D Murali

Brewing employee loyalty

D. Murali | Updated on September 14, 2011

You Can't Fire Everyone By Hank Gilman

If Starbucks reminds you only of good coffee, here is more from You Can't Fire Everyone: And other lessons from an accidental manager by Hank Gilman (www.landmarkonthenet.com). The author admires Howard Schultz, the chief executive officer of Starbucks, not just for the coffee but also for knowing the value of treating employees well , and understanding how fragile employee loyalty is if you do the wrong thing and lose their trust. Employee loyalty is hard enough to gain in the first place, but once you've lost it, getting it back is really tough, Gilman cautions.

Retail war

The point about Starbucks emphasised in the book is the providing of health care benefits to both full- and part-time employees. Reminding that the retail industry is not a paternalistic business, the author analogises the industry to war movies about ancient Greece and Rome when thousands are sent into battle, killed in grisly ways and then replaced by thousands more. “If you die, that's okay. There are more who will fit right in. That's retail. So why spend money on health insurance? Your workers will come and go and you just replace them.” To Schultz, however, there is a good business reason for treating the employees well. Better benefits mean more qualified and more loyal employees, and loyal employees mean less turnover, which means you reduce your training costs, and customer service is a lot better, and the lines move faster, reasons Gilman.

He underlines that it is not all that difficult to be a good, do-the-right-thing kind of employer when things are going great. “When you're a growing company riding the wave, being generous doesn't cost you much. It's good pub; you get on covers of magazines like Fortune; you get rich; you're a genius!” But, when things go sour, it can be hard to fight the impulse to be a little evil in order to get ahead, he observes.

Investor discussion

Such a bad run did occur to Starbucks, during 2007-09, when Schultz had stepped aside and his replacement over-expanded and the economy tanked, as the author reminisces. “Schultz eventually stepped back in and took over day-to-day control of the company. His job, among other things, was to get Starbucks through the pain of restructuring while maintaining the culture it had taken him decades to build.”

Schultz had to do many tough and unpopular things, such as closing stores and shedding a lot of jobs, but he would not mess with providing health benefits to employees who worked at least 20 hours a week, recounts Gilman. He narrates an instructive discussion between Schultz and one of the company's big shareholders, who suggested in December 2009 that the tough economy and the company's other problems were a perfect excuse for cutting back on the generous benefits.

That period was a low point when the stock was $7 or $8 a share, and people were offering many suggestions such as franchising the mostly company-owned stores. And the big investor called Schultz to advise strongly that the company had to make very serious decisions and cuts, including health care. The response of Schultz was that he would not do so under almost any circumstance. “Cutting those benefits, he added, would destroy ‘the level of trust with our people.' The investor wasn't finished and cut Schultz off. ‘You're missing the point,' the investor said, requesting that his call be shared with the board. ‘This is what you need to do to survive.'” Schultz argued that cutting the benefits would mean they would no longer have the company, losing the trust and confidence of the employees. “We have to maintain it and preserve it … we can't kill it while we navigate through this crisis,” reads a piece of the conversation reproduced in the book. “Schultz felt so strongly about this that he told the investor that, if he disagreed with his decision, he could choose to sell his shares in the company. Schultz also refused to discuss the call with his board. Cutting medical benefits wasn't happening. Period.” One other best practice captured in the book is about how Schultz handled the big wave of layoffs: He delivered the news of the cuts himself, via a Webcast, to every employee in the company. Adds Gilman that on the surface this may not sound like a big deal, but it is; for, it is not uncommon for bosses to announce cuts by email. “Schultz apologised for the cuts, took the blame, and explained why the company had to close so many stores. He then did something that mattered a lot to the employees who were left behind: about 70 per cent of the people who lost retail jobs were placed in outlets within just a few miles of the stores where they originally worked …”

Inspiring messages drawn from field realities.


Published on September 14, 2011

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