Employees

If employers provide paid work for employees, do they need to go further and do their best to ensure that those employees feel happy and well?

Should organizations focus on ensuring the happiness of employees? If so, how can and should this be done? Some organizations are putting their employees’ happiness at the core of their plans. Why are they doing this? Who benefits from organisations doing this?

Examples from history

There is a long history of close relationships between religious movements and business and entrepreneurship. In the 19th and 20th centuries, Quakers, such as Joseph Rowntree, the Cadbury brothers, and Congregationalists, such as the Lever brothers, established for-profit businesses along moral, religious and philanthropic lines that matched their beliefs.

Joseph Rowntree set up a chocolate factory in York, which became extremely successful and profitable, developing some worldwide favourites, such as Kit-Kat, Smarties and Aero along the way.

However, Joseph Rowntree also focused on improving the quality of his employees’ lives, and the lives of their families. In 1904 he established the Joseph Rowntree Village Trust, that built and maintained the ‘garden village’ of New Earswick for employees. Like other ‘garden’ or ‘model’ villages of the time, good quality housing was available at affordable rents, green spaces were designed into the village layout and no pubs or other alcohol outlets were permitted. Employees were provided with libraries, free education and social support services, and medical services.

The Rowntree company was acquired by Nestlé in 1988. The Joseph Rowntree Foundation still focuses on issues such as poverty and social exclusion today. Read more about Joseph Rowntree.

The Lever Brothers began constructing their model village for workers in 1887 – Port Sunlight. This was named after the soap company’s most successful brand of cleaning agent Sunlight.  William Lever supervised the planning of the village and ensured it included art galleries, a concert hall, a swimming pool, and a church, as well as good quality housing and garden spaces.

The brothers suggested that the village was an indirect form of profit sharing as some of the profits from his factories were spent on its construction and maintenance. They were reluctant to distributed profits more directly because they believed that workers of the time would spend excess funds on alcohol, or other luxuries. William Lever claimed: ‘It would not do you much good if you send it down your throats in the form of bottles of whisky, bags of sweets, or fat geese at Christmas. On the other hand, if you leave the money with me, I shall use it to provide for you everything that makes life pleasant – nice houses, comfortable homes, and health recreation’

Questions you might want to consider:

  • Has this model of ‘Responsible Enterprise’ disappeared?
  • Can you think of any modern day examples?
  • Do you see any problems with it in a modern day context?

Today, the Mennonite Economic Development Organisation claims to ‘create business solutions to poverty’ and to empower through entrepreneurship, and innovative companies, such as Scott Bader, have religious principles at the heart of their enterprises.

Case studies

Should technology employers offer to freeze women employees’ eggs?

The Information and Communication Technology sector has long been identified as an area of work which is dominated by men. Various government, educational and company initiatives have attempted to turn this situation around so that we will see more women employees in technology roles.

Science and technology subjects have historically been dominated by boys and men. In the present day, still girls tend to drop out of such subjects when they can in greater numbers than do boys. This is despite the fact that girls in school generally achieve better academic results than boys across the board of academic subjects, including Science, Technology, Engineering and Maths (STEM) subjects. An area with one of the highest drop-out rate for girls is Information Technology (IT).

Companies that have been accused of being very male-dominated have suggested that there are just not enough women with the right qualifications to recruit. High-tech companies in particular have complained that they find it very hard to recruit more women. Some people have also suggested that it is a problem when women leave their jobs to have babies as this can disrupt the fast-moving projects that they are working on, and can negatively affect the careers of the women themselves. However, research has shown that even when women have a good degree in a relevant subject (Computer Science/IT etc.) companies do not recruit them as often as they recruit men with the same qualifications. Some further research has suggested that high-tech companies have a corporate culture that suits men far more often than women. Areas of the culture that have been suggested as masculine include: long working hours (non-family-friendly), ‘geek’ culture which is obsessed with technology and what it can do, which women do not enjoy as much as men etc. Some research has shown that women are actively put off by the ‘geek’ image of high-tech workplaces, even if the reality is very different. Other research has shown that women’s pay and promotion prospects in high-tech areas are less good than men’s, even when they don’t have children.

Cutting edge high-tech companies have generally started to focus on getting the best, most skilled people to work for them, and making these people as happy as possible so that they are creative as they can be and want to stay in the organisation. In this context, companies such as Facebook and Apple have recently offered an ‘improvement’ in the conditions of women who work for them and an incentive to those considering working for them. They have offered to freeze the eggs of certain female employees so that they can choose to delay motherhood if they want to without ruling out the chances of having a baby.

Questions you might want to consider:

  • Is this a ‘responsible’ decision for the companies to make?
  • Does the offer improve the conditions of women workers?
  • Would it attract more women recruits?
  • Should companies feel obliged to attract people to their workforce who they don’t often attract if the organisation is functioning well and making a profit?

Case Study prepared by Ruth Woodfield, School of Management, University of St Andrews.

