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To Create Long-term Shareholder Value, Start with Employees

A very informative article was released in the Harvard Business Review last week, by Kenneth W. Freeman, former chairman and CEO of Quest Diagnostics, where he led a dramatic turnaround.

Upon starting at Quest (originally MetPath), Mr. Freeman became immediately aware of an issue with the corporate culture; there was very low employee engagement, and nothing in place to show employees that they mattered to the company.

Mr. Freeman decided that a new path needed to be forged – one that focused on building long-term value, not quarter-by-quarter improvement – by making investments in employees. In fact, a rather radical measure was implemented; CEO compensation was tied directly to improvements in employee satisfaction.

The results were fantastic, employee loyalty rose steadily, the company went on to become a finalist for the Top 100 Places to Work, and the company went on to become the industry leader in laboratory testing.

Mr. Freeman’s strategy worked because of one very important idea that has yet to become accepted as conventional wisdom:

Using employee satisfaction as a measure of performance in creating long-term value doesn’t mean that the CEO has to be a pushover, avoid tough decisions, and seek to please everyone at all costs. In fact, engaged employees who have been treated with dignity, respect, and fairness are far more likely to understand the hard choices that have to be made about pay and benefits, promotions, and changes of direction in the business.

One thing that was done to promote employee engagement was to encourage employees at every level to email Mr. Freeman directly about anything they wanted to discuss – and to expect an answer. Despite a few complaints, the emails mostly contained good ideas that were incorporated into the strategy for improving the workplace environment.

This is a great article from a leader in business that truly understands the value of investing in employees, you can read the entire thing here.

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