How to emerge from the GFC as a leading employer

03 June 2009 8:45am

Executive bonuses will tumble and "people factors" come to the fore as leading employers emerge from the global financial crisis, according to a new book on organisational change.

"One of the impacts of the GFC has been the investor angst and community outrage concerning the payment of obscene bonuses to some executives," says corporate psychologist Colin Beames in Transforming Organisational Human Capital (ISBN 9780980644203).

"People are now no longer in the mood to tolerate hypocrisy, lack of transparency and actions that promote blatant self-interest.

"The pendulum is shifting back in favour of authenticity, integrity, transparency and 'substance' over 'spin'."

In a post-GFC world, Beames says, the shareholder will no longer be king.

Performance standards that push for risk-taking and expediency will be discouraged, he says, and the fixation on short-term profits will necessarily diminish as stakeholders are forced to adopt a more sustainable perspective.

"Investors will come to realise that it is the less tangible and constantly evolving people factors that are increasingly the drivers of value and the developers of competitive capacity."

People management, accordingly, will become a core operational process - as opposed to a support function - as talent emerges as the key corporate asset, Beames says.

Employers restructuring - or leaping into the fire

According to Beames, the current economic climate provides CEOs and executives with a perfect opportunity to restructure, outsource non-core activities and discard unsustainable business models or unprofitable products and services.

"It provides them with legitimacy for change and possibly the pursuit of new opportunities."

Some employers, however, have leapt from the frying pan into the fire, Beames says, with impulsive and uncoordinated responses to the downturn, including:

the slash and burn approach to labour cost-cutting, in which employees in more critical, specialist or core roles are let go as the result of an arbitrary percentage decrease;

indiscriminate outsourcing, resulting in the loss of relationship capital (between the company and its clients), critical skills, intellectual property and "coal face" control;

ad hoc employee-benefit cuts, such as the axing of flexible work arrangements, which lead to disengagement;

recruitment freezes, resulting in the neglect of critical roles or a drop in performance due to the redeployment of unsuitable people; and

the "peanut butter" (or spread evenly) approach to salary cuts, encouraging high performers to seek employment elsewhere.

The crisis, Beames says, has left an "indelible footprint" on the corporate culture, and employers must play by a new set of rules.

He says the age of "short termism", or get-rich-quick schemes, is over, and that sustainability will hinge on assessing and mitigating risk and more stringent corporate governance.

The "cult" of the CEO - which Beames describes as "a simplistic and convenient perspective where the CEO's impact on an organisation's success is accorded more weight than it deserves" - will be replaced by a focus on the team, and compensation systems will be overhauled so that executive pay is aligned with sustainable profits.

The current debate over proposed legislation to limit extravagant remuneration practices (such as excessive executive termination payments, see related article) is "clear evidence of the winds of change", he says.

The future of management

The traditional work of management will be performed less by managers as employers transform post-crisis, Beames says.

"It will be pushed out more to the periphery and embedded in systems via technology," he says.

"Decision making will be more peer-based with power based on competence, and less on authority vested in organisational structures."

Managers will have to earn authority, he says.

HR managers and other leaders must employ a more collaborative, transparent, and respectful approach in order to motivate staff.

"The hope is that more enlightened approaches to managing people will be adopted," Beames says.

"Irrespective of their status, one universal should prevail - that of treating all employees with honesty and respect."

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