Social Compact, Version 2.0

companies custodians of social values? For those of us raised somewhere between
the invention of steam power and The Man in the Gray Flannel Suit, "corporate
values" suggests a forlorn hope. But times, apparently, are not what they
were. In February, Upside magazine featured an emblematic statement by
Paul Saffo, the widely admired analyst of business technology based at Menlo
Park's Institute for the Future, a Silicon Valley fixture: The high-tech
industry, Saffo told an interviewer, has been "too immature, too young, to
realize it had social obligations. But that's changed. There's a lot of social
consciousness coming up, and a lot of sense of responsibility spreading out."

Responsibility for what? "Haves and have-nots is a big issue,"
Saffo continued. "Mitch Kapor [the founder of Lotus Development
Corporation] frames it as 'knows' and 'know-nots.'" And how to distribute
knowledge, including access to knowledge, so that everyone can be "enfranchised"
members of society? Saffo is adamant: "In the end, being good and doing the
right thing and being socially aware is an act of self-interest."

This message—that corporate values can repair the dislocations of an
intensified corporate competition—is enjoying a certain political vogue. In
May, President Clinton held a White House conference to explore, as the New
York Times
put it, how "profits and people go hand in hand." The
conference, in familiar Clinton style, featured the President moderating
presentations by corporate executives who have pursued worker-friendly growth

For liberal politicians short on public dollars, the equation of private
profit with social purpose passes a social burden back to the private sector.
For executives too casually accused of greed, "values" imply regard
for the commonwealth. If treating workers well—cherishing their human
capital, nurturing their morale, enhancing their authority—truly equals
enlightened corporate self-interest, then postindustrial revolution needn't
equal increased social turmoil. We can have the creation without the
destruction. The only task is to persuade entrepreneurs to recognize their true

Perhaps the most arresting declaration of this kind, certainly one of the
most influential, came in an interview with Robert Haas, the CEO of Levi
Strauss, published in the Harvard Business Review of September 1990.
Haas declared:

A company's values—what it stands for, what people believe in—are
crucial to its competitive success. Indeed, values drive the business. . . . If
companies are going to react quickly to changes in the marketplace, they have to
put more and more accountability, authority, and information into the hands of
the people who are closest to the products and the customers. Values provide a
common language for aligning a company's leadership and its people.

Haas even said that on occasion he had decided to keep factories open on
extra-economic grounds, because of the "community impact."

problem with this message is that it is misleading—misleading about the
capacity of even values-driven companies to be faithful to employees, and
awfully misleading about the kind of training companies can be expected to
offer. Haas and others are quite right about how to build robust businesses and,
arguably, more humane ones. Quality and innovation are rooted in intellectual
capital, which means companies must indeed invest in many training hours—in
sophisticated functional tasks, software development, soft-skill development.
Yet the companies of the new economy cannot maintain anything like loyalty to
employees, guaranteeing employment as long as there is profitability. Nor can
they train the less-well-educated people of our society in a way that will make
them fundamentally employable. Only the government can do that; yet ironically
it is the claims of the good-guy advocates for values, like Haas and Saffo, that
dilute support for government action while unloading unsustainable expectations
onto the private sector.

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The corporate values movement, which traces its lineage to W. Edwards Deming
and the total quality movement of the 1980s, is now pervasive in the knowledge
companies of the new economy. The movement seems to stand for "good
corporate citizenship," though it also stands for a kind of opposite. For
acolytes do not just say that an individual company should do good for moral
reasons. They say that all companies must do good for business reasons—where
"good" means treating employees as human beings, not simply as hired
hands, treating them with the "values" we might expect to find in a
decent society. Prophets of the values movement speak especially of the
importance to productivity of employee dignity and empowerment, of openness,
informed choice, meritocracy—values that look vaguely like the values of
democratic community, in fact.

