People vs. Profits

Prompted by a recent trip to Europe, David considers how the differences between worker protection laws in Europe compared to North America affect starting and running an agency in this fast-changing global economy.

Links

“Employment Law + Economic Flexibility” by David C. Baker for punctuation.com

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Join David, Blair, six other business owners and their spouses for four days and nights of creative business exploration in an intimate countryside villa designed for long meals, deep conversations, and unhurried thinking.

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Transcript

Blair Enns: David, is this the political episode?

David C. Baker: I'm inching up to getting canceled slowly. [laughs]

Blair Enns: Let's speed that up a little.

David C. Baker: Every time I hit send, it's like, "Oh shit, is this it?" No, I don't think it's that bad. It's not going to be controversial to the principles of firms. It could be difficult for some employees to hear, I would think.

Blair Enns: Okay. The topic of your post that we're referencing here is "Employment Law and Economic Flexibility," but I think one of your subtitles later on, "Profits vs People," is really the subject. Where do you come down on this seesaw, maybe, or spectrum of profits at one end and taking care of your people at the other end? The impetus for this post, as you say right at the top, is you were where doing what?

David C. Baker: I was in Portugal. I do three or four photo adventures by myself a year.

Blair Enns: Or eight. [chuckles]

David C. Baker: Or eight, depending on the money. I was in Aveiro, Portugal, and then later went to Porto. I was thinking about employment law in Europe and how there's parts of the US that are not that far behind Europe. It's a tough topic to write about because there's nothing you can say that's going to make a certain group happy here. I guess I just wanted to say, "Okay, even if you don't agree with my perspective, let's at least shine a spotlight on this because there are some things that are going to impact you quite a bit over time, and that's this whole notion of employment law."

Forget about the reasons for a minute. Just objectively speaking, forget about the politics, how much more economically successful is the US? 20 of the 25 most valuable companies in the world are headquartered in the US, and most of those companies were started in the US. Again, forget about the politics for a minute. Why is the US an economic powerhouse? There are lots of reasons for that. Part of it is geographic. We have an ocean on both sides of it. Part of it is the entrepreneurial nature. We have the looser regulations.

I would say that the entrepreneurial environment in the US is largely better because of employment law. What I mean specifically, this is where it gets ugly, is because it's easy to fire people. It's easy to fire people. If it's easier to fire people, that means it's easier to hire people. I didn't even realize that until I'm talking with my clients. We've got clients in dozens and dozens of countries, many in Europe. I'm talking with them, and they're so hesitant to grow by adding people because that is a big decision. You can't just fire somebody over there. It's very different.

One of the quotes I have in here that was written by an anonymous bigwig in Europe says, "In Europe, if you hire someone, you're responsible for that person for their entire life." Now, that's not really true, but it's easier to put a kid up for adoption than it is to get rid of a junior marketing analyst in Italy. A lot of this thinking is so sweet in a way. That's a controversial statement to make, but it is kind of true if you recognize that he's exaggerating.

Blair Enns: I wrote a post in the Win Without Pitching Academy this morning, our client portal, basically. I'm basically getting rid of a whole bunch of books that we have in Europe. I said, "We're simplifying how we sell books in Europe*." Then, below the post where I speak to the asterisk, I say, "I might write a post about this for the few people out there who want to know the ins and outs of self-publishing."

First, I say, "Amazon's increasingly adding fees, et cetera, but the EU is increasingly adding their own fees, regulations, and red tape. Doing business in Europe, even just selling books, keeps getting more complicated. I don't think it's just employment law." We're going to sound like two anti-government, anti-regulation, free marketeer libertarians.

David C. Baker: Well, it's all true.

[laughter]

Blair Enns: Well, I don't put myself in the libertarian camp. I joke there are no libertarians in Canada because the definition of a Canadian is somebody who's willing to sacrifice a little bit of freedom for order. That really resonates with me, but it grates against libertarians. I am sympathetic to some of the issues. You're in the US, I'm in Canada. We have similar but maybe slightly different points of view on how easy or difficult it is to do business in various parts of the world.

I'm with you. I think my bravest clients are my European clients who hire people. For those in North America who are listening to this, if you don't have any direct interaction with these people, if you don't have a sense of it, man, have you got things easy? It is so easy for you to get a permit to start a business. It's easy for you to add people. It's easy for you to get rid of people. It is not like that in many other parts of the world. It certainly isn't like that in Europe. Is that the point of this post and podcast? Are we bitching about overregulation in Europe?

David C. Baker: If this is a bitching session, then I would absolutely sign on for that. There's way too much regulation in Europe. I think there's way too much regulation in parts of the US as well. There's different lenses you can look at the world through. You can look at the world through either freedom or safety, or oppressor or oppressed, and so on. I've been an employee and loved that experience. I think I had five or six jobs. I loved three of them. I've been a business owner. I love that experience. I don't think one is better than the other.

I'll just say it like this. The role of employer is changing, just like the role of formal education is changing. In the early days, the job was education. Now it's nutrition, it's social services, it's physical education. There's some health. I'm not saying those things are bad. I'm just saying that the expectations are different. The expectations for business are different.

It used to be you give me labor, I will give you money. Now it's very different. There's mission creep. Now, as employers, we have to take care of employees. That's part of our mandate. The equation, how you think about hiring somebody, is very different. It's not, do I want this person's labor, which of course is always a part of it, but do I also want to take care of this person? That changes the equation. I think there's something happening in the entrepreneurial mind that has not actually faced that head-on.

I think some entrepreneurs are getting weary of having to take care of people. They're not getting weary of employing people and exchanging money for effort. They're getting tired of having to take care of people. That's not what they signed up for. This is part of the mission creep that's coming into the US, partly from Europe. We're 30 years away from Europe. Is that good or is that bad? That's the decision for you to make. I'm just saying, objectively, it's changing, and you're going to have to deal with it.

Blair Enns: You talk about this false promise of profits versus people. Are you still a B Corp?

David C. Baker: I'm a benefit corp, not a B Corp. When people hear B Corp, that's something you apply for and everything. In Tennessee, they have public benefit corps, where you simply say this is what's true about your company, but it's not the same as a B Corp.

Blair Enns: Got you. B Corp, different from benefit corp, I think arose in the idea that it can't all be about profits. Milton Friedman, he wrote an op-ed. It was either The New York Times or The Wall Street Journal. I think it was 1970, give or take a couple of years. That's when he put forward his thesis that the only goal of a public corporation is to maximize profit for shareholders.

There are some people that say that was the beginning of a wrong turn where we valued only one form of success and we devalued other forms of success, like providing lifelong careers for people, taking care of our people. If you go back to some of these old-world companies, I'd listened to some podcasts recently on the founders of Bugatti and Ferrari, These really were family businesses.

You went to work in these businesses, and you effectively became part of the extended family. Barring disaster, you could have a job for life. Everybody felt like they were signing on for life, and the employer felt like they had a responsibility to take care of people for life. I actually think that's a beautiful romantic vision of a simpler time.

David C. Baker: It is, yes.

Blair Enns: Would you say that today the reality is things move much quicker, therefore businesses need to be more nimble, therefore they can't burden themselves with such obligations?

David C. Baker: Well, the world is changing much faster. That is a factor for sure. Back to your example of employment, like in the late 1800s, early 1900s, there was a two-way loyalty among many companies and the workforce. I think it was a very good thing. The side that broke that loyalty first was not the workers. It was the companies following the mandate that you quoted about maximizing returns.

Here's where I think we have to separate public companies and the entrepreneurial folks that are listening to this podcast. In public companies, they are there to maximize profit because they're thinking on a quarterly basis, and whoever the CEO is who's brought on by the board is not going to be there for more than three or seven years or something like that, so there aren't a lot of incentives for long-term decisions that are best for everybody.

