This is an excerpt from Reid Hoffman’s latest book – The Alliance. Learn what Reid and his co-authors, Ben Casnocha and Chris Yeh, have to say about how to recruit, manage, and retain the entrepreneurial employees your company needs to succeed. Their belief is that by putting the employer-employee alliance at the heart of your company’s talent management strategy, you’ll restore trust and help your business compete in a world of constant innovation.
Imagine it’s your first day of work at a new company. Your manager greets you with warm enthusiasm, welcomes you to “the family,” and expresses her hope that you’ll be with the company for many years to come. Then she hands you off to the HR department, who sits you down in a conference room and spends thirty minutes explaining that you’re on a ninety-day probation period, and that even after that, you’ll be an “at will” employee. At any moment, you can be fired. For any reason, you can be fired. Even if your boss has no reason at all, you can be fired.
You just experienced the fundamental disconnect of modern employment: the employer-employee relationship is based on a dishonest conversation.
Today, few companies offer guaranteed employment with a straight face; such assurances are perceived by employees as naive, disingenuous, or both. Instead, employers talk about retention and tenure with fuzzy language: their goal is to retain “good” employees and the time frame is . . . indefinitely. This fuzziness actually destroys trust—the company is asking employees to commit to itself without committing to them in return.
Many of your employees have responded by hedging their bets, jumping ship whenever a new opportunity presents itself, regardless of how much they profess their loyalty during the recruiting process or annual reviews.
Both parties act in ways that blatantly contradict their official positions. And thanks to this reciprocal self-deception, neither side trusts each other. Not surprisingly, neither side profits as fully as it might from their relationship. Employers continually lose valuable people. Employees fail to fully invest in their current position because they’re constantly scanning the marketplace for new opportunities.
Managers, meanwhile, are caught in the middle. They’re wary about even acknowledging the problem, much less solving it. Instead of thinking about how to facilitate growth in their employees in forward-looking ways, they worry about keeping their teams intact long enough to complete key projects. No one wants to risk being jilted, so no one invests in the long-term relationship.
Employers, managers, and employees need a new relationship framework where they make promises to one another they can actually keep. That’s what this book aims to provide. And we think it will help build successful companies and powerful careers.
. . .
The old model of employment was a good fit for an era of stability. In stable times, companies grew larger to leverage economies of scale and process improvement. These titans offered an implicit deal to their workers: We provide lifelong employment in exchange for loyal service. “Maximizing employee security is a prime company goal,” Earl Willis, General Electric’s manager of employee benefits, wrote in 1962.1 In that era, careers were considered nearly as permanent as marriage. Employers and employees committed to each other, for better or worse, through bull and bear markets, until retirement did them part. For white-collar professionals, progressing in one’s career was like riding an escalator, with predictable advancement for those who followed the rules. Because both sides expected the relationship to be permanent, both sides were willing to invest in it and each other.
Then the world changed, both philosophically and technologically. The rise of shareholder capitalism led companies and managers to focus on hitting short term financial targets to boost stock prices. Long-term investment took a backseat to short-term cost-cutting measures like “rightsizing”—or as we used to call it, firing people. Around the same time, the development of the microchip ushered in the Information Age, sparking a communications revolution and the globalization of business. Companies like the Big Three American automakers found themselves competing with leaner, hungrier competitors.
As a result of these shifts, the stability of the 1950s and 1960s gave way to rapid, unpredictable change, and once-stalwart companies began to be toppled out of the S&P 500 at a faster and faster rate.2 Adaptability and entrepreneurship became key to achieving and sustaining success in business, their importance growing as the spread of computers and software imposed Moore’s Law on every corner of the economy. Today, anyone with an internet connection has the power to connect with billions of others around the world. Never before in human history have so many people been connected by so many networks.
The traditional model of lifetime employment, so well-suited to periods of relative stability, is too rigid for today’s networked age. Few American companies can provide the traditional career ladder for their employees anymore; the model is in varying degrees of disarray globally.
