Forefront by TSMP: Are Good Guys Good For Business?

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Forefront by TSMP

4 January 2023

Are Good Guys Good For Business?

Recent events have shone a spotlight on ugly corporate behaviour. As it’s the time to take stock of the past year and evaluate what to do better in the new, we examine if decency and etiquette have an impact on business success.

By Ong Pei Ching

Cover photo credit: Nathan Lemon / Unsplash

In the news of late, more than one well-known corporate head honcho found themselves on the naughty instead of the nice list.

Hogging the headlines for corporate infamy is Elon Musk. Promptly firing half the Twitter workforce after he bought the social media platform last November, many affected “Tweeps” discovered they had been let go only when their corporate computer access was unceremoniously terminated, with at least one employee being cut off mid-call.

Musk’s actions echo that of online mortgage lender Better.com’s CEO Vishal Garg. In 2021, Garg abruptly fired more than 900 employees over Zoom, telling the “unlucky group” that they were to be “terminated effective immediately”. The fintech founder later accused the former staff of “stealing” from the company by being unproductive.

And then there’s Kanye West, now legally known by his former nickname Ye. After his bizarre anti-Semitic rants forced sports apparel brand Adidas to kill their collaboration on the cash-cow Yeezy sneaker line, Adidas staff revealed that Ye showed them explicit photos and videos of his then-wife, Kim Kardashian.  The split reportedly caused Ye’s net worth to drop from US$2 billion to just US$400 million.

His erstwhile partner Adidas was not spared either. While it was the right thing to do, Adidas’s announcement of its termination of the Yeezy line prompted a 5.6 per cent fall in its share price to US$97.96 in Frankfurt after the company dumped Ye. After all, Yeezy products accounted for 8 per cent of the company’s total sales.

It is now 2023. Wouldn’t it be nice if it pays to be nice in business? Or is that simply wishful thinking? 

The problem with being too nice

To be sure, being overly nice can be “lazy, inefficient, irresponsible, and harmful” to individuals and organisations, writes Michael Fertik, founder of Reputation.com, a pioneering reputation management platform, for Harvard Business Review (HBR). Examples of such failures include not expediently firing a new hire who turns out to be a poor fit, only to suffer a messy split later on; not rejecting bad ideas at the outset; or letting suppliers who can’t deliver on time walk all over you – all in order to avoid confrontation.

Intriguingly, another author managed to quantify the cost of being too nice. Russ Edelman, who co-wrote Nice Guys Can Get the Corner Office, surveyed 50 CEOs about the impact of “being too nice” on the bottom line, and obtained the figure of 8 per cent of gross revenues.

And then there’s the poster boy for nasty yet successful leaders: Steve Jobs, the late co-founder of tech giant Apple. His tantrums, egotism, duplicity and general disdain for others were legendary. Jobs would routinely park his Mercedes sports car in the space reserved for the disabled, cruelly humiliate employees for work he deemed sub-par and purloin credit for ideas that were not actually his.

But Jobs also turned Apple around, taking the moribund company from the brink of bankruptcy into what is today a multi-trillion-dollar business.

It pays to be decent

Even in the age of stakeholder capitalism and ESG investing, whether the human decency of business leaders has an effect on corporate profits is a correlation that is fairly under-examined. But recent studies are starting to shed light on the link.

Leaders who think that being a genius à la Steve Jobs trumps being decent should think again. Stanford professor of management science and engineering Robert Sutton summed it up best, dedicating an entire chapter on Jobs as a counter-example in his book, The No Asshole Rule. That Jobs succeeded – with his uncanny ability to not only understand but predict and even shape customer needs – was despite his incivility and not because of it.

Indeed, a HBR article “The Price of Incivility” concluded that people treated rudely at work were significantly less productive, hurting the bottom line directly. Such people often punish their offenders and the organisation, although they justify it in various ways and do not consider their actions as revenge. The authors cited Cisco, the technology company, which estimated that incivility cost it US$12 million a year.

A new study demonstrated a correlation between CEOs who appear benevolent and better stock market performance for their company’s shares. The authors of “The Human Cost of Covid-19” reviewed 448 transcripts of earnings conference calls of Russell 3000 companies during the early stages of the Covid-19 crisis. They found that bosses who shared the human health and wellbeing costs with financial analysts had their companies fare better on the bourses during the crash of 2020. They conclude that there is value when businesses focus on people, even or perhaps especially during challenging economic times.

Anecdotally, there are some heart-warming stories. In Singapore, Wee Teng Wen, managing partner of Lo & Behold said his aim for the company is to be “an employer of choice”. During the pandemic, the food and beverage group set up a staff relief fund that upper management contributed to, including a year’s salary from Wee. The group also extended company insurance until the end of the year for those who had left. Staff turnover is said to be 30 per cent less than industry average.

When many Sheng Siong supermarket employees tested positive for Covid-19 and the Commonwealth outlet had manpower shortages, CEO Lim Hock Chee helped to sort and shelf pork because he was “just like everyone else and being a CEO does not make him any different… after all, it was colleagues and customers who have moulded him into the leader he is today”. Sheng Siong saw an 84 per cent increase in net profits from S$75.8 million in 2019 to S$139.1 million in 2020.

No clear correlation

Conversely, being a bad leader is just bad management. In 2018, American pizza chain Papa John’s CEO John Schnatter used the racist “n” word during an internal conference call. Though Schnatter apologised, Papa John’s shares fell 5 per cent after news of the incident broke, and net income fell from US$94.7 million in 2017 to US$22.8 million in 2018. To rebuild its brand image, the company rolled out new marketing campaigns, conducted internal audits and ran mandatory anti-bias training for employees. Nevertheless, Papa John’s sales fell for five quarters straight. It was only within the last two years, and with a change of leadership that Papa John’s has increased its revenue.

There is no denying that happy employees would always do better, work harder and be more willing to go further for their company, which tends to result in higher productivity and profits. However, too many other variables exist. The company could be in an industry experiencing a boom or its CEO is a brilliant innovator named Steve Jobs.

Alas, while some evidence surely suggest it, a direct, definitive formula that calculates the effect of good leadership on good business remains elusive. Still, it does not hurt to be a decent human being, whether profit motivated or not.