Supporting/further information:

Tullis Russell and Inveresk: a contrast in ownership strategies and outcomes

Between 1990 and 2009 two Scottish papermaking companies, competing with an overlapping product range, chose two very different ownership strategies. The first, Tullis Russell, chose all-employee ownership and ended up out-performing the whole UK industry; the other, Inveresk, followed the more traditional route, and, in the end was forced to close, one by one, four of its five mills, leaving only a small one going.

The UK paper industry has not fared well over the decades. As the industry has been consolidated into a much smaller number of truly global competitors, even the Scandinavian companies, who can build mills in the middle of soft-wood forests, have found it hard to compete with the new mills in South America built among faster-growing cloned eucalyptus forests. In these circumstances, the smaller independent paper companies have had only one recourse: to specialise, to develop high grade niche products, and to differentiate themselves on any measure that the processes of time, fashion and technology render favourable. In the early 21st century, for example, that includes being cleaner and greener than the competition, and the use of recycled fibre rather than virgin pulp. Quality is always key.

Both Tullis Russell and Inveresk experienced testing times between 1970s and 1990s e.g. in relation to comparatively low export prices and growing fuel costs. In 1990 the two companies in question had very similar profiles. Inveresk had sales just below £100m and Tullis Russell a little above. They both competed primarily in the market for high-grade printing papers and boards. The main area of direct competition between the two was one-and two-side coated boards, for applications such as greetings cards, fancy packaging and the covers of glossy brochures. TR had one very large papermaking site with five paper machines and a large coater, and two smaller sites for specialist, added-value coating; while Inveresk had five papermaking sites, the largest having three paper machines. The companies were very similar.

TR’s ownership strategy in its first 176 years, from its founding by Robert Tullis in 1809, was to remain independent in more or less beneficent paternalistic family ownership. The first Russell invested in a 50% share in 1874, the second bought out the Tullises in 1924, the third led a period of well-judged heavy investment from the 1950s to the early 1980s, and then passed on the baton to his nephew, David Erdal.

Taking over in 1985 he set about transforming the management style of the company from secretive, top-down and overmanned to open, participative, profit-sharing and strongly performance-oriented. This included redundancies totalling over 200 of the 1500 strong workforce, a traumatic contradiction of the paternalistic tradition. And discovering some appetite among his siblings and cousins to sell their so-far low-yielding shares, he introduced a profit-sharing share scheme which started buying family shares and passing them out to all employees with more than a year’s service. This was received with joy by the family and rank suspicion by the employees, who took probably three years to begin to trust the scheme. Stage two was to set up an Employee Benefit Trust in 1987, to buy a block of some 15% of the equity for the employees. It took a full three years also to persuade the company’s advisers that employee ownership would be a good way forward. The buyout was eventually completed in 1994.

The history of Inveresk was different. It was formed in 1922 to bring together a number of independent mills, eventually eight in number, with a complex overlapping ownership of shares between the mills. In 1981 the company was taken over by one of the giant American competitors, Georgia Pacific. Four of the mills were closed, but still, like TR, Inveresk found themselves manufacturing printing grades on paper machines that were increasingly less competitive in scale. The only solution would be to remain resolutely up-market. In 1990 the American owners agreed to a £35m management buyout with the backing of four – what would now be called – private equity firms. The lead investor – Morgan Grenfell Development Capital – put a director on the board, and the company set about reducing the five year loan of nearly £18m. Luckily the economy began to pick up and cash flow was strong. Two years later in 1993 they managed a very healthy flotation, at a total company valuation of just under £80m – more than double the management buy-out price.

Fifteen years later Inveresk had closed its three large mills and sold its flagship product line – to Tullis Russell, which had outperformed the whole UK industry. Why? Above all, the employee buyout provided everyone with a common interest in making the company successful, and stimulated a management style to suit. Instead of the owners causing an enormous distraction, with greedy demands leading to disaster, every time a director spoke to employees, he or she was talking to informed shareholders, and every time a director talked to shareholders he or she was talking to people who cared and made a difference in the operations. And they did. And finally, instead of sucking out millions of pounds for the benefit of a few merchant bankers, Tullis Russell has over the years distributed millions of pounds to all the employees, in the form of profit sharing and dividends and shares. The economic multiplier effect in the whole community is powerful and sustained and thoroughly beneficial. The effects on the employees and their families are also immensely positive, spreading new opportunities widely. Being treated as a genuine partner in the business has important knock-on effects on families and communities, as well as on the individuals involved.

Questions you might want to consider:

  • Could the employee-owned model work for all industries/organisations?
  • Is there something about employee-owned companies that means that they are always likely to perform better?
  • If so, what is it? Does distributed ‘ownership’ change the way workers and managers feel about, and undertake, their roles?

Case Study prepared by David Erdal, School of Management, University of St Andrews  and edited by Ruth Woodfield.

Supporting/further information: