Listening to Employees: a Lesson for Korea?

November 5, 2007

Hot on the heals of  Stan O’Neal’s resignation, Citigroup’s CEO has just resigned.

This is a very interesting article from Harvard Business Online

It’s interesting because it shows how companies can learn from employees in particular posting on a company incident.  There are some really interesting comments on the recent incident and how the company tripled its trading risk under O’Neal’s stewardship.

What stuck out to me (and to Gill Corkindale who wrote the post) is how passionate these employees are and how it’s the employees, the bedrock of the company, who could help turn this around for Merill Lynch.   No more so is employee relations critical as in Korea; according to Edelman’s 8th annual Trust Barometer 2007, the most important way to build trust among Korean employees is to ‘listen’ to them (58%) over the next highest rating activities to build trust: communicating about financial performance (53%); business strategy (42%); or demonstrating CSR activities (41%).

I also found the following blog post comment interesting from the article re: Stan O’Neal’s leadership style.  The strict hierarchical way in which traditional Korean chaebol are set-up (and business in general) means that often the leader never gets the opportunity to listen – employee are too fearful to speak to top management about what’s really going on.  Is Merill Lynch’s demise a lesson for Korean companies? 

“If a leader leads through intimidation, people will tell him what he wants to hear, NOT what he needs to know. He will grow more and more out of touch with reality and risk will increase exponentially until something catastrophic happens”


Korean Companies Overseas’ Employees

August 13, 2007

I met a friend whose working on a global HR program / project for one of the major international chaebols here over the weekend.   Like me he’s one of the few ‘foreigners’ who works in or with international Korean companies in Korea.   He shared this article with me this morning.

To me, it brings up a constant theme which I have observed since my time in Korea.  Korean companies talk alot about “going global” but less time acting like global companies.  

How a company treats its employees and manages its employees fairly is one of the biggest factors driving the perception of social responsible companies in Korea and overseas.   According to Edelman’s 8th annual Trust Barometer, which studies opinion leaders in markets throughout the world, including Korea, when respondents were asked, “When you think of the major global companies that you trust, which are the most important activities for a socially responsible company to engage in?” the most important factor was the same for all markets.  That’s the same in Korea, China, North America or Europe – no difference!  Treat your employees fairly and equally, and you increase your reputation as a responsible company. 

If a company is perceived as a responsible company, it’ll retain and attract more and better employees. A 2003 survey of 800 MBA students from Stanford University showed that 97% of respondents were willing to forgo financial benefits (accept up to an average of 14% cut in expected income) to work for a company with a better reputation for corporate social responsibility and ethics. 

How major Korean companies approach employee relations outside Korea is critical for their reputation and success.  Unlike the article, I still believe Korean companies are international companies (not glorified exporters as the article suggests) but just need to factor in more international practice and behaviours to increase their success.  My opinion: you’re a global company, act like one.

How to ruin a reputation

June 28, 2007

I’ve always been a big fan of Charlton Atheltic F.C.  Like Koreans, a few Irish footballers get to star in the Premiership and Irish people, like Koreans, will generally root for the clubs they play for.  Charlton always had Matt Holland (and that goal in Japan) and the club had taken great pride in being the ‘family club.’   My impression was that a lot of sports club say it, but Charlton Atheltic actually did it.  In short, I liked Charlton Atheltic.

Then I read this.  This is a prime example of how not to handle stakeholder relations.  It looks like they’re scrambling around to save face and get a sponsor on board, but I think if they understood the importance of the female set-up they’d have been scrambling around before.  Maybe they were, but they did not communicate the closure of the operations to the female players in the best manner, according to Danielle Murphy’s account.

It’s a great example of how a strong reputation built over a long time can come crashing down overnight.

How NOT to do media relations

June 25, 2007

One of the facets of the Korean media environment that overseas companies find it most difficult to understand is the wide use of anonymous “sources” that provide – occasionally accurate – information to reporters. For executives who come from an environment in which media relations are usually coordinated through a designated office and approved spokespersons, the fact that literally anyone in the company would talk to a third party about the internal operations of the company is quite incomprehensible.

