years. As everyone knows only too well, efficiency savings are a management euphemism for plant closures and job losses. So such promises add to the uncertainty and erode employee engagement before the deal is even finalised. This makes the targets more difficult to achieve. Yet they cannot be revoked as management has to deliver them. This compounds the action required to do so, and exacerbates the problem. It is therefore hardly any wonder that statistics show very few mergers have delivered the benefits promised.

Consequently it is moot whether they really add value in the grand scheme of things, or simply transfer costs to the economies in which the closed operations and laid off people reside. I mean which is more preferable, for a company to make bigger profits for its shareholders by operating within this model of greater efficiency inspired by corporate self-interest, or for the company to operate less efficiently and provide livelihoods for a greater number of people. I guess no-one really knows the answer to that, and it in any case depends on where in the political spectrum your beliefs fall.

It is certainly not a debate I wish to get involved in here. I would, however, suggest that the question might be easier to answer if:

• The value tied up in people was also included in the balance sheet; and
• Management had a clearer idea of the value of the human assets they are dispensing with when they propose these “cost savings”.

This blog is one of several that I write, but is not regular and I only post to it when current events prompt me to make a comment and invite yours. I do hope you will contribute to the discussion and thus help to initiate and bring about the change that is so badly needed. Please click on the link on the top right of your screen to subscribe to a feed. My primary blog is my business one at Zealise but you can also connect to me at Facebook or Twitter

We have been deluded by suggestions that any questioning of the high levels of executive bonuses is an attack on Capitalism. Thus going along with it is to support left wing liberals and radical socialists who would destroy everything that it has achieved. Consequently it becomes a case of protecting the system, rather than looking at the issue as a matter of principle. So the dividing line and the prevailing discussion has become politicised and the debate one of ideological point-scoring.

Paradoxically, Capitalism demands the subject is properly and rationally discussed. You can thus imagine my relief when I came across this piece by Henry Mintzberg from the Wall Street Journal. It certainly is a breath of fresh air.

Whether you agree with what he says or not, the fact remains that business – however it is organised – is a collective effort. It is the ultimate team game. Consequently it makes no earthly sense for some to be paid (many) thousands of times what the lowest paid employee in their organisation gets. There is no moral justification for it, for no one person can make that much difference to the organisation. Remember, the space shuttle blew up because of a faulty “‘O’ Ring”. That design shortcoming had the potential to destroy NASA and, possibly, the whole American space programme. Yet what was the pay differential between that designer and the head of NASA? This is a scenario that plays out in organisations across the country and the world and certainly in the failed banks.

It is therefore completely fallacious to argue that reducing their incomes will drive bankers – and other business executives – elsewhere. This is a fear tactic used by deluded or hoodwinked politicians to justify their appeasement. It does nothing to protect the efficiency and competitiveness of their constituency businesses or the electorate that they are supposed to represent. In fact it threatens the longer term outlook.

Lean organisations need FAT people – fulfilled engaged workers – and not “fat cat” executives. Business success depends on it, and the growing earnings disparity actually sabotages any chance of engaging workers. It reduces competitiveness and to fail to do something about it will – sometime in the future – induce the same historical ridicule as Marie Antoinette’s immortal “Then let them eat cake!” True Capitalism demands the situation is remedied.  Mintzberg says the cure is to eliminate bonuses. I agree with totally. But I also answer his question – “then what?”

These are difficult to challenge, and appear straightforward enough. As with most things, however, the devil is in the detail, and there is definitely scope to expand on them. Let me add what I think are key embellishments to each of these, without which they are likely to be meaningless.

Careful placement and promotion begins with proper recruitment. Thus you need to ensure when recruiting that you look at the total person. This entails moving beyond the conventional checklist of competencies and looking at the broader talents that could add value that you had not anticipated – now or in the longer term. The ability to do the job now is not much good if the person doesn’t have the ability to adapt if the organisation or the job changes or to grow with your business in the future. Valuing people as assets as I propose will ensure you regard recruitment as an investment, just like any other asset purchase, and not just a pricing exercise.

