Silicon Valley’s Radical New Idea: Treat Employees Well

For most of 2017, I was traveling around the country and occasionally abroad, attending conferences and sometimes giving speeches.

It was a crazy, tumultuous year. Trump was president. The stock market was booming. Yet famous CEOs were getting fired, retailers were vanishing like Spinal Tap drummers, and even some of the world’s biggest companies were choked with fear. Stories kept popping up saying that in this way or that, Silicon Valley was starting to look the way it did in 1999 and 2000, right before the dotcom crash. Income inequality kept getting worse, and no one seemed to care.

In May 2017, I attended a conference in New York, called TechCrunch Disrupt, which was, as expected, mostly awful. On one side of a big hall there was something called “Startup Alley,” where desperate start-up founders with generally terrible ideas had paid a thousand bucks to rent a booth in hopes of being discovered by a venture capitalist. On the other side was an auditorium where start-up bros assembled in panels to talk about the new economy. My favorite was a 40-year-old former IBM management consultant, a guy with a law degree and an MBA, who now had launched a company to sell sneakers online and thus had arrived dressed like a teenage skateboard kid: funky T-shirt over a white long underwear shirt, backward baseball cap, ankle-high red sneakers left untied, a giant ring on one hand, and on his left wrist a huge watch and a groovy-dude braided leather bracelet. TechCrunch Disrupt encapsulated everything that had gone wrong with the new economy—the bros and fake bros, the bullshit, the scammers, the hordes of people who wanted to cash in and get rich, by any means necessary.

But two extraordinary things happened at this show. First, Steve Case, the founder of AOL, got up and talked about Revolution LLC, his investment firm, which seeks out companies in cities like Detroit, Cleveland, Columbus, and Indianapolis. Case had been traveling around in a bus, holding pitch competitions, spraying money into those forgotten cities, hoping to spark local entrepreneurship and tap into idle workforces. “We’ve been destroying jobs in the heartland, and we’re not focusing on putting up money to fund entrepreneurs in those places,” Case said. “Rise of the Rest” was the name of his bus tour, and that would be the name for a $150 million seed fund he announced later in the year.

The second extraordinary thing I saw was a talk by Dan Teran, the CEO of a gig-economy start-up called Managed by Q, which provides cleaning crews for offices. Teran had defied the conventional wisdom of Silicon Valley by categorizing all of his workers as employees with full benefits, rather than forcing them to work as contractors. Teran was onstage with Oisin Hanrahan, the CEO of Handy, a rival cleaning company, which categorizes workers as contractors. They debated—politely—the relative merits of each approach. Teran was far more convincing. What’s more, he was the first person from the new-economy world I’d ever heard talk about wanting to take care of employees and provide good jobs for people.

After the conference I tracked him down. Once I found Teran, I started finding others like him. It turns out that a quiet movement has been taking shape, led by people who see how things have gone wrong and believe that business might be the solution. Business could be a way to make money but also a way to transform society and lift people out of poverty. Each person I met introduced me to others, and so my journey into the world of work took an unexpected turn, and one that left me feeling uplifted and hopeful.

“The idea that a company might be good to its employees has become so unusual that some people do not even think it is possible.”

These people work in different fields, but they subscribe to what UK business professor Sally Rumbles described to me in an interview as the “no-shit-Sherlock school of management.” As she put it: “If you treat people the way you’d like to be treated, if you praise them, and thank them, what a surprise! They do a good job on the whole.”

That sounds like common sense. Yet unfortunately the idea that a company might be good to its employees has become so unusual that some people do not even think it is possible. Recently at a party I was talking to a veteran tech CEO who has started and run several successful software companies. He asked me what I was working on, and when I told him I was writing a book about companies that treat workers well, he dismissed the idea as unrealistic: “You can’t do any of that stuff when you’re a venture-funded company,” he said. The venture capitalist investors would not allow it. Once you go public, Wall Street won’t tolerate it, either.