Why is this good business? The world of "the traditional, hierarchical,
command-and-control organization" is fading, as Haas put it. Companies
increasingly depend on innovation and teamwork, so creative management
structures and investments in training become critical competitive assets. Good
companies accord employees the right to disagree and dissent, as in an
experimental lab or a classroom, and they "invest in people"—training
and retraining employees whose myriad competencies will engender new businesses,
and whose inspired sense of purpose will become a key to victory.

Advocates of corporate values point to the undeniable achievements of the
great companies of the new economy. Motorola, to take one leading example,
spends about 2 percent of its wage bill on training, as much as $150 million a
year. Intel spends about $120 million, $3,000 per employee. All in all,
corporate America now spends as much as $30 billion on training—this,
according to Louis Gerstner, the CEO of IBM, and the author, note well, of Reinventing
. Motorola has also launched a program called "Individual
Dignity and Empowerment," or IDE, which mandates regular reviews for all
employees, in which individuals and their managers explore whether or not the
company has defined a "meaningful" job for them.

Though the logic for this approach derives from a changing mode of
production, not any ideology, the values underlying it resonate deeply with the
residually social democratic notions one finds in German "Workers'
Councils," and even with the neo-Shintoist notions one finds in Japanese
management circles, namely, that managers are the stewards of their employees'
welfare. It also appeals to American boomers who never really liked the idea of
working just for money, as well as policymakers looking for an alternative to
high-cost government training programs.

In its own way, talk of corporate success depending on "values"
can seem powerfully reassuring to people hostile to (or just queasy about) tax
increases. In the speech he gave just after being renominated to head the
Federal Reserve in February 1996, Chairman Alan Greenspan urged that America
should make a "renewed commitment to effective education and training,
especially on-the-job training." A few weeks later Labor Secretary Robert
Reich made a similar pitch, coupled with a warning, in a letter to the New
York Times
. "Of course, government can't do it all—especially a
federal government trying to shrink the deficit while carrying a $4 trillion
debt. That's where the private sector comes in. If corporate America doesn't
step up to the plate, it will have to contend with far worse than a proposed tax
incentive for upgrading employees' skills. . . . Try protection and nativism for


Reich is certainly correct about the consequences of letting working
America's problems fester. But no matter how hard they try, even enlightened
corporate executives are not capable of providing the solution. Consider the
pressures on employment at their most transparent. In every advancing company,
blue-collar work competes with flexible machine tools and smart robotics;
white-collar work competes with data processing software and information
networks. A Motorola cellular phone plant that once employed 3,000 people and
generated $1.5 billion in revenue now employs 500 people and generates $4
billion. In the past ten years, Chase's assets grew by 38 percent, while its
workforce shrank by 28 percent. On average, reports the New York Times,
companies have cut back to about two-thirds of their former size.

This has obvious implications for employment policies. A generation ago, the
great multinationals—IBM, Eastman Kodak, General Motors—could offer
something like the promise of lifetime employment because, let's face it, they
had no real competition. The global economy has changed all of that. IBM has had
to cut nearly 100,000 jobs in the last ten years. IBM no longer offers lifetime
employment, but neither does its cultural nemesis, Apple. The Times reports
that 75 percent of Americans think companies are less loyal than ten years ago,
and 64 percent think workers are less loyal. Both are true.

Indeed, in the global economy, companies are less stable, more fragmented,
and more cosmopolitan than companies ever were before. Even employees who are
not replaceable by smart machines cannot expect to be treated like enfranchised
citizens, and the chief reason for that, paradoxically, is that companies are
increasingly built on shifting inventories of intellectual capital, the very
creativity "values" are meant to elicit.

More and more, companies are built on process knowledge that controls
production and product development systems, proprietary software, and ways of
integrating and outsourcing complex pieces of a value chain—pieces that may
reside anywhere. The game is customization; almost nobody makes money from "commoditized"
products. So the skillful parts of companies pursue ever more rarefied and
far-flung markets; they trade components and know-how with other parts of the
corporation (and with their own customers and suppliers). Trade between business
units of companies is now the largest part of international trade, producing
some unexpected results. Robert Galvin, former Motorola CEO, tells of how
Motorola-Israel supplied a water sprinkler monitor for his golf course near
Chicago. He hadn't realized his company even made water sprinkler monitors.