Long time residents of Korea understand that this is in part a function of the widely extended networks that characterize Korean society – “I had to give him the information because he’s my senior” is a rationale that will be quite understandable and even acceptable to a Korean boss but will make an expatriate manager see red.

From another perspective, however, Korean companies really need to start formalizing their media relationships. As the Internet massively restricts the amount of time a reporter has to research and write a story, it is important for companies to ensure that their that inaccurate or sensitive material is not leaked into the media and thence online.

A cautionary tale in this respect appears in todays DongA Ilbo relating to the leak of an internal report on Presidential hopeful Lee Myung-bak’s grand canal project. Following speculation of Blue House involvement, the leak was eventually traced to Kim Sang-woo, the Executive Director at the K-Water Corporation who leads the research and planning team that wrote the report. Kim Sang-woo passed the report to Kim Hyun-joong, a friend from the Seoul National University Advanced Management Program and the CEO of a matchmaking service company.

According to the newspaper:

The police agency was told that Kim [Hyun-joong] handed the report over to a weekly paper reporter who is his acquaintance at a hotel coffee shop in Seoul on June 1. Kim Sang-woo stated, “Kim [Hyun-joong] said that he is very interested in political matters and the Gyeongbu canal, and I just passed it over to him when he wanted to see it. That’s all [emphasis mine].” Kim Hyun-joong said, “I delivered a copy to the weekly paper reporter because he showed his interest in the canal [emphasis mine].

The fact that Kim Sang-woo seems to think that the dissemination of a confidential report to an acquaintance with no connection to the organization he represents is a rather trivial think should be worrying enough for that organization. That a third party would then indiscriminately distribute that report to the media should have every Korean organization reviewing its internal and external communications protocols.

It’s not enough to say simply that media requests must go through the communications team – corporate cultures need to ensure that everyone at every level fully understands his or her responsibilities with regard to the privileged information to which they are party during course of their working day.

Fortunately for K-Water, this incident has so far had a negative outcome only for the two individuals involved. However, it is not difficult to see how a similar lack of discipline regarding a confidential report on the organization’s own activities could have severe and lasting consequences for that organization’s reputation.

To meet expectations, first find out what they are…

April 26, 2007

The McKinsey Quarterly carries a very interesting article on the disconnect between the extent to which executives believe that companies have a positive impact on society and the extent to which consumers agree with them. Not surprisingly, companies rate corporate contributions higher than do consumers.

The survey indicates, among other things, that the issues that consumers feel are important for companies to address are different from those the companies themselves feel are important. For consumers, the top three issues are the environment, retirement benefits and healthcare. Corporations also rank the environment first but then place offshoring / job losses and data security second and third. The Edelman Trust Barometer offered respodents a different list of issues – poverty alleviation for example – so it’s difficult to directly compare the two sets of data.  However, the interesting parallel is the extent to which consumers believe that ethical treatment of employees should be a priority. This ties in very well with both the EdelmanTrust Barometer and the Asia Pacific Stakeholder Study.

Also, when asked what single thing companies could do to build reputation, the results show a wide disconnect:

“Twenty-seven percent of the consumers say it would be to improve benefits and conditions for employees, 17 percent to tighten safety and environmental procedures, and 14 percent to limit redundancies and the offshoring of jobs. By contrast, executives believe that the most effective actions would be to tighten corporate-governance procedures (25 percent), to increase philanthropy and social investments (20 percent), and to improve benefits and conditions for employees (15 percent).”

(Source: McKinsey Quarterly 2007 No. 2)

Consumers act on their perceptions of a company’s trustworthiness in a number of ways – they don’t buy the products or services of companies they don’t trust, they don’t work for them or invest in them, they encourage other people to boycott them, they complain directly to the company or to third parties.  Clearly, therefore, companies need to be more rigorous in communicating with their stakeholders to assess what their interests really are and tracking that data over time.


The trust gap has a real and mesurable impact on corporate reputation and performance.  The only way to close the gap is by opening up to dialogue-rich engagements with stakeholders to assessnot only what issues are out there but also which issues matter most to the stakeholder who drive the business.

