How PayPal Has Survived The Shutdown: A Larger Purpose
The Covid-19 shutdown will inevitably lift, companies will ramp back up—at varying rates of speed—and the economy will begin to lick its wounds.
The question is how to get from here to there with the least amount of permanent damage to the organization you’ve spent years building—and by that, I mean the lowest number of layoffs and docked wages.
Early on in the Covid crisis, PayPal PYPL founder Dan Schulman promised not to lay off a single employee at his company regardless of his losses, and he has kept that promise. It’s an easier pledge for him to make than for most CEOs, since the shutdown has only increased online sales of products—and thus his business has actually seen an increase in transactions.
Late last year, Schulman and Paul Tudor Jones, founder of Just Capital, knocked it out of the park on CNBC’s Squawk Box. They advised the private sector to center its profit-making activity around a purpose that is about something other than simply making money. Jones pointed out that being a just company, one with a higher sense of purpose, is not at odds with behavior that prioritizes profit. Increasing profit is an inevitable by-product of becoming more deeply committed to a meaningful purpose. In fact, the only way to beat your competitors is to infuse this sense of purpose throughout your organization, from top to bottom—it will spark exactly the sort of problem-solving that opens new markets and expands existing ones. (Just Capital is best known for its annual list of the most just companies in America)
Schulman and Tudor Jones spoke about these issues in the wake of the Business Roundtable’s historic embrace, last year, of stakeholder capitalism—after decades of advocating for Milton Friedman’s shareholder primacy.
Paul Tudor Jones said that multiple factors are converging—all driving dramatic growth in the economy—making it easier right now for companies to revive a fading tradition in American business of serving multiple stakeholder groups: customers, employees, communities, environment and shareholders. The economy is poised for even more explosive growth, he said: what better time than in this era of robust confidence to embrace a classic model for how to do business with integrity? He’s advocating the kind of inclusive leadership common during the Golden Age of American capitalism, from 1945 through the mid-70s, when companies were conscious of keeping their employees as happy as their customers. As a result, most of American society thrived—unlike now when two-thirds of the population struggles to make ends meet.
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The key is to instill throughout the organization an abiding purpose that guides day-to-day creative problem solving at all levels. This gives the smallest employee decisions a new meaning and value. Schulman described how he has done exactly this at his own firm. Jones introduced him by saying, “Oh my Lord, if every company would only do what PayPal did (in November last year).” Schulman explained: “How often do investors ask how much we pay our workers? Never. If you aspire to be a great company, the number one asset is the employee.” Schulman talked about inspiring his entire workforce with a vision of the “democratization of financial services.” This means all work in the company is driven by the desire to give everyone access to good financial services. In order to put his money where his mouth is—to enable his employees to think creatively for every single customer without worrying about their own financial peril—he changed the way PayPal compensates them.
He said these changes were driven by internal research at PayPal initiated after he learned that two-thirds of American households live paycheck-to-paycheck with very little discretionary income for savings or investments. He wanted to address this inequity within his own organization. His description of how PayPal restructured its compensation is uplifting:
“We did a study of all our workers, our entry level workers (and) . . . about 60 percent are struggling to make ends meet every month. We looked at their net disposable income . . . what they have after transportation, rent, medical expense, childcare . . . people are living at the edge. We had to raise basic wages. We cut the (employee’s) cost of benefits by 58 percent for that portion of the population. We made every single employee a shareholder (with a) one-time equity grant and made all of them eligible for equity going forward. Our success as a company should be shared. We want our employees to do the right thing with every single interaction with the customer.”
A ground-breaking Harvard study in 2018 explains how a sense of organizational purpose—when people are provided the tools, the responsibility and the compensation required—will transform a company’s performance. It begins in the middle and works its way upward and downward: the much maligned middle management tier becomes an engine of organizational transformation.
They found a strong correlation between higher productivity and purposeful work when “employees are given the opportunities and resources (they need) to actually perform their work,” and when leadership plays a role by “clarifying links between effort and performance and by removing obstacles to performance.”
It’s common sense. If people understand an organization’s mission clearly and find their work fulfilling, they will put their hearts into what they do. But what surprised me in the study was that the link between purpose and performance was strongest in the most maligned level of the org chart: middle management. When a firm clarified its sense of purpose and enabled middle management to embrace a sense of mission, it gave those managers what they needed to inspire workers beneath them to work more effectively as well as transmit truthfully the situation “on the ground” to the highest levels of management. Middle management emerges as the heroic heart of organizational life.
Their conclusion: “We find that the significant association between (high-clarity) high-purpose . . . and financial performance is driven by the middle ranks of the organization.” And it makes sense. That’s the largest group in the organization—and it’s where innovation and higher productivity can originate.
Long-term growth rooted in genuine innovations (both incremental and game-changing) that create genuine new value depends on these two crucial commitments: to an integrity of purpose and to treating employees as partners whose quality of life matters as much as the customer’s delight. In reality those are inextricable: happy employees are the only source of the innovating problem solving that leads to customer loyalty. These workers are the true value creators of business in the 21st century. Employers should do everything in their power not to abandon their workers in our temporary economic downturn—because without them a company will be lost when the economy begins to stir with life once again.