In response to these competitive pressures, many—probably most—companies have tried to become more flexible by reducing the employer-employee relationship to what’s explicitly spelled out in a legal and binding contract. This legalistic approach treats both employees and jobs as short-term commodities. Need to cut costs? Lay off employees. Need new competencies? Don’t train your people—hire different ones. “Employees are our most valuable resource,” companies insist. But when Wall Street wants spending cuts, their “most valuable resource” suddenly morphs into their most fungible resource.
In the 1980s, a Conference Board survey found that 56 percent of executives believed “employees who are loyal to the company and further its business goals deserve an assurance of continued employment.” Just a decade later, that figure had plummeted to 6 percent.3 Remember GE’s focus on maximizing employee security? By the 1990s, GE CEO Jack Welch was quoted as saying, “Loyalty to a company? It’s nonsense.” 4
In the at-will era, employees have been encouraged to think of themselves as “free agents,” seeking out the best opportunities for growth and changing jobs whenever better offers beckoned. The Towers Watson 2012 Global Workforce Study found that even though about half of employees wanted to stay with their current employer, most of them felt that they would have to take a job at a different company in order to advance their careers.5
“It’s just business” has become the ruling philosophy. Loyalty is scarce, long-term ties are scarcer, but there’s plenty of disillusionment to go around.
And so managers and employees end up staring at each other after the “Welcome to the Company” happy hour, knowing that their relationship relies on mutual self-deception, but unable to do anything about it.
As much as companies might yearn for a stable environment and employees might yearn for lifetime employment, the world has irrevocably changed. But we also can’t keep going the way we’ve been going. Trust in the business world (as measured by the proportion of employees who say they have a “high level of trust in management and the organization” they work for) is near an all-time low.6 A business without loyalty is a business without long-term thinking. A business without long-term thinking is a business that’s unable to invest in the future. And a business that isn’t investing in tomorrow’s opportunities and technologies—well, that’s a company already in the process of dying.
If we can’t go back to the age of lifetime employment, and the status quo is untenable, it’s time to rebuild the employer-employee relationship. The business world needs a new employment framework that facilitates mutual trust, mutual investment, and mutual benefit. An ideal framework encourages employees to develop their personal networks and act entrepreneurially without becoming mercenary job-hoppers. It allows companies to be dynamic and demanding but discourages them from treating employees like disposable assets.
The Alliance lays out a path forward for companies and their employees. We can’t restore the old model of lifetime employment, but we can build a new type of loyalty that both recognizes economic realities and allows companies and employees to commit to each other. Our goal is to provide a framework for moving from a transactional to a relational approach. Think of employment as an alliance: a mutually beneficial deal, with explicit terms, between independent players. This employment alliance provides the framework managers and employees need for the trust and investment to build powerful businesses and careers.
In an alliance, employer and employee develop a relationship based on how they can add value to each other. Employers need to tell their employees, “Help make our company more valuable, and we’ll make you more valuable.” As Russ Hagey, Bain & Company’s chief talent officer, tells recruits and consultants, “We are going to make you more marketable [in the labor market in general].”
Employees need to tell their bosses, “Help me grow and flourish, and I’ll help the company grow and flourish.” Employees invest in the company’s success; the company invests in the employees’ market value. By building a mutually beneficial alliance rather than simply exchanging money for time, employer and employee can invest in the relationship and take the risks necessary to pursue bigger payoffs.
For example, many HR leaders and executives get frustrated when they spend a lot of money on training and development programs, only to see employees walk out the door months later. If you think of your employees as free agents, the natural response is to slash training budgets. Why train a competitor’s new hire? In an alliance, the manager can speak openly and honestly about the investment the company is willing to make in the employee and what it expects in return. The employee can speak openly and honestly about the type of growth he seeks (skills, experiences, and the like) and what he will invest in the company in return by way of effort and commitment. Both sides set clear expectations.
When a company and its managers and employees adopt this kind of approach, all parties can focus on maximizing medium-and long-term benefits, creating a larger pie for all and more innovation, resilience, and adaptability for the company.