The business world is a crazy place. In the 1970s, if you said you wanted to start a business, it was assumed that you were doing so solely for profit.
There is a concept called profit maximisation, wherein the owners’ main aim is to earn profit. This aim actually becomes such that they pay attention just to profit, so much so that they use their employees just as resources, lie to shareholders that their company is good. Such profit maximisation has a negative impact.
So a new concept named wealth maximisation came up. Now in this, the main aim is definitely to earn profit, but in a growing way. They increase profit such that their employees also grow, they give ideas to the company or whatever business form and it is a long run concept. Of course, if you bring a change in a system, a good change, and then try to earn profit, it stays for a long time.
So, Hanover Insurance Group Inc. was set up in 1852 and since they have been providing individual and business insurance.
Because of the profit maximisation race, there was so much work politics and bureaucracy at the time that employees felt they were in a prison. Employees’ personal development was non-existent, and motivation was at an all-time low.
Hanover had a somewhat condition as such, and Hanover at the time was not a big shot company. In the field of American Insurance, it was the lowest company!
In 1969, Jack Adams was elected President of Hanover Insurance, and Bill O’Brien was elected Vice President, and they chose wealth maximization. To do so, their main aim was to get profit but to change the work culture so the employees feel that the company cares for them.
So they inculcated a moral value system to teach the employees and help them practise it. They did this so that the workplace isn’t all cruelty and rudeness, isn’t all command and control, but also something akin to a school learning environment, where employees’ creativity can soar. Hence, Both of them talked about it in every general meeting held by the company. But does talking only really help? No and it didn’t put out the desired effects.
So Brien and Adams decided to hire business consultants. First was Chris Argyris and second was Peter who gave the system thinking idea. System thinking is a method to realise that things are circular, to pay more attention to what the pattern in the problem is so that answer can be gained, to know about rules and their consequences and it has a pretty important effect.
And they came up with 3 merits to be taught and practised:
Merits: Making decisions based on what is right. For example, owners may ask employees to do work B because through that they could earn profit. The employees, although they knew the work C would be better, they couldn’t go against it. So the first moral value is to take a decision on what is right. If the employer thinks C is right, then do the work C instead of B.
Localness: To give a solution close to the problem and not beat around the bush.
Openess: Now as businesses wanted to earn profit, they lied to their shareholders that their business is this, that and sugar coated everything. So this last value, is to tell the truth. Whether it was the employer or the shareholder, the truth about the business’s actual position had to be said.
Brien and Adams applied these three values creatively rather than simply discussing them. So, in general meetings, when they use the word ‘openess’, it means that they have bad news, because, of course, the truth is not always good. If they said Merits in their meeting, they meant that the other riskier but better work is to be worked upon.
So they use it in normal conversation, so that the employees take in what they really want to say.
Well, the results were amazing.
Okay, so firsltly both of these people, Brien and Adams, had been in their positions for a total of 20 years, and thus it was the result of their 20 years of hard work.
In terms of profit, their share value was 4$ in 1970, and it peaked to 39$ in 1979!
Despite the fact that the insurance industry was losing money in the 1980s, Hanover undertook a risky project involving insureds in New Jersey and Maine as part of their’merits’ moral. And this gave them two benefits:
- Firstly, they could solve the problem and secondly, because they did it so well, the state officials considered them reputed.
- Their company went from 5.5 below average to 6.6 above average! They became one of the 9 greatest underwriters in America.
- The shareholders gained their trust, and the employees felt like they were progressing and shedding light on all of the workplace politics.
So they changed the system and got both profit in the long run and employees’ support!
During this process, they did receive some criticism that they were doing it for profit greed and that it was all hypocrisy, but it all worked out fine.
So, with this aim of wealth maximisation, they got their profit and a better work culture but after both of them were out of the office, the other presidents didn’t really use the values set by them and the culture altered a bit.
But in those 20 years, they changed the world.