That's very different in an entrepreneurial setting because you are close to the people you're working, you're not separated from them with 100,000 employees, and what you decide doesn't have much impact on your personal life, it just impacts them, and you don't even see them. In a small firm of 20, 50 people, these are people that you're with all the time and you care about them. You're not going to make decisions that are evil or wrong, and you need them to build something that's in your personal, long-term best interest. You want to make money over the long term, and you realize that you need people and you need to treat them well to make that happen. It's not people or profit, it's people and profit.

That's where we've separated things. In the public companies, there's no loyalty to employees. Employees aren't loyal to the companies either. That's just the way it is. It's sad. In smaller companies, it's very difficult. It's like you still have to be kind and appropriate and fair to your people, but you still need economic flexibility, you still need the ability to dismiss them. It all comes back to haunt you in a way.

If you run a really solid company, the people that are working for you know that you're not going to lay people off willy-nilly, but they also know that at some point you may have to make an adjustment, and it's just this very good self-correcting sort of a thing. Now, when legislation steps in to tie your hands, what happens? Well, there's this immediate better world for the employees, but there's this much worse long-term world for them because the employers don't have the flexibility to hire and fire. You can mandate whatever you want to help you work around evil employers, that's not going to help all that much. What you're really doing is you're tying the hands of the good employers who need that flexibility. Anyway, is that a little rant?

Interviewer: No, this is good. I wonder, is there any advice in here? You're making an observation about the state of regulation in two different parts of the world, Europe vs the United States, and the implications of those regulations on general economic success. Then, at the more micro level, the ability of an entrepreneur to spin up a business, adapt a business to changing economic environments, et cetera. Is there any advice in here for the firm owner, whether you're in Europe or in North America?

David C. Baker: Yes. It's basically the same advice, and that's to run a really good firm so that you don't have to lay people off, and when you do, it's because of something that you just couldn't anticipate, and nobody expects you to have anticipated that. If you do have a client concentration issue, make sure you manage that with more cash. Make sure you have a tight positioning, make sure you have lots of opportunity, make sure you don't say yes to all that opportunity so that you can keep saying no and maintain your standards.

It's the same thing I would say to anybody, whether they're running a firm in Belgium or Nashville. Even if you do those things in either one of those environments, your opportunities for growth are going to be a little bit more constrained because you have to be more careful in Belgium than you do in Nashville. That's just something you have to live with. You're not picking where you live so you can run a business there. You're running a business based on where you live, and you just have to live with that. That's the advice I would give everybody, and thank you for that reminder. Run a really strong business so that these things don't come up as often.

Interviewer: You made the point in the post that if you're able to fire quickly, then you will hire quickly. It gives you the freedom at both ends of the spectrum. If you're not able to fire or downsize, let people go as the economy adjusts, then you're going to be really slow to hire. I would imagine the implications of that are, when we're coming out of a difficult economic period and things are getting better, you're going to see the economic rebound first in an economy that allows people to fire because they're not worried about hiring people.

David C. Baker: Yes, exactly. I have three immediate family members who are looking for work right now, and it is not a good environment for that. In some cases, you can see why somebody's more hesitant to hire, partly because of this. We're recording this in mid-April, looking out at the chaos in the world at the moment, not really knowing what's going to happen next. You can see why somebody might be hesitant to hire if that decision means, okay, I'm stuck with this person for quite a while, whereas they could say, "Well, I don't really know what's going to happen in the future, but as long as this person knows that I'm hiring them with that in mind, as long as they're okay with that, then let's go ahead and go for it. I might have to adjust, but the fact that I can adjust gives me the confidence to go ahead and do this because I can make an adjustment later."

Blair Enns: Do you think it's true that in a regulatory environment that allows firing-- we've already stated that in such an environment, the incentives are there to hire when it's appropriate, because the burden of having to let people go isn't there. It seems to me that, probably part and parcel of that is the idea of the employee that, "Well, you can fire me, and I can quit." I don't know if this is true today, you might have some statistics on it, but I know we've talked about it in years past, where typically when people are climbing the career ladder these days, they do it by leaving the firm they're at and going to another firm. They can move up faster that way.

It seems to me that'that's part of the understanding between employer and employee. Yes, you can fire me, and somebody else can hire me, and I've been here a year, two years. I've gotten what I want out of this relationship. Here's my notice, I'm going to work for a competitor, and for the most part, the employer's okay with that.