The concept of high standards of performance is fine. However, the word ‘demand’ perpetuates the innate autocracy of traditional, “command and control” management, and may be one of the root causes of employee disengagement. From the time we first start becoming mobile, humankind is always looking to better itself, and an engaged employee is likely to be the harshest critic of their own performance. Remember too that performance – like success – is seldom, if ever, something that is under our unique control. Thus if you want an engaged employee empower them to figure out and affect the things that will enhance their own performance.

It goes without saying that you cannot expect to have fully engaged employees if they feel they are not trusted enough to know everything that is going on. In any case, how can you expect your employees to make the best decisions if they do not have all the facts?

So if you seriously want your people to acquire managerial vision, you have to keep them fully informed. As you would expect there is more to it than just this. Managerial vision requires:

• A sound understanding of the business;
• Knowledge of the consequences of actions and the steps to take if and when things go wrong; and
• The ability to think and act as if they owned the business.

The solutions outlined in this book, thus provide the perfect means to follow through on Drucker’s remedy and build the employee engagement you are looking for and that is essential for your long term sustained success.

This was quite a shock, because the fundamental premise underlying everything I do, and all I am writing about, is that employee ownership creates the highest level of employee engagement. Nor am I alone, for that, after all, is the whole principle behind employee share ownership plans and share options. It is also evidenced by the superior service and mark-beating returns offered by employee owned businesses. So why was I suddenly questioning my own convictions so strongly?

The challenge actually arose from a little bit of perceptual positioning and a shift to the more objective role of impartial observer and reappraisal of the whole subject of business ownership. The obvious question then, was to ask how engaged the investor or share-holder owner is in a business. Needless to say the answer was most discouraging.

The undeniable fact is, shareholders of listed businesses – whether individuals or institutions – are primarily concerned with the yield on their investment rather than being interested in the business for its own sake. Their involvement is ultimately remote. They tend to only rally to action when they have specific concerns or when there is a sudden deterioration in performance and they realise their money is at unanticipated risk.

So who really has the long term interests of the business at heart? I think we all know that it is the employees. Consequently it seems entirely logical to give them a greater stake in the business. In fact a strong argument could be made that it entirely defies logic not make employees co-owners.

For quoted companies, making employees co-owners would ensure that there was someone taking a longer term perspective (thereby countering some of the proven excesses that caused the recent economic meltdown) and, paradoxically, providing better protection for investors. For the remaining majority, owners are generally actively involved and so more likely to be engaged and looking to their long-term interests. Nevertheless they would stand to considerably improve their overall performance, and their returns, through an ownership arrangement that instilled the same level of employee engagement that they themselves have.

The scheme I am proposing thus offers a win-win solution. It mitigates against the disengaged owner whilst engaging the disengaged employee. Surely then it makes good business sense and is better for all concerned?

Discuss.

You can read a fuller account of his address to senior HR executives and CEOs at the recent Employee of Choice Forum in San Diego here, but it is worth emphasising his comment, “The key is training all employees to think and act in ways that add value to both our future and our bottom lines. … Meaningful work occurs when workers harness their strengths, interests and creativity to create real value.”  The problem is that you cannot do this while not looking at the whole person.

The focus on roles and competencies means you are not looking at the total person. Yet people are incapable of physically dividing themselves, which means you have to recognise that you pay them for what is effectively 30% of their life each day. For them not focus 100% of their capabilities on the task at hand at any point during their day is to waste a portion of that life, and to short-change both them and yourself as the employer, and is the real, root cause of employee disengagement.

It may not be perfect, but valuing people as assets, putting them on the balance sheet and making them co-owners of the business is the best way of redressing this injustice and making individual and organisation alike more effective. It is the start of “igniting motivation from the inside out” – the only way you can really do it!

Protect your assets!

I hope this picture doesn’t offend anyone, but, apart from appealing to my sense of humour, it serves to make a useful point – that we generally protect our assets! Of course this is appropriate because, by definition, they have a value. Yet somehow there are always assets that are overlooked and inadequately protected.

