- Authors Michael O’Leary and Warren Valdmanis argue that capitalism needs to put a greater emphasis on environmental and social goals in order to deliver on its aims.
- In the post-war era workers’ pay and productivity increases were virtually in lockstep – that is no longer the case.
- Companies need to start treating workers fairly and view their wage bills as investments, the authors say.
- Leading to mass layoffs, the pandemic has underlined the importance of treating workers well in order to create a just and sustainable economy.
Fifty percent of US workers consider themselves disengaged at work. And one in eight workers is so disaffected by how they’re treated on the job that they actively work against the interest of their companies.
How do we create a better working environment that benefits both companies and their employees?
In their book Accountable: The Rise of Citizen Capitalism, Michael O’Leary and Warren Valdmanis argue that capitalism can only survive if companies put environmental and social goals at the heart of what they do. They tell why it’s urgent that companies treat their employees and their wage bills as investments rather than costs. A big part of that is about employing workers fairly.
Here, the authors discuss whether the book advocates a return to an imagined “good old days” when workers were treated better.
A golden era?
O’Leary: “There are a lot of people in this field who would point to the post-war era as a time when stakeholder governance reigned supreme. This was a time when business managers saw it as their mandate to balance the competing interests coming from workers and governments, from consumers and from shareholders.
But shareholders were doing well in this period. And so you look at some stats around, say, the ratio of CEO to median worker pay and it’s something like 20 to one in the 1960s. That today is something like 300 to one in the United States. So the CEO is now making more like 300 times the median worker wage, rather than 20 times more.
And there has also been a shift in how long shareholders hold stocks on average. So today, there’s so much trading that happens in the capital markets, that the average holding period for a stock is something like six to eight months. In the 1960s it was more like eight years.
Now, it is worth mentioning, though, that was a unique period in world history for many reasons, not the least of which being that coming out of the war, the United States was one of the few developed countries left standing. And so if you look at something like steel production, or automobile manufacturing, the US – despite having 5% of the global population – was manufacturing 80% of the global cars, and 80% of the steel in the world. The average worker was 10 times more productive than the average Japanese worker or German worker at the time.
And so we can no more turn back the clock to the 1960s than we can undo globalization. And so for us, it’s not so much about nostalgia, as it is trying to use some of what was good about that period – or some of what was good about even earlier periods when local ownership reigned supreme. And we are trying to figure out how we can tweak companies to get us closer to what they had.”
Valdmanis: “In the period between World War Two and the early-1970s, GDP growth on average was 4%. Productivity gains were shared with workers. Productivity and worker wages went up almost in lockstep. Since then, productivity has continued to follow its prior trajectory, but wages have been basically flat. GDP growth has also declined.
When you share gains and prosperity with workers, good things happen to your economy. Not everything was perfect in 1950, or 1960 – far from it. But the way in which workers were treated was a far cry from where we are today.
Consider this: 50% of US workers consider themselves disengaged at work. But one in eight workers is so disaffected by how they’re treated on the job that they actively work against the interest of their companies.”
Lessons for today
Valdmanis: “There was an observation within corporate America back in the 80s that maybe some American companies were fat. That might have been true in America, it might have been true in other countries as well. Maybe that was true in 2000, or 2005. But the whole effort in the economy in the United States in the past 30-40 years has been looking at workers as a source of cost to be reduced, as opposed to a place to be invested. American companies have forgotten how to be good employers. And I think there’s an enormous amount of potential.
And so while it may have been the case that jobs and people needed to be more efficient from an employment standpoint 20 or 30 years ago, the opportunity now is all on the other side, investing in workers. Technology can be an enormous enabler if you look at it in the right way. It doesn’t have to replace jobs – it can actually help humans to be more productive.”
O’Leary: “If you look at the S&P 500 today, in nearly all companies 10% of market value is in factories and equipment and land – but 90% is in intangible assets
So if you think about how to create the most prosperous, valuable companies, the focus has to be on how to maximize the value of those intangible assets. Those assets are people – that’s the motivation, inventiveness, the innovation of human beings. And the way you maximize that is by investing in them, and by motivating them, and by recruiting the best talent.
What we’re increasingly seeing in surveys and similar is the companies that are doing well are those that can create a deeper mission and a deeper purpose than profit. And they are able to best attract, retain and motivate talent.”
The impact of the pandemic
Valdmanis: “The pandemic has sped up certain things that were happening anyway. It has definitely accelerated the ‘S’ in ESG – the social part.
There’s long been consensus that good governance makes for better companies. There’s long been a focus on making companies more environmentally responsible, and that was absolutely part of the focus pre-pandemic.
But when you see the tragedy that’s afflicted the frontline workers in America and service workers who have been laid off en masse, finally we’re realizing that if we don’t treat our workers well we can’t have a just and sustainable economy.
We were in a period pre-pandemic where unemployment rates were as low as they’ve ever been. It was easy to squint and ignore the plight of workers – and finally that’s coming to sharper relief.
But I also think that people are now asking whether the statements of intent and adopted principles that corporations are touting are going to turn into lasting change.
If capitalists don’t get busy turning good intentions into concrete change, someone else is going to fix capitalism for capitalists, and capitalists aren’t going to like it very much.”
Originally published on World Economic Forum