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Warning: Corporate Scandals May Demoralize Employees
Business Journal

Warning: Corporate Scandals May Demoralize Employees

A Gallup survey finds that actively disengaged employees are only becoming more alienated. But hope still remains for the most engaged workers.

by Dennis Jacobe

How has the current crisis of confidence in corporate leadership affected America's employees? Is it undermining their morale? And if so, what can companies do to minimize the damage from the corporate corruption fallout? New research from The Gallup Poll and Gallup's U.S. Employee Engagement Index* provides answers to these vexing questions.

Public concern about corporate corruption and business accounting issues continues to plague both the equity markets and the economy. In a September 2002 Gallup/UBS Index of Investor Optimism Poll**, 70% of U.S. investors told Gallup that concerns about business accounting issues were hurting the investment climate "a lot." This was about double the number of investors concerned about potential terrorist attacks, war with Iraq, or a general decline in the economy.

Now, fears of corporate corruption and the fallout it brings could spread to another key group of corporate stakeholders: employees. If employees feel they can't trust the people running their companies, then more than productivity will suffer. And a total loss of consumer confidence in corporate America would be sure to follow.

Recent reports of corporate corruption have many employees doubting the honesty and ethics of the people who run America's companies. But there's good news: Most employees believed that the people running the companies they work for are both honest and trustworthy.

Still, there is a significant danger. "Actively disengaged" employees -- those who are fundamentally disconnected from their work -- are most likely to assume the worst about the people who run the companies in which they work. As a result, these employees are not only likely to do significant harm to both company productivity and the bottom line, but also to spread mistrust and doubt throughout a company's workforce.

In sharp contrast, "engaged" employees -- those who identify with and act to promote their companies' objectives -- are much more likely to trust their corporate leaders. A company that can successfully find and develop more engaged employees can minimize the danger that it will suffer unjustly from the corporate corruption fallout that currently pervades the business environment. And companies that focus on building a more engaged workforce will earn benefits in addition to increased employee trust in corporate leaders.

Employees have their doubts about those who run America's companies . . .

The corporate corruption disclosures of the past year have many employees doubting the quality of the people who run corporate America. Only about half of the nation's employees (51%) told Gallup last month that they agree with the statement that the people who run most companies are "honest and ethical." Although 61% agreed that the people who run most companies are "good leaders," only 39% said corporate leaders are worth the money they earn.

Not surprisingly, many employees also doubt the intentions of U.S. corporate leaders. Seventy percent said that the people who run most companies are trying to do what is best for their stockholders. Although 70% may seem like a fairly high percentage to many Americans, it is not -- in light of the fact that stockholders have the right to expect that company leaders will always do what is best for the company and its shareholders. Employees also said that only 66% of company leaders are trying to do what is best for their customers, and even fewer -- only 44% -- believed corporate leaders are trying to do what is best for their employees. Of course, it is no surprise that 91% of employees believed that the people who run most companies are trying to do what is best for themselves.

. . . but most employees respect those who run their companies

Although many employees have strong doubts about those running U.S. companies, far fewer doubt the leaders running the companies in which they work. For example, 81% told Gallup that they have a "great deal" or a "moderate amount" of trust in the people who run their companies. An even higher percentage (85%) said they trust the people who run their companies' finances.

Similarly, 84% of employees said the people running their companies are honest and ethical, while 76% said they are good leaders. Sixty-nine percent even said that the people who run their companies are worth the money they earn. Employees also thought that the people who run their companies are trying to do what is best for their companies' customers (89%), stockholders (78%), and employees (67%). Not surprisingly, 84% of employees believed that the people who run their companies are also trying to do what is best for themselves. Still, it should be shocking to corporate America that one out of five employees believed that their companies' corporate executives are only looking out for themselves, even if it harms their companies.

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Engaged employees trust their corporate leaders

Given Gallup's workplace research, we are not surprised that a sizable percentage of employees have such a skeptical view of their own companies' executives. Far too many U.S. employees are actively disengaged and have a skeptical view of just about everything in and around the workplace. Gallup's latest U.S. Employee Engagement Index shows that 17% of employees are actively disengaged, while 28% are engaged.

It's not surprising that engaged employees are a lot less skeptical and are a positive force in the workplace. For example, 96% of engaged employees told Gallup that they trust the people who run their companies, compared to only 46% of actively disengaged employees. An equal percentage (96%) of engaged employees said they trust the people who run their companies' finances, while only 68% of actively disengaged employees agreed.

Similarly, 97% of engaged employees said the people running their companies are honest and ethical, while only 56% of actively disengaged employees agreed. And 85% of engaged employees said that the people running their companies are worth the money they earn; only 43% of actively disengaged employees thought this was the case.

And engaged employees thought that their corporate leaders are trying to do what is best for the companies' customers (98%), stockholders (86%), and employees (91%). Stunningly, only 23% of actively disengaged employees believed that the people who run their companies are also trying to do what is best for employees.

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The solution: more engaged employees

It will take a long time for concerns about corporate corruption to go away -- and the longer and more intense the current economic slowdown, the longer it will take. Trust and respect are hard to earn but easy to lose, and corporate America has lost these virtues in the eyes of much of the public.

Given this uncertain environment, good companies with good people running them would do well to build trust and respect with their employees. If their employees don't trust and respect them, then soon their customers, stockholders, and the public won't either. In these difficult times, companies with engaged workforces have an advantage over those with disgruntled, suspicious employees -- yet another incentive for companies to build engaged workforces.

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* These results are based on telephone interviews with a randomly selected national sample of 1,002adults, aged 18+, conducted July 29 - August 25, 2002. For results based on this sample, one can say with 95% confidence that the maximum error attributable to sampling and other random effects is ± four percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

** Results for the total dataset of the Gallup/UBS Index of Investor Optimism Poll are based on telephone interviews with 1,004 investors, aged 18+, conducted September 1-15, 2002. For results based on the total sample of investors, one can say with 95% confidence that the margin of sampling error is ± three percentage points.

Dennis Jacobe, Ph.D., is a former Chief Economist at Gallup.
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