Then again, the results are supposed to be unexpected. The great corporation
is becoming an umbrella brand, a holding company, and an investment bank;
corporate leadership qualifies and funds myriad enterprises, most of which
hardly march in lockstep. The former head of Motorola's now-successful China
operation explains that every time he made promises to the Chinese government in
the early 1990s, he would then have to negotiate with 35 to 40 executives and
business unit managers to deliver on his promises. "People complain of the
Chinese bureaucracy," he smiled. "Ninety-five percent of my problem
was in my own company." In this new economy, mass-production assets are far
less important to profitability than innovative knowledge assets—research,
software, systems integration processes. Boeing or AT&T are not so much
manufacturers of airplanes or telecom equipment and services, as they are
masters of proprietary knowledge about, say, avionics and load management. But
knowledge assets are the least stable part of any business. They are most easily
copied, or recruited away, or superseded by yet newer technologies. Indeed, the
primacy of knowledge assets means that companies can get in and out of business
much more quickly than ever before—and they must to survive.

All of which means that, although the terms of employment for any particular
employee may be more appealing than ever before—more "dignified"
and "empowered," to use the Motorola vernacular—it is nearly
impossible for companies to be loyal to any home country, or worker pool as
before, when mass production meant victory, and bigness shut out rivals. The
vertically integrated "command-and-control" company may be on the way
out, but the "love them and leave them" holding company is taking its
place. Even back in 1991, Haas allowed that Levi Strauss employees had never
stopped debating the contradiction between what the company promised its workers
in the United States and what it promised people working indirectly for the
company in, say, the Far East. [See Richard Rothstein, "The Starbucks
Solution," page 36.] No global apparel company can resolve that

And high-tech companies, despite their "knowledge" base, are
subject to the same forces. In some places, a company is designing software; in
others, it is contracting to manufacture circuit boards; in yet others, it is
managing a relationship with a supplier of plastic housings. These strategies
all change from year to year, entailing very different styles of work and,
correspondingly, very different commitments to changing rosters of people. Even
the smaller knowledge companies—software, consulting, and design companies—are
made up of dozens of initiatives at any given time, initiatives that come and
go, and that entail alliances with other companies that come and go. When the
product or service comes to market, the job is often over. In Silicon Valley,
the average tenure with a company is three or four years.

can "workers" become and remain employable in spite of so much
volatility? Can corporate training programs really close the gap between people
who qualify for work and people who do not? Consider what one company actually
tried to do. In 1985, Motorola set out to build a cellular telephone "factory
of the future" in northeast suburban Illinois, planning to employ some
3,000 hourly workers. When it tested potential recruits—many of them
experienced workers from Motorola's mobile-radio facilities in greater Chicago—it
discovered that only 40 percent could be certified in basic arithmetic.
(Questions included "Subtract 638 from 1135.") Further screening
showed that, for better and worse, many who failed the test knew the math but
had trouble reading the questions.

This hit management hard. All Motorola plants were expected to be at "six
sigma" quality by 1992. Employees would have to log, monitor, and
contribute to statistical quality information (using Pareto charts and so
forth). To get appropriate flexibility out of production cells, employees would
have to perform multiple tasks, read timing and build instructions, or enter
data to update the master schedule. In short, manufacturing employees would have
to get comfortable with computers, which were becoming ubiquitous in the
company. How could they if they could not read at the appropriate level? On the
other hand, would it not be an affront to everyone's dignity to fire loyal
workers—many of whom had been productive for a generation—for "incompetence"?


Motorola made a courageous decision to define and teach basic skills. At a
minimum, Motorola would require the equivalent of a high school foundation in
English and math, and the ability to spell out production problems—on the
whole, a much more rigorous standard than hourly production workers had ever
needed before. By the end of 1988, about 1,500 Chicago-area Motorolans were in
classroom courses, both at community colleges and on the company's Schaumburg
campus, learning the 3 Rs, largely on company time and at company expense. The
company now estimates having spent about $3 million a year on remedial education
on the Schaumburg campus alone.