For half a century, bankers and venture capitalists have been told that they are the only ones who matter, that companies exist solely to deliver the biggest possible return to them. That’s the gospel of shareholder capitalism, the doctrine created by Milton Friedman. In the second dotcom boom that doctrine has been pushed to new extremes by companies that have adopted a grow-at-all-costs, investors-take-all business model. It has been great for VCs and oligarchs, but everyone else gets shortchanged:

CUSTOMERS get “minimum viable products” (translation: shoddy stuff) from companies whose mantra is “move fast and break things.” Internet companies spy on customers, invade their privacy, and sell their data. For companies like Facebook, the users are the product. We exist only to be packaged up and sold to advertisers.

COMMUNITIES should benefit when they are home to the headquarters of wealthy corporations, but instead communities get shortchanged as tech giants dodge taxes, finding ways to stash their enormous profits overseas in offshore accounts.

EMPLOYEES should be happy and prosperous but instead get overworked in stressful work environments with toxic cultures. They face bias, discrimination, and sexual harassment, along with vanishing benefits and a new compact that provides no security and turns jobs into gigs.

The grow-at-all-costs business model makes employees miserable, and it does this almost by design. Worse, the model doesn’t really work, at least not if you’re trying to produce a healthy, profitable organization that can sustain itself. Some of the unicorn start-ups that have gone public in recent years seem less like companies than like investment vehicles, little wagons that venture capitalists slap together and roll down into the public markets, then fetch back loaded with gold. Unfortunately, these wobbly little wagons have a tendency to blow up. Zynga, maker of cheesy Facebook games, went public in 2011, but within months its business went south. Zynga’s stock price collapsed from $13 to $3 and has remained at about that level ever since. Zynga remains in business, but I suspect its best days are behind it.

If that’s what you’re trying to do—if you want to grow fast, lose money, make as much money for yourself as possible, and run away—then by all means you should treat your employees poorly. Doing otherwise would be irrational. You should adopt the new compact proposed by Silicon Valley oligarch Reid Hoffman, and the “team, not a family” philosophy from Netflix. Those were invented to serve this smash-and-grab business model.

“The grow-at-all-costs business model makes employees miserable, and it does this almost by design.”

But if you’re trying to build a company that can remain in business for fifty or one hundred years, you should do exactly the opposite. Recent academic research suggests that the way to build a truly successful company—one that outcompetes its rivals, turns a profit, and remains in business—is to treat your employees extremely well.

In a study of low-cost retailers, Zeynep Ton, a professor at the MIT Sloan School of Management, found that the most successful companies were not the ones who cut labor costs to the bone. The best companies “invest heavily in their employees. They view their workforce as a valuable asset to be enhanced, not as a big, scary expense to be kept under tight control,” Ton writes in The Good Jobs Strategy, a book that explains her research into model companies like Costco, Starbucks, UPS, and Toyota. In her research, Ton found that the winning companies paid more than their rivals. They also overstaffed, hiring more people than they needed, so that they would create a little slack in the system.

How to be a great place to work

You might also extract lessons from companies whose employees remain happy over time. Once a year, Fortune magazine teams up with a research organization, Great Place to Work, to produce a list of the hundred best employers in the United States. Over the past 20 years a few companies have made the list every year. Fortune calls them “the Legends.” They include Cisco and SAS Institute from tech; REI and Nordstrom from retailing; TDIndustries in construction; Goldman Sachs in banking; Marriott and Four Seasons from the hotel business; and Wegmans and Publix, the supermarket chains.

What common DNA do they share? These companies operate in very different industries, and for the most part they have little in common with one another, except for two things: they are all incredibly successful, and they treat their employees exceptionally well. This doesn’t mean putting out Ping-Pong tables and free candy, or running kooky New Age team-building games. Rather, this means paid sabbaticals, on-site child care, and reimbursement for college tuition.

All of the legends extend health benefits to part-time workers. Some even provide part-timers with perks like paid time off for sick days, vacations, and holidays. The lesson? Skip the Ping-Pong and the New Age guff about mission statements and culture codes, and give people things they actually value.

