Internal Communications: Employee relations: how much is it worth?

It’s said time and again that people are the most important assets of a company. At employee-friendly companies like Southwest Airlines and Hewlett-Packard the phrase rings true. But then again, employees don’t appear on quarterly financial reports.

It’s said time and again that people are the most important assets of a company. At employee-friendly companies like Southwest Airlines and Hewlett-Packard the phrase rings true. But then again, employees don’t appear on quarterly financial reports.

It’s said time and again that people are the most important assets

of a company. At employee-friendly companies like Southwest Airlines and

Hewlett-Packard the phrase rings true. But then again, employees don’t

appear on quarterly financial reports.



Can anyone prove that internal communications makes a difference to the

bottom line? A recent survey of financial analysts in the

telecommunications space conducted by CDB Research & Consulting found

that ’concern for and relations with employees’ ranked last of nine

non-financial attributes.



The 141 analysts cited ’ability to increase revenue,’ ’ability to

increase productivity’ and ’ability to reduce costs’ as crucial to their

evaluations.



While not coming as a shock to the study’s authors or industry

observers, the CDB survey nonetheless flouts a bountiful body of

contrary evidence.



If the internal relations of a company are non-productive, then some of

America’s biggest companies have been plowing ahead on the wrong track

for a long time.



Wrong target



Generally, PR pros feel that securities analysts were the wrong targets

on which to test the significance of employee communications because it

wasn’t one of the normal criteria they use to appraise a company. ’Few

analysts understand the importance of internal communications because

they only consider direct business drives, such as quality production,

brand equity and operating excellence,’ says Gary Grates, president of

GCI Boxenbaum Grates, who is an advocate of employee communications

’It’s not the world they live in. But internal communications are a

means to an end, an important strategy tool.’ Grates feels that a strong

employee communications program is inextricably linked to the

higher-ranking attributes in the CDB study.



Jack Bergen, president of the Council of PR Firms, says he wasn’t

surprised by the analysts’ reaction. His lack of surprise at the CDB

findings also stems from an earlier Ernst & Young survey of 300

analysts, which gave a low rating to employee relations.



’Mostly, they believe that employees can be replaced when necessary,’ he

says. ’Yet, I don’t know of any constituency or audience that has a

greater impact on all the others than employees. They have the main

interface with the customers, the vendors, they buy the stock of the

company. They are management’s primary audience.’



And the record shows that sloppy relations with employees have hurt -

and even doomed - some big corporations in recent years. As contrary

evidence, Bergen cites the example of Delta Airlines, which ousted its

chief executive not long ago because he concentrated on a massive

cost-cutting program without concerning himself much with employee

relations. He achieved his expense-control goals but at the price of

internal morale, which in turn hurt customer satisfaction.



Further, earlier this year the Council surveyed the 476 firms that

participated in Fortune’s ’Most Admired Companies’ list and found that

the ones that spent the most on employee relations were ranked higher.

And PR pros wonder if the troubles IBM is presently having with

employees over the company’s ’cash-balance’ approach to the pension

program may not be due to its failure to properly explain it in advance

to its many employees.



Market research firm Yankelovich, Skelly & White recently found that

companies with a high corporate reputation had a 12% higher

price-earnings (P/E) multiple than companies with a lesser reputation.

If reputation can be considered the result - at least in part - of

strong employee relations, the survey is said to underscore the vitality

of those relations. At any rate, it was estimated that the difference in

stock capitalization because of that higher P/E ratio amounted to some

dollars 5 billion.



PR pros insist that most companies recognize the importance of clearing

the air with employees even in this era of corporate downsizing. Visa

USA EVP John Onoda says in his 18-year PR career, ’All three companies I

worked for - Visa, General Motors and Levi Strauss - placed an extremely

high premium on employee communications.’



Is a broader-based survey needed to offset the damage of the analysts’

findings? PR execs are divided on this. Although he didn’t think a new

survey was required, Peter Fleischer, director of Ketchum’s

Chicago-based workplace management practice, believes that analysts are

now beginning to realize the urgency of recruiting and retaining good

people.



’Disney is said to be losing talented people,’ he notes, ’and a lot of

fast-growth companies in hi-tech, management consulting and financial

services are complaining that they can’t get enough people.’



Stock prices of blue-chip corporations are directly affected by the

quality of employee relations, says Ketchum’s Bob Amen, director of its

global corporate practice. He cites Sears Roebucks’ greater emphasis on

IR, which resulted in a good rise in the stock’s value for some time

after Arthur Martinez became CEO. Sears’ more recent troubles, Amen

believes, stem more from operating problems than a return of poor

employee relations.



Corporate challenge



WPP Group chair Martin Sorrell recently cited three principal challenges

for corporations: over-capacity; new technology such as the Internet;

and internal communications. Max Caldwell, chairman and CEO of Hill &

Knowlton’s workplace communication division Banner McBride, says that

the latter was especially vital in the booming mergers-and-acquisitions

arena where job and culture integration were so important. Those are

vital because ’one of the great fears in M&As is that there will be lots

of turnover out of fear and confusion,’ he adds.



Keith Burton, managing director for the central region of Golin/Harris,

says that analysts as a group normally show little reaction to threats

of possible strikes by employees of companies they followed. ’So I find

their reaction to the CDB survey not surprising. Yet it is axiomatic

that the companies that have the highest ROEs and ROIs are most

sensitive to employee relations.’



The CDB survey, while not considered greatly damaging, comes at a time

when employee communication practices are burgeoning PR agencies. So

while Wall Street analysts may not highly value IR, they are certainly

considering the performance of these employee communication units when

they evaluate holding companies such as WPP.



When all is said and done, Wall Street may be listening after all.



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