That was then. By 1995, software and better methods of organization had
replaced three layers of middle management. Investing in incremental
improvements in the skills of production workers means preparing people, as one
senior manager put it, "to try climbing a ladder whose bottom rungs have
all but disappeared." The point is, the company's notion of "basic
skills" could no longer be governed by the quality routines and
manufacturing cells of a 1980s factory. Production has become a matter of
integrated process and product design, cyberspace information management,
computer-integrated robotics, and computer monitoring of quality process data:
Ten people can run a billion-dollar line.

In this new world of production, value is created by globally staffed
problem-solving teams—interfunctional groups of 20 to 30 production
engineers, sales people, marketing analysts, logistics managers. In these teams,
Motorola people mine opportunities to reduce cycle time and costs, improve
product designs, or increase responsiveness to customers. In 1988, Motorola
instituted a "Total Customer Satisfaction" program (TCS), a part of
which engendered a corporate-wide competition for teams to demonstrate the value
of their work. More than 2,000 teams were formed by 1990, and more than 3,700 in
1992. Today, there are more than 5,000 teams in the TCS competition.

"People who cannot comport themselves in a team environment will
ultimately not be employable," that senior manager argues. "The new
basics are the soft skills that make a person effective with others." By
this he means poise in handling time pressure, acceptance of innovation-driven
change, the ability to move from job to job. People will not be able to manage
the pressures of teamwork without also having a cultivated literacy: They will
need to navigate current information technology (i.e., spreadsheets, word
processing, the Web), make a succinct presentation, read critically and write
persuasively, organize material and communicate their views about it.

Motorola is still committed to training. Nevertheless, says the senior
executive, it is not within Motorola's power to make people "trainable."
And that is a key distinction. A company should be thought of as a kind of
graduate school, not a kind of high school. The skills it imparts should be
focused on a particular business's culture and strategy, not the generalized
skills that bring unemployable people to a point where they get into the game.
Companies can certainly not do much for the perhaps 40 percent of the population
who could once count on factory work. By the way, like Motorola, Lou Gerstner's
IBM has ceased basic skills training altogether. Deutsche Bank researchers now
say that even the vaunted German vocational system is out of date, preparing
young people for manufacturing jobs that hardly exist.

are we to conclude? How, if not through companies, will ordinary people achieve
some measure of security? How will they—and their children—become "trainable"?
Perhaps it is unfashionable to say so, but that is what governments are clearly
for—not necessarily national governments, perhaps, but local governments,
which are quickly becoming the most important ones we have. Take the question of
worker insecurity. Obviously, a health care system tied to any particular place
of employment is odd in a society in which people are constantly changing jobs,
or where a great many people can expect to be unemployed for sustained,
transitional periods. Pension funds that are tied to the survival of a job in a
particular business are downright weird. The New York Times recently
told the story of a man who worked for Eastman Kodak for more than 20 years and
was fired a few months before his pension was vested. This is an outrage against
common sense. What local governments should do and, with distributed information
technologies now can do, is organize and manage common risk.

What about training? This is a more complicated story, but the bottom line
is much the same. The first thing to be said is that the solution is not mainly
a matter of making the technology cheaper. I do not know if Mr. Saffo would
appreciate being associated with Newt Gingrich's offhand comment that we should
buy our inner-city kids laptops and encourage them to be entrepreneurs; anyway,
his solution is strongly reminiscent of it. We might as well cheapen the cost of
pianos and tell inner-city kids to make their living playing Brahms.

In fact, educating people, making them trainable, is what governments are
now really for. If we are to have a new social compact, it will not be between
employers and employees, but between local governments that mentor our children
and corporations that create the wealth and help set the standards for them. Our
children will need excellent schools, competing with each other to innovate
curricula. They will need many more small liberal arts colleges. They will need
national service programs that teach them teamwork, diversity, and poise. Our
inner-city children will also need thousands of preschool centers, thousands of
wellness clinics, hundreds of small boarding schools and summer camps, thousands
of Outward Bound-like programs. They will need police and civil guardsmen on
virtually every corner. The cost of winning the Cold War will pale by
comparison: Educational costs already run about a quarter of a trillion dollars
in the United States, much more than the private sector can dream of sustaining.

