Relational Wealth: The Advantages of Stability in a Changing Economy. (Book Reviews).

by Carrie R. Leana and Denise M. Rousseau (Eds.)

Publisher: Oxford University Press (2002). ISBN: 0193134478.

Human resource practitioners have been preoccupied with one aspect or another of "the war for talent" in recent years. We have had any number of opportunities to hear and read of company success stories in search of "best practices." It seems likely that all the conferences and popular articles will result in a general leveling of practices. It might take a challenging book like Relational Wealth to spark some innovation.

A practitioner would undertake this book primarily to discover new perspectives on attracting/retaining talent, and on the value of internal relationships in building an inimitable competitive advantage. The book is not likely to be found stacked in colorful displays in the business section of the local bookstore. It is not written for a mass business audience. The academic writing style could cause some readers to give up on it.

The editors of Relational Wealth are Carrie Leana of the University of Pittsburgh and Denise Rousseau of Carnegie Mellon University. The two co-authored the very readable introductory and concluding chapters, and also joined with other co-authors on several other portions. The material included is a combination of theory, research summaries, and opinion.

The Book's Core Ideas

Leana and Rousseau define relational wealth as the value created by and for a firm through its internal relations among and with employees, as well as its external alliances and reputation. Relational wealth is an attribute of the organization; its value accrues to the organization directly, and only indirectly to individual members.

There are several aspects of relational wealth that the authors believe lead to measurable value. These include:

Trust: The positive expectations that firm members have of each other's intentions and behavior. If trust is low, organizations build redundancies into their systems. If trust is high, members spend less time negotiating with each other, lowering transaction costs.

Knowing Who Knows What: Where organization memory is lacking, because of workforce turnover or other instability, members have difficulty accessing important information. Sometimes costs are remarkably high in inefficiencies and accidents.

Reputation: A firm held in high regard in the broader community has advantages accessing highly qualified employees. Reputation creates the capacity to form new relationships with different people.

The ability of a firm to realize the value of relational wealth is seen as depending upon its ability to balance flexibility with stability in the workforce, i.e., the need for short-term results with the long-term employee commitment. In the main body of the book, contributors discuss various aspects of this dilemma in employment policy. A few chapters highlighted here seem particularly relevant.

A thought-provoking chapter by Ritter and Taylor (Ch. 2, Are Employees Stakeholders?) discusses the impact on employees of a firm's strategic decisions. The authors look at employees as creditors of the firm--in the same position as bond holders. Their views can be seen as a counterpoint to Davenport's (1999) Human Capital, in which employees are seen as investors of human capital. Ritter and Taylor's metaphor is a more ominous one, emphasizing the risks to employees.

Two chapters will deepen the reader's understanding of the dynamics of retention.

Johnson, et al. (Ch. 8, Reconstructing "We") discuss the factors that affect the attachment of a person to an organization. They argue that forces in the current environment--industry consolidation, boundaryless career options--lead employees to a more adaptable and fluid identification with the firm. A helpful part of this chapter is the summary of research relating workforce diversity issues and employee commitment.

Continuing the theme of employee commitment, Feldman (Ch. 9, From the Me Decade to the Flee Decade) focuses on new, younger entrants to the workforce. He summarizes the paradoxes they face and the career strategies that are evolving. Most instructive are Feldman's critique of mentoring programs and his observations about cynicism relating to teams.

One of the concepts associated with relational wealth is the "commons -- the resources shared by a group. The term includes physical spaces as well as shared people resources. Blau's article (Ch. 12, Relational Wealth in the Commons) deals mostly with the spatial form of commons, leaving the reader wanting to hear more about the shared-services form.

The Book's Other Message

Many of the book's contributors blend social criticism with their social science. A point of view seemingly held by most is that U.S. corporations generally have done poorly in fostering relational wealth, and that a new dose of government regulation will do us all some good. This theme simmers along in various chapters, where we find such observations as these:

"Without consistent government intervention, it is unlikely that most employers will change their historical indifference to the problem of a growing underclass." (p. 190)

"..corporate executives...may have little regard for what happens in the communities in which their funds are invested." Therefore government should create "exit barriers for disinvestment" and other requirements. (p.222)

There is a need for "meaningful penalties to induce firms to comply with existing labor laws." (p.289)

This viewpoint finally boils over in Pfeffer's chapter (Ch. 14, Governance of the Employment Relationship). Pfeffer cites some labor history and makes comparisons with other countries. He concludes that U.S. firms want it both ways--public policy that helps them (e.g., by providing educated employees), "as long as the government doesn't regulate employment conditions." (p.249)

As Pfeffer sees it, businesses do many things wrong, such as "creating lots of low paying jobs that are unsafe and unstable." (p. 250) But don't worry:

"Numerous quantitative studies suggest that many managers do not fear--and may even welcome--government assistance in setting the conditions of employment." (p.257)

Pfeffer gives no references for this last assertion, in an otherwise heavily footnoted article.

Following Pfeffer's blunt chapter is a related contribution by Smith, et al. (Ch. 15, Patient Capital). They argue for a shift in the way firms and investors keep score--away from short-term financials and toward non-financial indicators. This still would be a change in governmental regulation that needs to be examined in a thorough manner, but at least it is more targeted than other proposals in the book.

All of this brings to light another reason for reading Relational Wealth. The contributors are respected academicians who are listened to by governmental leaders and students. We need to hear and understand their viewpoints.

Summary

Relational Wealth is not an easy read. Many business readers might disagree philosophically with the authors; however, the book contains new ways of framing crucial, continuing issues in the field of human resources. Practitioners ready to go beyond the popular sources in search of original ideas might find this book rewarding.

Reference

Davenport. T.O. (1999). Human Capital: What It Is and Why People Invest It. San Francisco: Jossey-Bass.