1 What is the purpose of business? The prevalent view is that businesses exist to make profits for shareholders, and shareholders’ interests are paramount.
2 Yet this is a view that has gain ascendancy only in recent times. In classical Greece, businesses were expected to be of service to the community. In the medieval period, a good businessman had to be honest in intention and actions and was expected to use his profits in a socially responsible way. The ideas of ”noblesse oblige” (the responsibility of the rulers to the ruled) and the Confucian concept of benevolent rule represent an analogous concept of social responsibility that is more universal than many may think today.
3 Several British businesses subscribe to the Quaker ethic, which subscribes to the same thinking.
4 This is not to deny corporations their right to make profit. Just as schools serve society by educating children, parliaments by making laws and politicians by aggregating diverse interests, so corporations serve society by making and selling goods and services for profit. This profit oils the economy: it is the currency of exchange by which corporations pay workers, and workers pay schools to educate their children, and both workers and corporations pay taxes for the benefit of society. Without businesses, there would be no commerce and without commerce, no profit; without profit, no wages; and without wages, there is only indentured labour, not labour that is mobile and free.
5 Thus businesses serve society by making profit. But profit is the means, not the end. The late Japanese businessman Konosuke Matsushita put it this way:
“Some people think that the purpose of an enterprise is to make a profit. Indeed, profit is indispensable for conducting proper enterprise activities… However, profit in itself is not the ultimate goal of an enterprise. More basic is the effort to improve human life through enterprise management. Profit becomes important and necessary only to better pursue this basic mission.”
6 Once we realign our perspective, many things fall into place. Corporations make profit in order to serve society better. Making a profit is thus a means, not the end.
7 All societies seek to progress. Translated into the objective of the individual in society, it means a good life, and an improving one. To achieve the good life, every individual has to work. Businesses provide employment, the means by which he earns wages to provide for that good life. Businesses therefore, exist for the individual in society; and the individual has a stake in the survival of the enterprise he works for. There is no better example of a convergence of interests. The enterprise must take care of the employee and the employee must do his best for the enterprise, for their mutual interests.
8 When we understand this, then we will realise that the relationship between employers and employees is not inherently a confrontational one. It should be co-operation for mutual benefit. The conduct of industrial relations in Singapore is based on this philosophy.
9 This is not to deny the existence of conflicts. We are humans, and from time to time there will be conflicts when either party is perceived to have strayed from looking after the other’s interest, unfairly keeping more for himself.
10 At this conference there are many human resource practitioners. Let me set out what the basic aims of each individual employee are, so that you may better manage your human resources.
11 Each person needs a job. That is his basic need. When he has a job, he expects fair wages.
12 Then he wants wage increases: this year’s wage should be better than last year’s and next year’s wages should be better than this year’s. Where should the wage increases come from? By carving out a bigger share of value-added to wages at the expense of other stake-holders, in particular the shareholders? That is unsustainable. Wage increases are sustainable only when there is increase in productivity. Management is responsible for raising productivity, and for deploying labour to achieve higher productivity.
13 Through years of tripartite discussions, we have accepted the principle that wage increases should lag behind productivity growth. But this is not universally understood. For example, when the Ministry of Manpower recently reported that our wage increases were lower than productivity growth, the headline in one newspaper report was “Productivity up, but wages still lag behind”.
14 What is better understood is the concept of flexible bonuses. Annual bonuses are largely based on profit-sharing formulas. When profits rise, employees get more in bonuses; when profits fall, bonuses shrink in tandem. Conceptually, this should motivate employees in an enterprise to work for higher profits. However, it is not enough. It is essential to devise reward systems that focus on productivity improvement.
15 Wage increases should lag behind productivity growth because the enterprise must remain competitive. If wage increases continuously outstrip productivity growth, then the enterprise will become less and less competitive and eventually go under.
16 So, in order to give workers the wage increases they need for a better life, systems should be devised to motivate workers to achieve higher productivity. Some enterprises have developed such systems, but the most have not. We have a tripartite consensus to link wage increases to key performance indicators (KPIs). These KPIs should drive productivity, but yet be simple enough for employees to understand. Apparently, many companies find it very difficult to devise KPIs. It means, therefore, that many employers do not marshal their human resources effectively for higher productivity.
