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
The 141 analysts cited ’ability to increase revenue,’ ’ability to
increase productivity’ and ’ability to reduce costs’ as crucial to their
While not coming as a shock to the study’s authors or industry
observers, the CDB survey nonetheless flouts a bountiful body of
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.
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
’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
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.