The most glaring example of this is people in an organisation. It is a cliché for business leaders to say “Our people are our greatest asset” and yet, the fact is, they do not actually regard or treat them as such. It is stating the blindingly obvious to say that no organisation can operate without people, and thus it is self-evident that organisational performance is directly dependent on the performance of its people. By any definition this makes them assets. Yet it is always people who are the first to be jettisoned when the economic climate deteriorates – something that manifestly demonstrates how little management recognises the asset value of their people.

This behaviour, and the attitude that gives rise to it, really bothers me, for several reasons.

1. Unless managers have not been doing its job properly, these people were, presumably, all hired because they were needed. Consequently, that being the case, unless the economic change is a permanent one, they are likely be needed again in the future. So redundancy programmes are therefore nothing more than a cost reduction exercise for a limited short term benefit, that take no account of either the past investment in people or the future costs of replacing them. This is something most managers freely recognise but argue that their hands are tied due to market pressures. This runs completely counter to any sense of people being assets.
2. Since you cannot have a business without people and every individual plays a part in shaping its performance, it follows that the organisation is a team. Consequently, such behaviour has to disrupt the team. Inevitably this has to have a detrimental effect on personal performance and so exacerbate a decline in organisational performance, in both the short and long term. 
3. As I argue in my latest book, “A Feeling of Worth”, this is a misuse of resources that has wider economic implications, not least in extending the effects of the downturn.

There are, however, signs that things are changing. The Times recently reported that KPMG is asking its 11,000 British staff to take unpaid leave or face an extensive redundancy programme. The global accountancy firm wrote to all of its employees asking them to volunteer for sabbaticals of between four and twelve weeks on 30 per cent pay or move to a four-day week. The rationale for the proposal, which it referred to as a contingency plan, was designed to help KPMG avoid a company-wide redundancy programme in the future.

This goes some way to addressing my first objection, albeit by avoiding the issue completely rather than adopting the more structured approach of recognising people as assets. It is certainly as step in the right direction, and is definitely a more humanitarian approach in so far as it:

• Removes the likelihood of the permanent pain that would be suffered in job losses.
• Is more democratic and offers people a choice.

Nevertheless it still falls short on my latter concern and completely fails to recognise the organisation as a team. There remains an inherent assumption that a proportion of the people have to make some sort of sacrifice on behalf of the rest. This is as opposed to simply finding an equitable means of applying a universal, temporary pay cut. Of course, this is more difficult to introduce in an environment where management has failed to build a culture that recognises the organisation as a team; something that I would posit is considerably easier in an organisation where people are both valued and treated as assets.

If people are truly an organisation’s greatest asset, they have to be protected, and valuing them as assets is unquestionably the best way to do this

Certainly “Command and Control” is logically questionable in a democratic society. After all, how can you expect people who have been raised to believe that individual rights are paramount, and that all men should be treated as equal, to accept that someone else has the right to tell them what to do and how to do it? This question alone, paradoxically, goes a long way towards answering why there are unacceptably high levels of employee disengagement and there is a deteriorating employee engagement picture. It doesn’t matter what employment contracts say or what the terms of engagement actually are, your people will always be happier doing what is required without interference. So the books and management schools that have been telling us that there is no place for Command and Control management techniques are certainly on track.

Yet, despite these efforts, and their apparent acceptance by the business community at large, the style of management remains largely unchanged. You may well have introduced initiatives to create “work-life balance” and “empower” your people, but ultimately these are largely all within the framework of existing management structures. They still bear all the hall marks of top-down management and, while they theoretically loosen the reins, they actually do very little to alter the mindset and thus behaviours tend to always revert to a Command and Control style – particularly when there is a problem or crisis.

This state of affairs can only be changed and Command and Control Management truly killed off when a new framework is introduced that will shape new behaviours and break down the old, ingrained thought patterns with their consequential behaviours. This book offers the basis for developing just such a framework and thus is essential reading for any business leader looking to meet the challenges of the 21st century and build an organisation of “FAT People” where success can be sustained.

