From the NBA: A reminder that people build culture, not the other way around

It's been too long since I dipped back into the 'Sports and HR' space, (probably not long enough for some readers), but over the weekend I caught an excellent piece on my new favorite NBA team, the Brooklyn Nets, by Harvey Araton at the New York Times, and knew it was time to break out a sports and HR take, as well as a re-sent on one of my other favorite themes - the intersection of talent, strategy, and culture in organizations.

First, let me get something out of the way. I mentioned the Brooklyn Nets are now my new favorite NBA team and I feel like, for the one or two readers that care, the need to explain why I am dropping my life-long team, the New York Knicks, down on the pecking order. In short, their recent trade of Kristaps Porzingis, the franchise's best player in decades, and for the last three seasons, the only player who made the terrible Knicks worth watching, was the final straw for me, and I imagine many other frustrated Knicks fans. The Knicks are awful at playing basketball. But that can be tolerated if the players are giving their best effort, seem to care about improving, and are at some level fun and likable to watch. But when the team ownership and management is so inept, it makes any efforts the players put forth mean almost nothing, then that's when I just have no tolerance and no more patience. The clueless Knicks management created such a toxic mess that even their marquee star, Porzingis, wanted out. And I don't blame him. Ok, enough about that, and back to the Nets and culture and talent.

In the Times piece, "Behind the Nets’ Success Is a Carefully Crafted Culture and, Finally, a Clue", Araton profiles Nets executive Sean Marks, one of the main architects behind the Nets slow climb from the depths of the league, to their current position as a contender for a playoff appearance. I won't bore you any more with the basketball reasons why the Nets are performing better, but I did want to highlight what is probably the most important line in the Times piece - an observation of Mark's skills as a leader provided by legendary NBA executive R.C. Buford, under whom Marks worked for a time when he was with the San Antonio Spurs - an organization also legendary for their 20+ years of high performance. Of Marks, Buford observed - “In every role he’s had, he’s been a culture builder".

I like that line because it illustrates and in fact emphasizes that organizational culture, either with a sports team, or in any of our organizations, is something that exists and is informed through people, and the explicit actions they take, the behaviors they demonstrate, and the actions and behaviors, (and the kinds of people) who are not accepted, (at least not for long). Culture, such that it is, has to be a by product of people, and often, as wee seen in the Nets' case, of leadership of people like Marks. This may seem like a really obvious point to make, but I still feel like too much of what we say, think, and discuss about organizational culture makes culture something that exists somehow outside of specific decisions and actions of people. And, none of it ultimately works without adding to people like Marks with more of the kind of people that can help build culture. Some other time I will expand on how the Nets young core of talented players are doing their part to help.

Culture can't exist without people. People buld culture. And leaders create strategies that can succeed in that context and be executed by those people.

Let's go Nets.

Have a great week!

UPDATE: Who benefits from corporate tax rate cuts?

About a month ago I had a piece on the blog about the recent cuts in the corporate tax rate for US companies - more specifically, I looked at what companies were actually doing, (or have stated they will do) with the proceeds of these cuts, and how organizations may or may not be able to leverage these plans in their recruiting and retention efforts.

Long story short, last month I said, (and shared some data) that said most companies are taking care of shareholders before and to a much more substantial degree than they are looking after current employees (with raises, bonuses, increased development opportunities), and potential future employees, (investing in new facilities, R&D expansion).

Well, some more and more current data about corporate spending plans for their tax cut driven windfall is in, and sadly for (most) workers, the story has not changed all that much. Courtesy of Just Capital, a non-profit organization that has been monitoring what large US companies are doing and planning to do with these proceeds, have a look at how about 120 large organizations are allocating these new found funds:

If you can't see the chart, (email and RSS subscribers may need to click through), the data breaks down by category of corporate stakehiolder or potential spending group as follows:

Shareholders - 57% (stock buybacks, dividends)

Jobs - 20% (commitment to job creation, capital investment intended to add jobs)

Products - 7% (invesment in product quality or benefits)

Customers - 6% (reduced pricing, increased service, privacy, safety)

Workers - 6% (wages, bonuses, benefits, training)

Communities - 4% (charitable giving, matching gifts, volunteering)

Although the many announcements and rounds of one-time bonuses that many corporations have granted to employees have generated a lot of news, the Just Capital data continues to show that these programs and plans amount to an exceedingly small percentage of the total corporate benefit of tax cuts - estimated to be about $150B in 2018 alone.

As I speculated the last time I looked at this data, organizations that were really making a meaningful and greater than average commitment and investment of these tax windfalls in their employees would likely be able to leverage the investments effectively as a tool for retention and increased overall employee loyalty. And potential new recruits could also be attracted and drawn to organizations that if not putting their employees first on the stakeholder pecking order, at least consider them to be more important (relative to shareholders for example) than competitors and industry averages.