When Motorola stopped teaching the basics, its leadership began to focus on
working with local governments on reforming K-12 education, spending about $30
million over five years. This is a great deal of money, even for a growing
global company. But even if the entire Fortune 1000 spent double what Motorola
spends on K-12 counseling and school-to-work programs, that would amount to
another $1.2 billion, or something like half of 1 percent of the national
education budget. Granted, businesses can, and should, be a part of the
solution. Many companies—McDonald's, GE Plastics, and others—are
supporting school-to-work programs, inviting local high school students into
after-school and summer jobs, and teaching them, say, the uses of computers and
the basic discipline of work and competition. Businesses should help local
governments understand what curricula are really going to be valuable to

Nor should we fail to acknowledge how new this positive connection between
business and education is. Once, businesses had no interest in raising the
common people's level of education beyond what repetitive motions in the factory
required. Now—for the first time in industrial history, really—companies
need virtually all potential employees to present themselves for work at a level
of sophistication equal to that of someone with at least some college education.
Indeed, most senior managers would tell you about the opportunities for growth
they are missing because they can't find enough people to train, people who
would allow the company to grow as quickly as opportunities grow. Fidelity
Investments is now trying to hire 1,000 people a month to fill entry-level,
customer relations positions—young people who would be paid about $27,000 a
year to call up files and speak intelligently to customers. It cannot find
nearly enough people to fill those jobs in Boston, of all places, the first home
of public education.

But none of this means that it is in the interest of any particular company,
or within its means, to qualify people for work. The justifiable pride of the "values"
school notwithstanding, the boundaries between companies and communities have
not disappeared. Rather, it is the boundaries between companies and companies,
between countries and countries, that have been eroding, and the result is
putting more stress on a manager's bottom line, not less. And even if this
stress had not materialized, would companies really be the appropriate context
in which to try to solve social problems? Individual companies are not meant to
be engines of social good, after all; it is the competition among
companies that is meant to be the engine of social good. Who wants their pension
fund invested in companies whose managers aim for a fancier goal than
competitive survival?


This is not the message the people of the new economy want to hear. A great
many of us are putting in more hours than the man in the gray flannel suit ever
did. We agree to have our voice mail and e-mail follow us home; we socialize at
company retreats and work out on the company Nordic Track; we travel the world
on the company's nickel. The global workplace is absorbing us as never before,
respecting our peculiar genius as never before, flattering us as never
before. Even as we look over the horizon to the next job, we are feeling more
sovereign and rewarded in our companies than would have seemed possible ten
years ago. It is pleasurable to think that our companies are communities,
and that they run themselves by the values we expect to find in society at

when you think about it, the values of a company can never really approximate
what citizens mean by values, and perhaps we should not have been calling them
values in the first place. Values are supposed to be ends in themselves, not
means to competitive material ends—as Kant said, they are supposed to have
a dignity, not a price. When Haas speaks of "permission to disagree,"
this may resemble freedom of speech, but it is actually subordinated to the
hierarchies that are assumed to be necessary for the coordination and
instruction required by competition. It is something like what Mr. Gorbachev
once meant by glasnost. In civil society, "alignment" is meant
to foster autonomy and diversity; in Haas's company, it is the other way around.
As for integrity as a competitive advantage, Marx—Groucho, not Karl—may
have had the last word a couple of generations ago. "Integrity is
everything," he said. "If you can fake integrity, you've got it made."

But what in the restricted world of a company can ever really be sacred the
way, for example, the nuanced ideals of liberty and equality are? Is giving
service to customers really the same as helping other human beings? Is working
late on a product the same as a love of ideas? When values become the means to
winning at market competition, what solace do they give us? And, of all people,
do not the people of the fierce new competition need solace?

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