Notably, most of the legends are not publicly traded. They are privately held or owned by employees. If there exists a connection between being publicly traded and having unhappy workers, it is probably because IPOs enrich a few people at the top but don’t do much for everyone else, and because once you go public Wall Street starts pushing management to take stuff away from employees in order to boost returns to investors.

Also, most of the legends are old. Eight of the ten mentioned above were founded before 1962. The youngest, Cisco, was founded in 1984. Maybe some old-time virtues still make sense, even in the new economy. “These companies are able to change and evolve, but they have their values baked in, and they live up to them,” says Ed Frauenheim, director of research at Great Place to Work, which is based in Oakland, California.

Great Place to Work has been sifting through its annual data to identify traits that consistently great companies share, and boiled it down to these: “Trust, pride, and camaraderie,” Frauenheim says, reciting it like a mantra. Great Place to Work doesn’t just do research. It’s also an advocacy group. The organization now has branches in 58 countries and has a mission to help companies improve labor standards and workplace practices. There are lots of techniques and initiatives, but the short version is this: be good to people. Heck, be great to people. The payoff: “You get the best work out of people when you treat them with respect.”

“Why should anyone need to make a business case for following the Golden Rule? … Are investors and business owners so far lost to humanity that the only way to get them to behave ethically and morally is to prove to them that this will make them a little bit richer?”

Lately the organization has been turning its attention to tech companies in Silicon Valley and San Francisco. They’ve noticed the same distressing trends that I have: the short-term tour of duty and new compact in Reid Hoffman’s The Alliance; the team-not-a-family approach that Patty McCord of Netflix touts. Tech companies believe that their extreme version of shareholder capitalism will produce better returns. The companies are their laboratories. Workers are their lab rats. Whether they are correct remains to be seen. As Frauenheim puts it, “There’s an experiment playing out.”

Two opposing worldviews are vying for the soul of the corporation. On one side are oligarchs like Hoffman and HR mavens like McCord. On the other side are people like Frauenheim and his colleagues at Great Place to Work, who believe that companies do better when they treat workers well, and, as Whole Foods Market founder John Mackey puts it in his book Conscious Capitalism, that “business can elevate humanity.”

To be sure, work is changing. People no longer want to spend their whole lives working at the same company, and companies can no longer provide lifetime employment. Companies want more flexibility, an organization that draws more on a contingent workforce that can be dialed up or down as needs change.

“But even if you have non-traditional employees,” Frauenheim says, “people still want a foundation of trust. They need a sense that they’re being cared for, that the company is looking out for your best interest, that they’re not going to cut you at a moment’s notice.” This isn’t just about being kind for the sake of being kind. “Companies that create a consistently great workplace race ahead of their competitors,” Frauenheim insists.

That said, it’s also about being kind. And what’s wrong with that? Why should anyone need to make a business case for following the Golden Rule? We’re talking about pretty basic stuff, like treating fellow human beings with dignity and respect, and not discriminating against people because of their race, age, or gender. Are investors and business owners so far lost to humanity that the only way to get them to behave ethically and morally is to prove to them that this will make them a little bit richer?

Some companies don’t need the business argument. Some do the right thing just because it’s the right thing. They pay employees more than they have to and provide great benefits. If that means the company makes a little less profit, the founder becomes a little less rich, and the investors receive a slightly smaller return, then so be it.

Making the world a better place

For two seasons I worked as a writer on the HBO comedy series Silicon Valley. A running joke on that show was about how tech founders always talked about “changing the world” and “putting a dent in the universe,” and “making the world a better place.” We were kind of cynical about it, and rightly so, because most of the techies who talked like that were full of shit.

Companies really can make the world a better place, just not in the way that Silicon Valley thinks of it. Tech moguls tend to think that changing the world and making the world a better place mean making an app that has millions of users or a company that generates billions of dollars in sales.

But you don’t have to touch millions of lives or make billions of dollars to change the world. If you employ ten people, and they all get health insurance and a decent wage and feel happy at work—then you just made the world a better place. If you pay taxes and help build schools and feed kids, you just made the world a better place.

__________________________________