And here's one more bit of interesting information to consider for organizations and leaders trying to decide the 'best' allocation of tax savings. Just Capital periodically polls American's attitudes towards corporations - mainly to find out which corporate behaviors are seen as being the most 'just' or fair. In the most recent polling, how corporations treat their workers came in as the most important category in evaluating these corporations, with almost a quarter of respondents ranking worker treatment as number one.

Shareholders? How corporations treat them came in last, with only 6.4% of respondents naming their treatment as most important when assessing corporate behavior.

Lots to chew on here for sure. I will probably let this topic go for a while, as frankly its a little depressing. I suppose for most organizations, it is better to be a shareholder than anything else.

Have a great day!

How your company plans to use its tax cut windfall could be a great recruiting tool - or maybe not

A couple of weeks ago I reviewed some recent research that analyzed how American companies plan to put to use their increasingly sizable cash hoards, (much of parked overseas but expected to start being repatriated), and which are expected to also be boosted by the recent reduction in corporate income tax rates.

The TL;DRversion of that prior piece: Most of the cash is heading back to investors, either directly in the form of increased dividends, and indirectly as a benefit from increased share repurchases.

Over the weekend I reviewed an even more comprehensive examination of what many of America's largest organizations have stated how they plan on putting this new cash to work, courtesy of Just Capital. There analysis of almost 100 large company announcements in the last few months shows a consistent picture - the data shows that so far, US companies plan to reward or grant new benefits or opportunities to employees comparatively poorly when compared to how these companies are treating shareholders.

Here's a quick look at the summary of the analysis from Just Capital (and they have lots of detail at their site, I recommend spending some time digging through the figures)

Since the chart at Just Capital is interactive in nature, it was hard to get a screen cap that showed the percentage breakdown across the uses of cash categories, so I will just list them out below:

Shareholders - 58%

Future job creation investment - 22%

Products - 7%

Employees - 6%

Customers - 4%

Communities - 3%

Once again, according to the data compiled by Just Capital from hundreds of corporate announcements related to worker raises and bonuses, stock buybacks, capital expenditures, executive compensation, and other measures related to corporate tax reform, only about 6% of this windfall is directly benefiting current employees.

There are some standout companies, from an employee welfare perspective, with respect to how they are allocating these cash flows.

Boeing for example, is allocation over $200M to programs directly benefiting workers, and another $100M towards community programs. FedEx is allocating all of their increased funds to direct employee compensation increased and investments in future job creation. Finally, Apple plans to direct 100% of their tax cut savings into the creation of 20,000 new jobs.

On the flip side, some companies, even ones who have allocated some of the tax reform savings to employee bonuses, (and have had these, usually $1,000 bonuses reported widely), are in Just Capital's analysis granting shareholders the vast majority of the benefits from corporate tax reform.

You can dig into the data in more detail for sure, but the takeaway I think of corporate HR/Talent leaders moving forward is understanding where (and more importantly, why?) your organization shows up on this kind of list.

While it is awesome to be known as company that is great for the shareholders, your job in HR/Talent is to keep creating, positioning, and communicating your organization as a great place for employees.

It might be an awkward conversation down the line if some highly sought after candidate asks you why it is that your company decided only to give employees 1 or 2% of these tax cut savings and give the rest to the shareholders.

There may be a great answer to that question, but you will only have it if you are prepared to be asked.

Have a great week!

US companies are flush with cash, where does 'raise wages' fall on the priority list?

Last week on the blog we noted the shift in the mix of annual employee compensation increases - companies have and are continuing to increase their use of one-time and variable comp increases like annual bonuses and lessen their use of base (and in theory, recurring), salary and wage increases. The argument, many companies make, is that variable comp awards tie comp more closely to individual and organizational performance measures and provide the organization more flexibility and adaptability to respond to changing market conditions and business performance.

We have even seen this trend play out in the wake of two recent legislative decisions that have combined to create a pretty significant windfall of excess cash/after tax profit for many of the US's largest companies. One, the reduction in the 'stated' corporate income tax rate from 35% to 21%. And two, the reduction of the tax rate on the repatriation of US company cash that has been parked in overseas accounts, and now can be brought back to the US at a lower tax rate (about 15%).

With all this additional cash available to many large companies (most of whom are large employers), it makes sense from an HR / Talent point of view to ask a pretty simple question: Will and to what extent will all this cash flow to employees in the form of salary/wage increases or bonuses?'

