The high cost of paternalism - corporate culture - Family Business - Column

Nation's Business, May, 1993 by Craig E. Aronoff, John L. Ward

"As a family business, we want to encourage our people to be loyal to the company," chief executives often say. "We pride ourselves on being like a big family--treating all employees as if they are part of our extended family. We call ourselves a business family as well as a family business."

"Loyalty" and "family-like atmosphere" are very tricky words for a family-owned business. On one hand, they seem so positive, so warm, so appropriate, so valuable. On the other, there is a fine line between an effective management style and corporate paternalism. Often a paternalistic culture is developed for the wrong reasons--and at great corporate cost.

What is paternalism? How do you know if your organization is paternalistic? What are the real costs of a paternalistic culture?

Fundamentally, paternalism creates dependency. In often subtle ways, it saps employee initiative and creativity--and can even eat away at responsibility as organizational members learn that "The Boss" will take care of things.

The boss also pays a high price in loneliness, in isolation, and in the weight of responsibility he or she accepts for the general welfare of employees. Business health tends to decline as stagnation results from such paternalistic behavior.

Harry Levinson, a noted management authority and family-business psychologist, defines paternalism as "that kind of management that does for people what ideally they should do for themselves." He traces paternalism to ancient clans and kingdoms that needed to sustain their soldiers' loyalty. The approach spread to city-states and eventually to businesses.

Implicit in paternalism is the idea that "I'll take care of you and your family if you will obey me and respond to my wishes." Paternalistic companies place a premium on loyalty, not personal growth. They value compliance more than independence. Higher pay and more-generous benefits are examples of direct costs related to rewarding or even buying loyalty. Not all "family-like" firms are paternalistic. Many are, instead, genuinely committed to investing in their people. They see good people as the key to good business.

As a business owner, your goal for employees should be good performance and individual growth. One way to assess the culture of your business is to consider whether you reward longevity or performance. For example, do you give awards for tenure in the form of ceremonies, service pins, and seniority-based raises and promotions? Is recognition of loyal service more prominent than recognition of contributions to corporate success or quality-improvement milestones?

Another way to assess the degree of paternalism is to compare how much you invest in the employees' skills and education compared with your investment in their social welfare. Relative to other companies you know, do you spend more on training and development or on holidays and fringes?

There are many other subtle signs of a business's culture. Think about the following questions, and consider your practices and motivations:

* Do you provide company loans to employees? Or do you let them make arrangements on their own?

* Do you offer Christmas bonuses? Or are bonuses based instead on corporato profits and/or individual achievements?

* Do you recognize people for developing their knowledge and skills, successfully taking on new responsibilities, and generating new customers? Or are you more likely to provide gifts for birthdays, anniversaries, and holidays?

* Do your pay policies vary from employee to employee, or do you have a companywide standard?

* Do you let people use company assets for personal use (such as trucks, computers, or the cafeteria)?

* Do you pay a higher percentage of health-care costs than others in your area or industry? (We find that many family firms still have zero co-pay, for example.)

* Do you manage employee pension plans personally, or do you use a money manager? (We find many owners who want to do good for their people take the valuable time and personal risk of managing fiduciary funds themselves.)

* Do you test employees' sensibilities and loyalties with emotional outbursts?

* What do people call you at work: First name? Boss? Mr or Ms.? The Chief?. Companies in which chief executives are called by their first names are generally less paternalistic.

Thinking through some of these questions may help you reflect on how much the "family-like atmosphere" may blur with paternalism. Some business owners encourage paternalism out of their own needs, some out of genuine fondness for their people, and others out of habit from the example set by prior generations.

Many business owners we know struggle to define a corporate culture that is not only comfortable but also philosophically sound. One premise they consider is that the ultimate security they can offer their employees is the management competence needed to ensure the health of the business. One issue they consider is how much being generous to employees compromises the ability to offer them security and opportunity in the future.