SOUTHERN CALIFORNIA JOB MARKET : CHALLENGES OF THE WORKING LIFE : COMMITMENT : Commentary : ANTIDOTE FOR THE DEMISE OF LOYALTY: RESPECT

Should we mourn the death of corporate loyalty, and lament what seems to be a pattern these days of companies hellbent for profit abandoning their employees and individuals rushing pell-mell for personal gain?

Or should we agree with the outspoken and controversial Chairman John F. Welch of General Electric Corp., who remarked to the Wall Street Journal recently, “Loyalty to a company, it’s nonsense”?

That depends. If by loyalty we mean a vision of a gentler time--a lost Eden placed sometime in the 1950s when big companies offered job security and employees pledged allegiance, then loyalty rests on a shaky foundation and we may as well forget it.

But there is another kind of corporate loyalty, a mutual respect between company and employee, that American industry must re-establish or preserve if it is to succeed in global competition.

To understand the difference we should look back 30 years to how things really were. It may come as a surprise to learn that corporate loyalty was suspect even then. In his landmark book, “The Organization Man,” author William H. Whyte saw loyalty to the large corporation stifling America’s entrepreneurial spirit.

Whyte, an editor of Fortune, frankly missed the ambition and the greed that motivated young men of business in previous decades, and saw the young postwar elite sacrificing their individuality to a deadening conformity. He did not see their motto--”Be loyal to the company and it will be loyal to you”--as a noble sentiment, but as a dangerous illusion that earlier generations rightly would have scorned as foolish.

He needn’t have worried. In the intervening decades, once-vaunted big companies have faltered and the United States has seen a tremendous surge in entrepreneurial creativity--the flip side, in a way, of the decline of corporate loyalty.

What happened? How did we get from postwar conformity to late ‘80s individualism? What has been gained--and lost? And where should we go from here?

The answers, as you might expect, are more complex than selling your soul to the company store or keeping your resume at the ready.

First of all, the company men of the 1950s didn’t realize how much their loyalty rested on unprecedented prosperity. Corporations grew so effortlessly in that decade that rewarding positions were opening up for all and there were few dead-ends; careers could always find new channels within the expanding company.

But soon enough the company men found a way to turn corporate progress to personal gain. It was called the incentive stock option--a way of rewarding key employees by giving them the right to buy company stock at advantageous prices.

The stock option, developed by Du Pont in 1904 as means of uniting the interests of managers with those of shareholders, found its widest use in the 1960s, explains management consultant William White of the Towers, Perrin, Forster & Crosby consulting firm. It played a key role in conglomerate mergers, when stock options were used as premiums to persuade executives to sell their companies.

So the urge to cash in started early. And not only among the managerial class. Those were the days when steelworkers won contracts allowing 13-week sabbatical leaves with pay, and auto industry wage settlements continually set new records.

But the prosperity was unsustainable. U.S. economic growth was not sufficient to support such comfortable living, nor were corporate profits great enough.

Soon the bell tolled. The world economy sent competitive goods into the U.S. market from hungrier, lower-cost firms in other nations, and Americans rushed to buy them.

And in a challenge even more profound, the postwar baby boom generation grew up and began to demand jobs. When sclerotic big companies couldn’t provide them, small companies emerged to fill the need. It is old news that small companies created tens of millions of jobs in the ‘70s and ‘80s while big companies have been forced to shed them--confirming for many that corporate loyalty is dead and gone.

Since then, small companies have come to be seen as the source of innovation. The most important product of the postwar era, the transistor, was invented in 1947 at American Telephone & Telegraph. But the follow-on integrated circuit was developed in 1958 by engineers at Texas Instruments, then an upstart geological sciences firm, and by the founders of Intel, one of the companies that built Silicon Valley.

Small companies are also the source of riches. H. Ross Perot left IBM, founded Electronic Data Systems in the 1960s, built it into a winner and sold it for a fortune in the 1980s to General Motors. But his efforts to help giant, stumbling GM were unappreciated. The systematic big company and the intuitive small one have not yet found a common ground.

So we’ve gained fresh ideas, opportunities for men and women, and technological innovation.

But have we also lost something? Others think so. Takeshi Kiuchi, a young economist at the prestigious Long Term Credit Bank of Japan, thinks the United States has somehow lost the ability to build companies with big, global vision. “In the past we saw the U.S. build worldwide industries, as in petroleum, or your big multinational companies,” he says. “But that element has been lost somehow in the last three decades.”

Why does Kiuchi think that is? Too much emphasis on the individual, too little on the group, he says. “The American economic system gives individuals who have creative ideas the opportunity to make big money. In that sense, genius is properly rewarded in the American system.

“But here in Japan, genius is not so rewarded,” says Kiuchi, who spent a year at Washington’s Brookings Institution and travels frequently to the United States these days for his bank. “What we emphasize is how a person can contribute to a team. If you want to be successful, you share the success with others and for the development of the large institution. So genius cannot be properly rewarded, but we have a better system for creating large institutions.”

Whether he’s right or wrong on global industry, Kiuchi has pointed to something we used to have. Big companies used to be hospitable to genius; genius thrived within big companies. Charles F. Kettering, the master mechanic who invented, among other things, the automatic ignition system on your car, sold his Dayton Engineering Laboratories (now Delco) to General Motors. But unlike Ross Perot, Kettering didn’t walk away with the cash, nor did GM ask him to. Instead, he served for 27 years as the company’s vice president for research, enjoying a good working relationship with GM’s renowned Chairman Alfred P. Sloan Jr.

Or take Charles Proteus Steinmetz, who developed the theories of alternating current that allowed a young General Electric Co. to prosper in the building of power plants. An immigrant, driven out of Germany in 1888 for anti-government Socialist writings, Steinmetz was not an “organization man.” But he served GE, from 1893 when he joined it as a fledgling company, until his death in 1923--working in the laboratory the company built around his brilliance in Schenectady, N.Y.

Would today’s GE accommodate a Steinmetz? Welch would say yes. By the remark, “Loyalty to a company, it’s nonsense,” says a GE public relations man, Welch meant that nobody should look to a company for security from campus to retirement. But what a company must provide, says GE’s boss, is an environment in which an employee can grow, a non-bureaucracy where people have a chance to flourish. Welch is talking about mutual respect, and if he truly practices what he preaches, he may be on to a prescription for the way we should go.