Well, sadly for most employees, and for HR and Talent leaders who might be advocating for increased investment in people, the short answer to the question is 'Hardly'. Take a look at the chart below, from a Fortune piece citing some recent BofA Merrill Lynch research on just what these companies plan to do with their soon to be repatriated earnings:

Looking though that list of top six likely uses of this repatriated cash, maybe you could argue that the one that came in sixth, 'fund pension' has some direct benefit to current employees. Share repurchases, which we will see again in a second when looking at the knock-on effect of lower income tax rates, could also benefit employees who participate in ESOP plans or have a decent bit of their 401(k) tied up in company stock. But that is an indirect, and incomplete benefit at best.

Another review, this time by the financial firm Goldman Sachs, paints a similar picture of who the likely beneficiaries will be from lower corporate tax rates. From a piece reported by Marketwatch:

Buyback announcements are up 22% this year to $67 billion in just six weeks, Goldman Sachs said in a note to clients. This follows a report by benefits consulting firm Aon Hewitt finding that 83% of large companies don’t expect the tax cut to boost salaries at all — just help pay for small bonuses companies like WalMart  and AT&T, gave workers, which reporters soon discovered were, themselves, skewed toward higher-paid, longer-tenured employees in many cases.

And it comes as Goldman finds companies have raised guidance on re-investment in their businesses — the putative reason for cutting corporate taxes at all — only 3%.

A couple of things to note here. CEOs and Boards do have a responsibility to their shareholders - some would certainly argue that the shareholders' concerns matter more to corporations than any other stakeholders. So moves to increase the share price (repurchases), and return profits to the holders, (increased dividends), are definitely proper and prudent uses of excess cash/profits.

But the really small levels of internal re-investment, and commitment to improving the long-term compensation levels for employees is a little bit disconcerting. But it also reminds us of something really important. Namely, that for most large organizations labor cost, (and by extension, their investment in people), is just that - a cost that has to be managed.

What the organization is willing to invest, and whether they are willing to increase this investment is subject to a complex set of variables - competition for talent, product/service strategy, overall labor market conditions, the impact of automation and outsourcing, and even the legal/regulatory climate.

But what does not, yet, seem to be moving the needle on investment in people and employee compensation,(aside from the slew of copycat one-time $1,000 bonuses we heard all about), is this sudden windfall of excess corporate cash/profits as a result of recent corporate tax changes.

More simply put, organizations increase what they are willing to pay for any resource only when they have to, not because they are able to.

Apple won't volunteer to pay more per piece to their supplier of iPhone screens just because they can.

And they won't volunteer to pay their engineers, accountants, and facilities staff more just because they can as well. Interesting times for sure.

Have a great day!

Learn a new word: Conway's Law

Have you ever noticed the tendency for large, complex, and difficult to navigate organizations to create to create large, complex, and difficult to navigate products, services, and policies?

Alternatively, have you noticed, (I am sure you have), how many startup companies (especially tech companies), who lack size, complexity and bureaucracy in their organizations tend to create much simpler, easy to use and intuitive kinds of products and services? 

It kind of makes sense, even if we never really consciously thought about the connection between the organization, its size, methods of working, and structure and the outputs of that organization. But it is a phenomenon, in technology certainly, that has been observed for at least 50 years, and it has a name - Conway's Law - today's Word of the Day.

Mel Conway, a programmer, came up with concept in 1967, and by 1968 it was dubbed his 'law'. What does the law actually say? From Mr. Conway's website:

Any organization that designs a system (defined broadly) will produce a design whose structure is a copy of the organization's communication structure.

Later, the Law was expanded to encompass not just the idea that an organization's communication structure would influence (and mirror) the systems that the organization produces, but the broad 'culture' of the organization has a significant impact on its products and services.

Think of a corporate website, which often has separate sections of information that copies the internal organizational makeup, not necessarily aligned and architected with how site visitors want to consume information. Or an enterprise technology product that offers complex and lengthy workflows for transaction entry, routing, and approval that tends to reflect the creating organization's own internal processes and hierarchies that do not always reflect what their customers want.

These kinds of examples show Conway's Law in effect - the way the fundamental elements of how an organization operates internally show up in the products they build, the services they offer, and more broadly, how they 'see' the relationship between themselves and their customers, shareholders, and community.

I have written in a few places that when making decisions around HR and other enterprise technologies that HR and business leaders should evaluate the culture and vision of any potential technology provider just as closely, (if not more closely), than they evaluate the capability and functionality of a particular piece of software.

Capability and functionality can change over time, and in mature markets tends to run together amongst established providers. But organization culture changes much more slowly, if ever, and no matter what new elements of functionality are introduced to the solution, the essential nature of the provider (and the priduct too), is likely to be pretty well entrenched.

Have a great day!