17 If you are in the retail business, the key to higher productivity is higher sales. So if the KPI is based on sales, employees would be focused on achieving higher sales. Such an indicator would be appropriate for all employees, but may not be sufficient. Other indicators that should be devised linked to cost of goods sold, and cost of sales.
18 If you are in the hotel business, and your premium customers are business executives, then your KPI should aim to win such customers, and to turn them into repeat customers. Good customer service generates repeat sales. It builds customer loyalty. It attracts referrals. Hence it has a role to drive up productivity and profitability. Clearly customer service is a key KPI for the hotel sector. Indeed, it is a key KPI for all segments of the hospitality sector, including retail.
19 By keeping in mind the goal of achieving higher productivity, then the correct KPIs can be devised.
20 Apart from better wages, what do employees want? Life is for living. There should be a balance between work and family and social life. Higher productivity can be achieved by working longer hours, but what is the point of working 15-hour days with no time for family and friends?
21 Not long ago the son of one of my friends returned with an engineering degree. The economy was down, most employers were not hiring, so it was difficult for him to find a job. I suggested that he look at the shipyards, whose business seems counter-cyclical to other sectors. He did, and was taken in as a management trainee. He had to wake up at 4.30 a.m. in order to make it to the shipyard by 7 a.m. He did not leave the shipyard before 7 p.m., arriving home only at 9 p.m. or so. He thought that this might be the pattern of work for trainees like him, and looked forward to completing the traineeship. But he was soon told that when he was confirmed, he would have to work longer hours! The young man pondered what kind of social life he would have, what kind of quality time he might have with his parents and brother. Finally, he spoke to his father to seek his consent to leave the job.
22 We know that Singaporeans shun working in the shipyards. The experience of this young man is also the experience of the blue-collar workers in our shipyards. So the unsocial hours of the shipyards deter Singaporeans from joining them. The result is that our shipyards cannot find the skilled Singaporean craftsmen to promote to supervisory positions. It is a serious problem for our shipyards.
23 Is the young man’s experience exceptional, and applicable in a depressed economy, or applicable only to the marine industry? Unfortunately it is not so.
24 I am told that young auditors working for the big auditing firms work long hours and frequently have to bring work home. They get up after a few hours of sleep, to work on what they brought home, and then rush back to work.
25 Likewise young lawyers work long hours because their principals want to prepare for litigation in court. Now that our legal system has gone digital, principals want to do even more research, be even more thorough in their preparation, and the computer allows them to demand more research.
26 These are some examples. There are others. What we have to ask is: Can this last? Will such patterns of work not lead to burnt-out, and therefore wreck the careers of some young employees?
27 In these cases, productivity seems to be equated with working harder, not with working smarter. It is the wrong approach. Employers should manage their manpower resources by raising productivity and enable employees to have the balance between work and family and social life.
28 Female employees too, deserve greater consideration by employers for a better work-life balance, as they have the responsibilities of child-bearing and nurturing to do. Today caring for the child is a shared responsibility. Employers should also be more flexible in granting fathers time to discharge their responsibilities.
29 Increasingly, employers will have to operate within an ageing society. What used to be the appropriate retirement age is no longer valid. To retire at 55 years when the life expectancy was the mid-60s was appropriate. To retire at 60 when the life expectancy was about 70 was also appropriate. But to retire at 62 when the life expectancy is pushing 80 is now premature, and unrealistic. People are healthier, and they need to work longer to support themselves.
30 When we remember that businesses exist to provide employment for people so that they can have a good life, then we recognise that it is the responsibility of employers to revamp the way work is done so that older workers can remain gainfully employed.
31 But when we look at the statistics on employment, the employment rate shows a steep decline after the age of 50. It only means that businesses, far from revamping work to suit older employees, are in fact shedding them early. So the effective retirement age is well below the official retirement age. Employers have to do more, much more.
32 Employees also have much to do. Employment in our senior years does not necessarily mean working in the same job. Some will continue in the same job, but many others will have to change to other jobs. Employees will need to be open to retraining, and seek to update skills all the time.
33 I have highlighted what I believe are the key factors in human resource management. The approach that we take to manage human resources well must start from the correct understanding of what work is for. We need to work to live, to enjoy a better life. Businesses exist to meet this basic human need. In the process, businesses make profits to pay shareholders a reasonable return. Maximising shareholder return is not paramount. Businesses should balance the returns to all stakeholders.
