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The Leader's Choice

Book Description

Business leaders have a choice in how they want to compete. “High-road” companies, author Thomas A. Kochan argues, are managed for the long term, seeking to compete through a combination of high productivity, innovation, and quality customer service that both requires and supports high wages and good job and career opportunities for employees. “Low-road” companies, by contrast, seek profits and shareholder returns by minimizing costs and controlling labor in ways that keep wages low for most employees and/or contractors. A prototypical high-road company the author cites is Southwest Airlines Co., which has been the most profitable airline in the U.S. over the past 30 years and has also often been rated as one of the best places in the U.S. to work. Also mentioned is Market Basket, a family-owned grocery store chain headquartered in Tewksbury, Massachusetts. In the summer of 2014, Market Basket’s legacy of low prices, good customer service, and good-quality jobs was highlighted when a family feud broke out among members of its board of directors and the family member who had been serving as CEO and was popular among employees was fired. After a six-week “strike” by nonunion employees and managers that had broad community and media support (it caused an astounding 92% reduction in the company’s revenues), the board agreed to sell the business to the ousted CEO, whose reinstatement employees had sought. Standard economics argues that the higher labor costs are as a proportion of total costs, the more important it is to control these costs. However, the author explains, high-road companies take another view, relying heavily on practices including screening employees for their strong technical, problem-solving, and collaborative skills; investment in training and development of the full workforce; compensation systems that align employee and company interests through profit sharing and/or payment for attaining higher levels of skills; and labor–management partnerships. Despite the effectiveness of high-road practices and their attractiveness to young employees, they are not widely followed by managers. “Few MBAs learn about high-road strategies in their economics, finance, and operations courses,” the author writes. “They don’t learn that, as business leaders, they will have distinct choices to make about how to compete.” He argues that academics, business and labor leaders, and employees themselves need to educate current and next-generation business leaders about the choices before them.