Prophetic or what? This cartoon, from page 3 of the book, could easily apply to the recent controversy about the remuneration excesses of executives of failed companies who earned excessive salaries, pensions and bonuses in spite of performance that would have seen lower level employees fired. However, while it would great to claim such prescient capabilities, it was simply intended to be a provocative way of pointing out that it is impossible for companies to sustain their competitive edge as long as they pursue unfair two-tier payment structures.

It was therefore prophetic only to the extent it recognised the need for a change in organisational remuneration. If people are truly an organisation’s greatest asset as is so often claimed, they have to be what provides its competitive advantage. Consequently, it is increasingly imperative to win and sustain their commitment. This is why employee engagement is an increasingly important topic. Yet, as declining employee engagement statistics clearly indicate, it will be impossible to ever engage employees to the extent necessary to secure the competitive advantage necessary for the long term sustainability of the organisation as long as people feel inferior or that they are part of a two-tier payment structure.

The collapse of the big financial services companies has precipitated a need to re-evaluate pay structures and created an ideal opportunity to redress such practices. Whatever the eventual outcome, the ideas expressed in this book offer a better way forward for those that are serious about rectifying such inequities and looking to make their businesses more sustainable, and without the great swings between good times and bad.

You will perhaps understand this more easily if I point out that business continuity planning (BCP) is only one element of risk management for any business. Yet, when I was doing my audit training this was actually known as ‘Disaster Recovery Planning’ and formed a significant proportion of risk management. Technology’s ever-growing integration into business operations makes disaster recovery even more important than ever, yet its proportion has decreased. This is because:

1. Technology itself has made disaster recovery and the creation of back up sites so much easier;
2. There is wider acceptance that businesses also have a responsibility to their people and the communities in which they operate, and thus can be liable if they do not honour those obligations. As a result there is more that can go wrong or more that needs to be guarded against;
3. The consequences of something going wrong are far more significant;
4. The potential sources of trouble are so much greater: the actions of any person at any level in the organisation could precipitate the end of the business.

I don’t know whether there is any historical connection but, in light of this, it seems entirely logical that scenario planning should become a means of developing alternative business plans. This allows to business to forecast a particular course of action under certain conditions and then to adjust accordingly if the assumptions change.

Yet, despite these advances, it would appear there are still major flaws in management thinking.

Firstly, the scope of scenario planning appears to be too narrow. In fact the speed with which the economy collapsed in 2008 and the overall consequences of that downturn, would suggest that the scenario planning completely excluded any possibility of such events. In other words they were all so optimistic that there appears to have been no concept whatsoever of risk.

Secondly, again despite the broadening scope of risk, there appears to be no recognition of the potential risks of key client failure and the consequences for business.

These two factors combined have, I am convinced, exacerbated the situation and made the whole recession more severe and long-lasting that it might otherwise have been.

The obvious solution then is to ensure that scenario planning includes optimistic best case scenarios and pessimistic worst case scenarios and that risk management incorporates planning for the loss of a significant chunk of business. For example, if your business is in the automotive industry, plan for the eventuality of one or even two of the major manufacturers failing.

However, I don’t believe that is enough on its own. As I wrote in my new book “A Feeling of Worth” a business inevitably goes through cycles with good years and bad years and over time these average out. Somehow, managers and business owners forget this and act as though bad times are a complete disaster. There has to be some mechanism to try to equalise things and that makes it second nature for managers to undertake more thorough assessments so that they don’t fall into this trap again. You won’t be surprised to learn that I think the solution here is the valuation of people as assets.

Valuing people as assets immediately puts a different complexion on the way they are treated. They have a value to the business that generally increases over time and all too often little or no account is taken of the past investment that has been made in them, and similarly no thought is given to the investment that will have to be made in new people when things improve. This is poor asset management and valuing and treating them as assets will at the very least engender better risk management. This with more effective scenario planning and better anticipation will allow management to apply people more strategically for the better long term interests of the business, and thereby better fulfil their own fiduciary relationship with the owners and shareholders.

It would make them more accountable for the way they manage their greatest asset, and that cannot be a bad thing.