It’s Time for ‘Stakeholder Public Service’

A new management philosophy, stakeholder capitalism, has emerged in the private sector and has been endorsed by a growing list of corporate leaders and business groups. Proponents argue corporations should serve the interests of all their stakeholders, including customers, suppliers, employees, shareholders and local communities. Under this system, a company's purpose is to create long-term value and not to maximize profits at the cost of other stakeholder groups.

One of the most vocal advocates is Jamie Dimon, chairman and CEO of JPMorgan Chase & Co. and chairman of the Business Roundtable, who summarized the argument this way: 

“The American dream is alive, but fraying. Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”

The philosophy is well suited to government and is solidly consistent with the reasons many employees at all levels of government chose public service. To coin a phrase, Stakeholder Public Service, defined as a commitment to be fair to all government stakeholders, including employees, would serve the country well.  

In a work context, stakeholder management is based on the beliefs that serve as guiding principles in leading and making decisions that affect the work experience and careers of employees. When leaders consciously take into consideration the interests and needs of employees and provide opportunities for them to use their abilities, few will fail to perform at their best. It starts with the understanding that employees want to be valued contributors.

Being fair to all stakeholders represents a significant change from the philosophy, shareholder capitalism, that has dominated the business world for more than a century. Economist Milton Friedman first used that phrase in a 1970 article. In his words, “the only responsibility of businesses is to increase profits.”  Capitalism clearly is responsible for strong economic growth but it's also resulted in shutting factories, ignoring the impact on communities, and moving jobs to other countries. It's also contributed to a society where real wage levels are lower today than in the 1970s.

Government’s Failed Human Capital Practices

Federal agencies are experiencing workforce problems that if ignored will lead to deteriorating performance. The aging workforce and retirements are the tip of an iceberg. The problems predate COVID-19 and will be worse after it is eventually defeated. 

Workforce problems have been discussed in reports and columns going back years. A 2018 National Academy of Public Administration report by a panel of experts, “No Time to Wait, Part 2: Building a Public Service for the 21st Century” argued: 

“We cannot wait to adapt to the changing nature of work. Indeed, technology has already changed work; and unless the federal government launches an aggressive effort now to rebuild its workforce, it will fall farther behind in its ability to serve the public. Government would risk losing its ability to govern.” (Italics added)

The pandemic gives new emphasis to the changing nature of work and the need to rebuild the workforce.

That argument was reiterated in the recent report, “Inspired to Serve,” from the National Commission on Military, National, and Public Service. The 11-member commission developed a list of HR system recommendations that includes: “Develop and implement a new personnel system . . . that will be competitive for current and future workforce needs.”

The need to be competitive is a core point. Federal staffing needs to be more responsive to changes in the supply and demand for essential skills, the career and job expectations of workers, and the practices of other employers. New human capital thinking is a common theme of the many articles on “best places to work” in other sectors  For government, the merit principles are silent on the need to attract top talent.

An equally important, related problem is the early loss of new hires. The headline of a recent story stands out, “More than 60% of Recent Federal Employee Hires Left Within Two Years.” Nearly 40% left within one year. The study focused on the years 2011-2017. 

That should be unacceptable. The sunk cost includes the time of those involved in the hiring process, the time spent onboarding a new employee, the training time, and the extra time spent by supervisors and co-workers supporting a new employee. Plus, the failure has a ripple effect on other employees’ productivity. Research estimates show turnover costs range from 90% to 200% of an employee’s salary. 

The study focused narrowly on disabled new hires. Agencies are not required to report data on the number of new hires or the reasons employees quit. An exception is the Department of Veterans Affairs where a dangerously high 49,000 vacancies were reported last fall. Anecdotal evidence strongly suggests turnover and problems filling vacancies are a problem across government. The cost and impact on government operations has been ignored.  

An associated problem is the level of employee engagement. There is solid research evidence that an employee’s work experience influences their engagement or emotional commitment to the organization and its success. When employees are involved in planning, they understand what’s not working; their input will improve the work experience and payoff with higher levels of engagement and better performance. Highly engaged employees search for ways to improve things, motivate co-workers, treat customers better, and are the first to volunteer for difficult assignments.  

When employees are involved, the mandate should be to consider other stakeholders including the public.  That is consistent with the country’s renewed emphasis on social justice.

But for decades, the government’s workforce management philosophy has reflected the thinking common in businesses managed under shareholder capitalism. That philosophy sees employees as a cost to be controlled and minimized. It’s top-down management and responsible for the compliance culture highlighted by the National Academy of Public Administration. It's reflected in employee distrust of management.  It explains the resistance to change.  

The Need for a New Talent Management Philosophy

Coming out of the pandemic, the workforce management philosophy has to change if government wants to avoid the ramifications of failed practices. At a time when the public’s trust and the level of interest in working for government are both declining, the crisis has highlighted the message of the National Commission on Military, National, and Public Service—leaders need to recognize "the work of public servants as vital to the security and well-being of the Nation.” That warrants the commitment of elected officials for updating the civil service. The changes will be politically and technically difficult, making the support of leaders essential.

Replacing broken human capital practices is essential but only an initial step. HR system changes will not, for example, solve the new hire early termination problem. The research on engagement and culture largely ignores HR policies and practices; instead, the focus is on the working relationship between managers and their people. Gallup, for example, claims the 12 questions in their Q12 survey explain at least 70% of the variation in employee engagement. Their questions focus on how managers manage, not human capital policies or systems. 

There has been surprisingly little research on how human capital practices influence employee performance. Strangely, that has not been an issue in traditional civil service environments. Poor performers have gotten far more attention than high performers. In fact, there has been virtually no interest in understanding the steps that could be undertaken to create a high performance work environment.

For reasons that are not clear, the public administration academic community has not devoted the same research attention to workforce problems as their counterparts in business schools. Payroll is one of the largest budget items in government but the impact on staffing or performance has not been studied. Again, in contrast to the private sector, there has been minimal attention to best HR practices, what affects recruiting, or what triggers improved performance. It would be valuable to understand how government can create high performance work environments.

Research from the private sector shows a number of factors are responsible for higher levels of turnover. Those factors include jobs that are not challenging, lack of feedback or recognition, lack of support for professional development, unfair pay or career decisions, and an unhealthy/undesirable culture. In government, the costs of early turnover and the critical need to rebuild the workforce, along with other workforce problems, demand answers.

This time of transition to a “new normal” would be an ideal time to rethink the work management strategy. This will be a time of uncertainty for everyone. Employees at every level will have concerns about their health and their futures. Leaders should commit to provide the necessary support. Frequent communications will be paramount.

The transition could be a time for renewal and recommitment, but in return it is likely employees will look for evidence that management understands and will work to develop a work environment where their contribution will be valued and recognized. The talent management philosophy is a key.

A starting point could be understanding the factors responsible for the workforce problems. Another idea would be to understand why some work locations perform better than others. It would be valuable to involve employees in studying those issues.

Government should have an advantage. Research shows employees want more than a good salary. They want work that has a social purpose, is meaningful and that contributes to improving other people’s lives. The COVID-19 crisis has once again highlighted the essential role of government. A talent management philosophy that acknowledges the value of productive employees would serve government well.