Danger:Toxic Company

According to Jeffrey Pfeffer, when it comes to the link between people and profits, companies get exactly what they deserve. Companies that treat their people right get enormous dividends: high rates of productivity, low rates of turnover. Companies that treat their people poorly experience the opposite -- and end up complaining about the death of loyalty and the dearth of talent. These are "toxic workplaces," according to Pfeffer, 52, the Thomas D. Dee Professor of Organizational Behavior at the Stanford Graduate School of Business and the author of The Human Equation: Building Profits by Putting People First (Harvard Business School Press, 1998).

Pfeffer disputes much of the conventional wisdom in the current conversation about work and business. Loyalty isn't dead, he insists -- but toxic companies are driving people away. There isn't a scarcity of talent -- but there is a growing unwillingness to work for toxic organizations. Pfeffer also disputes the idea of the end of the career. "I don't believe that people are looking to go flitting from one job to the next," he says. "People are looking for the opportunity to have variety in their work and to tackle challenging assignments. The best companies are figuring out how their employees can have both opportunities -- without leaving." When Fast Company interviewed the plain-talking, provocative Pfeffer in his Palo Alto office, he offered the following observations about the primacy of people in the new economy and about how you can detoxify your workplace.

The one guaranteed way to get a 30% to 40% productivity gain.

It mystifies me that so many companies think they can get a cheap competitive advantage by purchasing something on the open market! Anything that you can purchase on the open market is also available to your competitors. So the question is, How can you distinguish yourself in a world in which your competitors can copy everything you do?

The answer is, all that separates you from your competitors are the skills, knowledge, commitment, and abilities of the people who work for you. There is a very compelling business case for this idea: Companies that manage people right will outperform companies that don't by 30% to 40%. This principle even applies to the current IPO market: IPO firms that value their people have a much higher five-year survival rate than those that don't. Similar studies of the steel industry, the oil-refining industry, the apparel industry, and the semiconductor industry all demonstrate the enormous productivity benefits that come with implementing high-performance, high-involvement management practices.

Most people immediately understand this point. It's not as though I've discovered some mysterious black magic. There is conclusive evidence that holds for all industries, regardless of their type, size, or age. The results are the same. If you don't believe me, look at the numbers.

"Welcome to the toxic workplace! We fire at will!"

There is a lot of turnover in Silicon Valley, because there are so many toxic workplaces in Silicon Valley. These are companies that create the conditions that they deplore.

Companies say to me, "Nobody who comes to work for us stays for any length of time. Loyalty is dead." Let's accept that premise for a moment -- even though it's wrong. But if we do accept that premise, the question becomes, If loyalty is dead, who killed it?

Companies killed loyalty -- by becoming toxic places to work! Start with the interviewing and recruiting process. What happens on a new employee's first day? The company asks the employee to sign an at-will employment contract that gives the company the right to fire the person at any time and for any reason. The document was prepared by a lawyer; the company tells the employee to have it reviewed by a lawyer before signing it.

Think about it: It's your first day on the job, and I've already told you that you don't have a permanent employment relationship with me, that your job is based on a contractual relationship -- and then I wonder why, on your second day, you're not approaching me with a long-term perspective and a feeling of trust!

A place where people come to work to get rich enough to quit.

Here's another example of a practice that creates the conditions that companies deplore: stock options. David Russo, the head of human resources for SAS Institute, gave a talk to my class. My students were dumfounded to learn that this successful software-development company doesn't offer its people stock options. David said, "You must know lots of people who have gotten stock options. Why do they want them? Explain the logic."

Finally one of my students raised his hand and said, "I can tell you the logic. For most people, stock options are like the lottery. People are hoping to strike it rich and then quit." David smiled and said, "What an interesting thing! We've built an organization in which your motivation for coming to work is to make a lot of money -- so that you can get the hell out of the organization."

To me, that's an operational definition of a toxic workplace: It's a place where people come to work so they can make enough money so they can leave. Dennis Bakke, of Applied Energy Services Corp. (AES), likes to point to a photo of the top 20 people at his company. The photo was taken more than a decade ago, and today 17 of those 20 people are still there. They're all plenty wealthy -- because AES has grown tremendously. They all could have quit. The fact that they didn't says a lot about that company.