I follow many company financial results and in the South African context there have been many disasters in the 2018/2019 reporting period (I am writing this is April 2019). Many of the reasons for these results are outside of the control of the company’s management team but many are not.
One interesting observation is that the company’s that are not doing well, typically have a reputation for being horrible places to work. I met someone who had just left an employer to join a competitor company in the same industry he was from. Curious about why he moved I asked him to tell me about his previous job.
He recounted story after story about how terrified the staff were of the CEO. How every day was a nightmare going to the office and how leaving the company has brought a huge sense of relief to him. A few months after hearing these stories I learnt that this company has declared massive losses (in the billions). A few weeks after this the CEO resigned. To “pursue external interests” of course.
My second example comes from the mining sector. The South African mining sector is under huge pressure. Commodity prices were hit hard at a time when costs of production were increasing as yields dropped forcing the mines to go deeper and deeper underground. It has been extremely difficult too because of the uncertainty that came from the new mining charter proposed by former minister of mines Mr Zwane.
Despite these challenges one glaring statistic always jumps out at me. This is mining fatalities. While it is two too many, Anglo American platinum posted two for the financial year of 2018. Headline earnings per share increased by a whopping 95% too. Kumba Iron Ore posted results of R30.28 per share with zero fatalities. By mid 2018 on the other hand Sibanye Stillwater had over 20 fatalities. How some companies can have no fatalities while others have over 20 is beyond me.
Over half the number of total fatalities for the entire industry are due to one company. This is diabolical. In addition the company was plagued with persistent labour unrest in 2018. The company made what it calls a basic loss of R2.5bn. Considering the poor safety and labour record I think it is fair to say it’s not a great place to work. And it’s not doing so well financially either. In the mining sector there seems to exist a very strong link between safety and overall performance. Ask the gents at Sibanye Stillwater about this!
The last example and one closest to my heart is that of Kraft-Heinz. This company has a very unique DNA. Basically the business model is to purchase low margin established companies and strip out all the costs to boost margins and return in the short term. Having lived through a zero based budgeting program I can tell you that it is brutal. As the name suggests all costs are zero rated with all expenditure having to be justified. Historical costs and privileges do not apply. Stupid things are implemented like making it illegal to print documents in colour and making managers fly on the airline that costs the least regardless of the impact on the individual. So if there is a 1% difference between flying on an earlier flight so you can get home sooner, or saving 1% by taking a late flight…the company would always save the 1%.
On 17th February 2017 Kraft-Heinz made an audacious $143bn bid for Unilever. Unilever’s strategy has been built around its social mission of making the world a better place through its Unilever Sustainable Living Plan (USLP). While the ethos of this was favourable, Unilever did lag some of its peers with regards to growth rate and profit margin. Kraft-Heinz saw a massive opportunity to take over Unilever, and reduce its costs base in the short term. The quality of brands in the Unilever stable being undeniable. Most important to note, however, is that Unilever had been recognised in many platforms as being one of the best places in the world to work. In many countries being considered the number one employer of choice.
As the story goes Unilever successfully rebuffed Kraft-Heinz bid to buy them. Unilever continued to be a successful business delivering consistent profits and shareholder returns in the period after the bid. On the other hand Kraft-Heinz share price today is less than half what it was a year ago and revenue in 2018 was less than what it was two years prior. In the battle of a socially conscious organisation vs brutal capitalism, the socially conscious organisation won.
Analysts attribute Kraft Heinz poor performance to underinvestment in their brands through cost cutting and implementation of a poor marketing mix in some of its flagship brands. My view is that the root cause really is poor management or care of people. They created a disengaged zombie workforce and still expected spectacular results. They were very unrealistic in their expectations.
I guess my story here is very clear. I believe there really is a strong link between treating people well in the workplace and achieving great financial results. None of this is new, however, it does give me great pleasure to know that some companies that have been treating people badly have bad results to show for it. Long may this continue. Hopefully all the terrible places to work will close down with their market share being taken up by companies that are great places to work.
300Paychecks 