How to electrify your company

Micheal
Micheal Kelly
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Frank Koller, Spark: How Old-Fashioned Values Drive a Twenty-First Century Corporation. Public Affairs, 2010.

The last few years have been trying for American workers and businesses. Millions have lost their jobs though corporate downsizings and layoffs.

Spark: How Old-Fashioned Values Drive a Twenty-First Century Corporation by Frank Koller

 

At the same time, recent corporate and financial scandals have raised questions about the basic value system of American business.

In the midst of this economic turmoil, a traditional manufacturing company – in a struggling city in the American “Rustbelt,” no less – has continued to guarantee employment to its workers as well as pay them handsome performance bonuses.

The company, Lincoln Electric, founded in Cleveland in 1895, is the world’s largest manufacturer of electric arc welding machinery and products. Its history is a story of how one company found a way to survive and thrive though the Great Depression, several recessions and the decline of American manufacturing.

Most people likely haven’t heard of this company, though it’s likely familiar to a couple of generations of business school students. A 1975 Harvard Business School case on Lincoln Electric remains the best-selling case in Harvard’s history and is still taught in business schools across North America.

In this highly readable and well-researched book, former CBC journalist Frank Koller provides a fascinating portrait of the company’s guaranteed employment program and the role it has played in creating a high-performance business culture. Given Lincoln’s record of success, he also questions why the company’s approach hasn’t been more widely adopted.

Lincoln’s story is compelling on its own and Mr. Koller is a very good storyteller, weaving corporate history with extensive interviews of past and present Lincoln executives and employees. This provides an in-depth understanding of Lincoln’s corporate culture and the core elements of its unique incentive system, which combines employee representation on the company’s advisory board with piecework-based pay, a merit pay bonus system and guaranteed employment.

In a sunset industry, Lincoln Electric has not laid off a worker who met its performance standards in more than 60 years. Moreover, for 74 uninterrupted years, the company has paid out a profit-sharing bonus which has almost always exceeded 60 per cent of an employee’s basic earnings.

For the most part, Mr. Koller avoids romanticizing the company. He notes there is nothing fundamentally altruistic about Lincoln’s guaranteed employment policy. The company’s underlying philosophy going back to its founders is that placing the interests of employees on a par with those of customers and shareholders is simply good business. Their goal was to create a workplace where workers were fully committed to the success of the company.

This book, however, is more than a corporate history. Mr Koller, a proponent of socially responsible management, uses the Lincoln story as the basis for a wide-ranging critique of American management practices and the current value system underlying American business.

In particular, he decries the widespread attitude that layoffs have become just another everyday technique of modern management and today tend to be an almost instinctive reaction to corporate downturns. More than anything else, he sees this as demonstrating a lack of imagination on the part of managers. It is also, he notes, contrary to the evidence from a body of academic research that suggests that the resulting saving from large-scale layoffs are very often illusory.

He also attributes this fixation with layoffs to the value system of business education that he sees as placing shareholder value above all other considerations and on Wall Street’s single-minded focus on quarterly earnings. The book contains some great interview material from business students, executives and Wall Street analysts, all of whom are largely skeptical about the applicability of the Lincoln model in a modern global economy.

While I would probably count myself among the skeptics on the general applicability of the Lincoln model to corporate America, many of Mr. Koller criticisms merit serious attention. In particular, there is much evidence to suggest that the knee-jerk approach to layoffs that occurs whenever companies experience financial difficulty has served neither them nor their workers well. The book is a compelling read and the author has succeeded in providing both managers and business educators with some food for thought.

Micheal Kelly is dean of the Telfer School of Management at the University of Ottawa.

You can catch a breakfast discussion with Frank Koller at the Telfer School of Management, March 29 at 7 a.m. in the Desmarais Building.

 

Organizations: Lincoln Electric, Century Corporation, Harvard Business School CBC Telfer School of Management University of Ottawa

Geographic location: Cleveland, North America, America

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