Several years ago I interviewed the CEO of Novell, who told me that in order to obtain the skills the company needed, in the past 12 months he had replaced a quarter of his work force rather than retrain them. The reason? He had to maximize shareholder value.
That CEO was Ron Hovsepian, a genuinely good guy whom I had gotten to know pretty well, and who is now the president and CEO of Intralinks, a New York-based cloud services provider. I asked Hovsepian how difficult it was to recruit and retain people with the skills he needed, and this was his response:
I'll give you a little statistic. This past year, I turned over 24 percent of the workforce. One thousand of our 4,000 employees are new to Novell. So the change we're going through is pretty significant. Candidly, among all the good revenue stories and the profit improving, people don't realize how much we've really gone in and changed our workforce to get the right skills here.
I was kind of blown away by that, and I asked him why he wasn't retraining those workers instead of replacing them. It took him a while to get to the point, but he eventually got there:
We absolutely retrained the ones that we felt had the right aptitude and the right capabilities. And it also takes two. A lot of people don't want to be retrained as part of that transition. Investing in training our people is a big piece of what we're doing, including at an executive level, because I didn't have enough of a pipeline of people. So we're taking some of our youngest, best and brightest talent and investing in them further, around business management and other skills, so they grow. It's done with great thought and care, while balancing it against the financial demands of what we've got to get done. And the cycle time is the biggest issue. The brutality of the pressure the company has to operate under in 90 days is what drives us.
The reason he replaced a quarter of his work force all had to do with the pressure to report strong quarterly earnings to his shareholders, and this was one way to cut costs and do that. It was all about what has come to be a mantra in corporate America: "Maximize shareholder value." But is that really the best way to run a company?