Old Fashioned vs Enduring
Published on Thursday, November 10, 2011
I recently finished reading SPARK – Lessons from Lincoln Electric’s Unique Guaranteed Employment Program by Frank Koller. It is an absorbing account of Lincoln Electric, a Cleveland Ohio based manufacturing business. Founded in 1895, Lincoln Electric is the world’s largest manufacturer of electric arc-welding equipment. I visited there during the summer of 1991, when I was helping to conduct focus group interviews for companies being considered for the 1993 edition of The 100 Best Companies to Work For in America book. I remember being struck during the interviews with how confident, centered and focused the employees were.
Lincoln made the list of Best Companies in 1993 and from everything I’ve heard and read since I’d say they still have a great workplace. Since 1934 they have consistently paid out a large profit sharing bonus to all employees just before the end of the year. For most years the bonus has been close to 60% of an employee’s base earnings, reaching over 100% during especially good times.
Their sustained record of significant profit sharing is testimony to a number of key practices that fuel Lincoln’s long-term success. First is their guaranteed employment program, which is the focus of much of Koller’s analysis. With few changes over the years, Lincoln has consistently provided people with guaranteed employment as long as they meet the exacting quality and performance standards set by the company. People know what is expected of them in terms of hard work and quality output and if they meet the standards, they are guaranteed a job.
While some people have challenged the legitimacy of the ‘guarantee’, and Koller does discuss those challenges, folks at Lincoln claim proudly that they have never had a layoff in the United States in the company’s history.
This is no idle commitment as there have been times when the company has gone to great lengths to keep people employed during economic downturns. Welders may be reassigned to paint the facilities, repair the roof or maintain the grounds when things are slow, yet they are working.
Another key practice in use is the Advisory Council comprised of workers elected by their peers who meet with Lincoln’s president to discuss issues of concern to everyone in the company. During the early 1900s many companies established joint management-employee groups yet very few have maintained and used them as consistently as Lincoln Electric. Meetings have been held every two to four weeks since 1914!
Topics discussed and resolved at these meetings lead to the provision of a number of ground breaking programs for workers including ‘group life insurance (1915), an employees association (1919), paid vacations (1923), employee stock ownership (1925), a suggestion system with cash payouts (1929), annual cash bonus (1934) annuities for retired employees (1936), the merit rating system (1947), and guaranteed continuous employment (1958)’(p.36). The Advisory Council has also scuttled changes proposed by management when they felt those changes were inconsistent with the culture and values of the company.
A commitment to clear, open, honest and direct communication influences all of the employee-management interactions that happen at Lincoln. This commitment shows up in the Advisory Council meetings and in the company’s open-door policy. Advisory Council discussions are lively as elected representatives speak on behalf of all the employees in their work area. But communication with senior leaders is not limited to just the elected representatives. Any employee can ask to speak with the president or chairman of the company at any time.
These practices and benefits combine to create the unique culture of Lincoln Electric yet it is the foundation they rest on that ties them all together and makes the company so successful. People are committed to work with each other based on a set of human values that guide how they treat each other.
These values are cited on the book cover as old-fashioned yet I think that’s a misstatement. The values that guide Lincoln Electric are the same ones that guide Zappos, NetApp, R.W. Baird and many other great companies, young or old, new industry or traditional manufacturing. They are enduring values, not old-fashioned ones. They are values that collectively say ‘let’s be respectful of every human being who works in this organization’. These are values that great humanistic and spiritual leaders have talked about for thousands of years, and that people will hopefully continue to talk about for thousands of years to come. These are values that people seek to live by, regardless their role.
I have always believed that people want to be known by others, and contribute to something positive. Most people enjoy learning and being part of an effort that is larger than what they could take on by themselves. People want to enjoy time with family and friends and create a place that is better for those who will come after them. Greed and insecurity can distract some, leading them to try and exclude one group, include another, and take as much as they can for themselves. Yet those actions are not based on values that endure but on values that harm.
When people are able to decide collectively, in an open environment, how they want to organize themselves and work together, practices based in respect usually rise to the top. What Lincoln is doing in their organization is the same as what is happening in many recently formed companies – how they do it is distinct, yet the values they are using are the same.
Koller’s book is well written and definitely worth reading. The story of Lincoln Electric and the enduring values used to guide company operations is inspiring. And they’ve achieved tremendous success as an organization – financially, in terms of market share, and most importantly in terms of their reputation as a respectful group of people. I think there’s something all of us can learn from this arc-welding company in Cleveland Ohio.
An update (thanks to Frank Koller) - here's a link to a segment aired on PBS Newshour July 13, 2011. It's a nine minute segment on the long term success of Lincoln Electric.