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Is it Better to Be Feared or Loved?

Is it worth sacrificing short-term profit to win employee loyalty? The conventional business wisdom is now being turned on its head.
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Five hundred years ago, Niccolò Machiavelli famously said of leadership that "it is better to be feared than loved." If you look at the way companies have been run for the past few decades, it's clear that most business leaders are in agreement.

Back in the 1970s and earlier, corporations valued loyalty and saw it as an agreement that went both ways. The bellwether of good management practice was Thomas J. Watson of IBM, who promised lifetime employment in return for the fierce loyalty of the employees.

Then came the 1980s. Reengineering. Outsourcing. Offshoring. Downsizing. The notion that a corporate leader should be responsible for the well being of employees was thrown on the dung heap of history.

The new model for sound management was cut, cut, cut, cut, and then use the threat of future cuts to keep employees on their toes. As "Chainsaw Al" Dunlap put it: "You're not in business to be liked... If you want a friend, get a dog."

And so the business world has remained. But that may finally be changing.

World's most beloved CEO?

Last weekend, I saw something I'd never thought I'd see: workers on strike because they want their beloved CEO back.

Turns out that a hostile board of directors recently ousted the head of the Market Basket food market chain, Arthur T. Demoulas. In response, the workers launched a wildcat strike and organized a grassroots boycott.

When I drove past a local Market Basket a couple of days ago, I saw more than a dozen employees holding up hand-lettered cardboard signs: "Honk if You Want Artie T Back!"

Almost every passing car honked as the striking workers cheered and hooted. And the boycott seems to be working. The local Market Basket stores are almost empty of customers and employees alike.

Here's what Artie T did to inspire that kind of love and loyalty:

  1. Pay a living wage. Though Market Basket (which is non-union, BTW) doesn't pay greatly more than other supermarket chains, it's on the high end of the scale.
  2. Provide good benefits. Even part-time employees at Market Basket would usually get a Christmas bonus. The company even offered help with tuition.
  3. Care about employees. When Artie T visited stores, he would ask about employees' families. He sometimes showed up at employees' weddings and funerals.
  4. Value people as much as profit. Market Basket hasn't cut wages and closed stores in order to squeeze a bit more profit from the company.
  5. Offer career growth. Market Basket established a way for line employees to grow into positions of more authority.

The value of love

From the perspective of the board of directors of Market Basket, Artie T's management style is a waste of money.

Instead, they're bringing in a management team that will almost undoubtedly implement conventional retail wisdom: Cut salaries, cut benefits, cut head count, close the stores that don't hit a profitability threshold, and so forth.

You know the routine. What's important is bottom-line, and if that means making your employees miserable and forcing them to need government assistance, well, that's tough.

After all, when it comes to management strategy, it's better to be feared than loved. After all, that's what the investors want, right?

Not so fast. What if conventional business wisdom has it wrong? What if investors would be better served by a management style that inspired loyalty rather than dread?

Turns out, that's the case. A recent study by Wharton professor Alex Edmans shows the stock prices of firms listed in "100 Best Companies to Work for in America" outperformed those of their more Machiavellian competitors.

You read that right. Treating your employees well is ultimately more profitable than squeezing them into misery. So maybe Arthur T. Demoulas--and the workers demanding his return--aren't a throwback at all.

Maybe, when it comes to business, it truly is better to be loved than feared.

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IMAGE: Complot/Shutterstock
Last updated: Jul 31, 2014

GEOFFREY JAMES | Columnist

Geoffrey James, a contributing editor for Inc.com, is an author, speaker, and award-winning blogger. Originally a system architect, brand manager, and industry analyst inside two Fortune 100 companies, he's interviewed more than a thousand successful executives, managers, entrepreneurs, and gurus to discover how business really works. His most recent book is Business Without the Bullsh*t: 49 Secrets and Shortcuts You Need to Know. If you enjoyed this post, sign up for the free weekly Sales Source newsletter.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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