The Forgotten Stakeholders 2

February 21, 2007

After writing yesterday’s post I came across this document from the Samsung Economic Research Institute talking abut issues in labour and personnel management. I was particularly struck by author Lee, Jong-il’s assertion that labor relations post-financial crisis are characterised by a mutual distrust between management and labor. At one point he says:

Rigid hierarchical systems that centralize decision-making, choke bottom-up innovation, and leave employees feeling undervalued and unappreciated dilute companies’ competitiveness and growth potential.

I couldn’t agree more! It’s also surprising – even encouraging – to see how many of Mr Lee’s recommendations come down to better communications. in the absence of an open dialogue, it will be very difficult for Korean companies to overcome the trust gap between management and unions and we will continue to see examples of the labor militancy for which Korea is increasinly infamous.

The Forgotten Stakeholders?

February 20, 2007

Whenever you have two flagship research projects there is always a fear that the results from one will contradict the findings from the other. This might be due to differences in the sample mix, the way the questions are phrased, the environment at the time the research was conducted or any one of dozens of other factors.

However, when two separate studies return broadly similar results, it’s probably time to sit up and take notice.

Back in September 2006, the Edelman Asia-Pacific Stakeholder study suggested two things:

  1. Employee development/Employee benefits are the most important standout characteristic of companies operating in Korea (41% of respondents agree that it is the first thing they notice).
  2. Korean companies are not even close to meeting the expectations of stakeholders in the extent to which they communicate with employees (54% of respondents said that Western companies lived up to their expectations in terms of employee communications, 26% felt that Japanese companies do and only 9% believed that Korean companies live up to expectations).

Then the 2007 Trust Barometer shows that 58% of respondents in Korea believe that “Listening to employees” is the most important action that a global company can take to build trust among its workforce and that 56% of respondents feel that “Fair treatment of employees” is the most important activity for a socially responsible corporation. 72% of respondents said that “Unethical labor practices” would undermine trust in a company.

To anyone who has spent any time working in or with major Korean companies, it is immediately apparent that the Human Resources Division exercises extraordinary control over the workforce; setting and maintaining salary levels, managing the complex hobongsystem of seniority-based promotions and generally directing the individual’s path through the company hierarchy. Companies also spend a lot of time and effort on internal “M/T” social weekends, employee songs, slogans and rallies and other activities, so how come people think that Korean companies need to improve their employee relations?

According to the Trust Barometer findings, companies that communicate their financial performance and business approach to employees will do a better job of building trust that those who don’t. Demonstrating social responsibility is the fourth item on the list. At the bottom of the list is “Providing information about career advancement.”

The Korean Labor Institute, in its publication on “The Transformation of Industrial Relations in Large-size Enterprises in Korea,” says:

[T]he low level of complementarity between corporate governance and employment relations explains the antagonistic pattern of labor relations in large firms in Korea. … Korean firms tend to have low “sharing structures” where stakeholders (both shareholders and employees) have very little voice in decision making. …[L]ine managers do not have the freedom to develop appropriate IR and HR strategies. And workers tend to be treated like servants rather than stakeholders.

The implication here is that barring a drastic change in corporate governance structures that separate ownership from management, there will be little opportunity for stakeholders to have their voice heard, and little opportunity for the “professionalization” of labor relations management in these large firms. Such “professionalization”, which involves the separation of ownership from management, could result in the evolution of more collaborative (and participative) managerial styles.

Edelman’s research clearly indicates that employees are asking to be treated more as stakeholders in the business than as “wage slaves.” Companies – Korean and Western – that look for opportunities to engage employees in an open dialogue about the direction of the business will build stronger relationships than those that consistently ask for “support and understanding” while demanding more and more sacrifices.

The days when Korean people could be asked to work hard for the good of the country are receding into the past. Korean workers still have very high levels of loyalty, but that loyalty increasingly needs to be vested in the company and based on an environment of trust-based communications.

Of course, moving to this more engaged level of employee relations will not happen overnight and will not be cheap. However, when you consider that a regular employee is considered a more credible voice of the company than the CEO (44% compared to 39% according to the Trust Barometer) then it suddenly begins to seem like an investment that responsible corporations ought to make.