Why loyalty pays

Jan 14 2008 by Bob Selden Print This Article

Last week, Tata Motors released the revolutionary "Nano" in India, the world's cheapest car costing just $2,500! What's that got to do with loyalty you may well ask?

Well, current CEO of Tata, Ratan Tata, aged 70 who took over the ailing company business in 1991, has a personal mantra of "loyalty". He is unusual for a CEO. Tata is humble, openly admitting his mistakes and sends personal "thank you" notes to employees. In a recent deal with terminated workers from his steel company, he agreed to pay their wages for life!

When Ratan Tata took over as Chairman of the group, he was forced to earn rather than command respect he inherited Tata through his mother's marriage, not blood lines. At that time the company was a loose knit group, dependent purely on the Indian economy and not performing well.

Today, it is a major international player. It now owns many diverse international businesses ranging from one of the biggest world steel makers, Corus Steel in the UK to the prestigious Ritz Carlton in Boston. The Tata group now has market capitalisation of $70 billion and after tax profit of $2.8 billion last year,

Ratan Tata's gentle, kind manner engenders loyalty and yet he encourages his managers to make tough decisions. "Mr Tata encourages us to take big, calculated risks," says Ravi Kant, Tata Motors' managing director at the unveiling of the Nano. His style appears to be the ultimate "tough mind, gentle hand" approach.

Unfortunately, loyalty is a philosophy that seems to have been lost in many modern organisations. Powerful corporate decision makers seem to think that paying people more salary and perks will gain their loyalty. It does not. All it gains is their compliance.

So when people are offered more money, because they have no loyalty to the organisation, they quickly and easily change companies.

Compare this with two other recent examples.

As a management coach, I am currently working with a mid level executive who was told 6 months ago that her division was likely to be closed down at Christmas. As the company wanted to keep her, this timing gave her the opportunity to seek a role elsewhere in the company. Unfortunately, there were no suitable roles. So, the company has now instigated termination.

Now here's the "loyalty" kicker. As well as a very generous termination package, her salary will continue to be paid for the next 9 months. During this time, she is encouraged to remain at work. Should she happen to find a role outside the company at any time within the next 9 months, as an additional "thank you", the company will continue to pay her 50% of her current salary for the remainder of the 9 months.

She has just found a new role and starts in two weeks time. But can you imagine how fondly she talks of her old employer and of the level of "loyalty" credibility that has been built up by the company with their existing employees?

Closer to home, my wife works for a very successful European major multinational pharmaceutical company. They have tremendous loyalty amongst their employees with many of them being lifetime employees. What engenders such loyalty?

Well, in addition to good leadership and management, loyalty starts with the employment contract. Both parties are required to give 6 months notice of leaving or termination.

Faced with an unexpected termination, would you rather be given the option of a six months window to find a new role, or the ignominy, embarrassment and belittlement of being marched off the premises by armed security guards on the day of termination?

Just as importantly, what "loyalty" impact do each of these termination decisions have on those employees who stay?

Loyalty is a two way street. It cannot be bought. It must be earned by managers and employees. Loyalty may well cost most often in the time invested in people by the organisation's leaders but it also pays. In spades!

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About The Author

Bob Selden
Bob Selden

Bob Selden, is an author, management consultant and coach based in New Zealand and working internationally. Much of his time currently is spent working with family businesses. He's the author of the best-selling What To Do When You Become The Boss. His new book, What To Do When Leadership Is Needed, was released in July 2022.