David C. Baker: Yes, and I think they should be, honestly. I don't think we ought to hold onto people forever because it infuses new blood into our firm. It requires us to have systems and processes that can onboard these people better. The other thing, too, is it just holds back salary inflation. If you try to keep people too long in this world, they're always going to compare what you couldn't pay them with what they're going to get on the other side, and I don't think you should compete in that environment except in very rare circumstances.

Yes, it's not like employees are all that loyal either, but I don't blame them at all. It's like, in this environment, no, you should do what's in your best interest, but always keeping your reputation in mind so that when you meet somebody on the street where you quit a job or somebody you just fired, you can still hug and say, "Listen, I'm sorry the way this worked out, but I sure had a great experience working for you or employing you when we were together."

Blair Enns: Yes, makes sense. I think that some of the bravest entrepreneurs I know are in France. I do a little bit of business over there, and I have friends over there who own businesses, and it's like, oh, I don't know how you do it. Just even getting a business permit is not a simple, straightforward thing. Then the way you're hamstrung with how you deal with your people. Now, if you grow up in that environment, that's what you know. You and I have grown up in this environment in North America where there's this, call it freedom of movement among the employees and the freedom to move them of the employers. I think net-net, I certainly feel like I'd rather operate in this environment than my friends in Europe. I honestly do not know how they do it, and it is not getting easier.

David C. Baker: It's not. I just had this group together in Atlanta last week, and there were 14 of us from 3 different countries. I was being facetious. I don't quite mean it this way, but I said, "Listen, I really admire you folks for being entrepreneurs in other countries outside the US. I have a very high level of admiration for you." I said, "If you can't make it in the US, you're just incompetent." I didn't really mean it that way, but I was just trying to be funny. That's the point, like, listen, if you think it's hard here, you should go do it somewhere else. That's a lot harder. [laughs]

Blair Enns: There are times in good economic times in North America where you're in a creative business of some kind, AI might be changing this, but there are some times when anybody can make money. Now is not one of those times. I know lots of people are making really good money, lots of entrepreneurs, but it's not one of these simple, easy times where the money's slowing and you'd be hard pressed not to make money, but they do exist, these periods of time.

David C. Baker: Yes. This is not the time to be in business if you're faint of heart. There's so much change happening right now.

Blair Enns: Hey, since we're at the end of this podcast--

David C. Baker: Uh-oh. I hate it when your voice tone changes.

Blair Enns: My late-night DJ radio, and we're talking about Europe. Why don't we drop a little hidden gem here?

David C. Baker: Why don't we go to Europe?

Blair Enns: Yes.

David C. Baker: Now that we've just beat them to a pulp, let's go visit them.

Blair Enns: Here's the deal, listener. If you're listening to this, you're getting a sneak preview on this and the first chance to sign up. David and I have rented a villa in Tuscany in September, four days and nights. There are nine rooms. David and his wife Julia are taking one, Collet and I are taking the other. We have seven that we're selling, four days and nights together. There'll be a 2Bobs kind of curriculum discussions each of the four mornings, dinner together, the rest of the day is on your own, all your food and beverages taken care of, your accommodations are taken care of, you just have to get there. Go to 2Bobs.com/events, and find the Tuscany page. You have to apply rather than signing up. We're just trying to keep the lunatics out.

David C. Baker: We already have two signed up.

[laughter]

Blair Enns: It's a two lunatic maximum. It's just a little vetting, business owners only. You're encouraged to bring your spouse, but you don't have to. 2Bobs in Tuscany, September 2026.

David C. Baker: Okay, is this where you say thank you, David?

Blair Enns: You're coming right, David?

David C. Baker: I'm coming, yes, I'm coming.

Blair Enns: All right. Yes, we love Europe. We're just grateful that we don't have to run businesses there.

[laughter]

David C. Baker: Forget everything we said. See you in-

Blair Enns: Tuscana. Thanks, David.

David C. Bair: Thanks, Blair.