Responsible Leadership and Talent Retention: Insights from India

Transcription

1 Responsible Leadership and Talent Retention: Insights from India Jonathan P. Doh Rammrath Chair in International Business Director, Center for Global Leadership Villanova School of Business University of Sydney 25 February 2011

2 Overview We define/operationalize i responsible leadership from perspective of employees and their views of employer actions Drawing on a comprehensive survey of Indian and global organizations operating in India, we report results from 4,352 employees from 28 companies on relationship between RL, pride in and satisfaction with the organization, and retention Strong associations were found among these variables suggesting that responsible leadership -- employee perceptions of the support they receive from managers, the HR practices, and corporate socially responsible actions -- may be an overarching construct that connects them to the organization 2

3 Related research Tymon, W., Stumpf, S.A., Doh, J.P. (2010). Exploring Talent Management in India: The Neglected Role of Intrinsic Rewards. Journal of World Business, 45 (2), Stumpf, S.A., Doh, J.P.,. & Tymon, W. (2009). Capitalizing on Human Resource Management in India: The Link Between HR Practices and Employee Performance. Human Resource Management, 49 (3), Doh, J.P., Haid, M. Stumpf, S.A., & Tymon, W. (2008). How to Retain Talent in India. Sloan Management Review, 50 (1): Doh et. al. (2009). Stemming the Tide of Attrition in India. Keys to Increasing Retention. Right Management. White Paper. 3

4 Responsible leadership & talent management Organizations and leaders asked to include broader group of stakeholders in planning and decision-making Doh and Stumpf (2005) note that scholarship on leadership, ethics, and CSR have evolved somewhat independently Pless et al. (2009) suggest emergent views of RL link with CSR Doh/Stumpf (2005): Responsible leadership and governance includes: (1) values-based leadership; (2) ethical decision- making, (3) quality stakeholder relationships N di li k CSR d l i f i Numerous studies link CSR and employee satisfaction, 4retention, and performance

5 CSR and talent management Employer s CSR reputation signals to current and prospective employees of attractiveness/desirability of firm as place to work; organizations CSR positively related to reputation/ attractiveness as an employer (Turban & Greening, 1997; Albinger & Freeman) Employee commitment arises from aligned personal-corporate values and stakeholder culture that embeds ethics (Collier and Esteban (2007) Bhattacharya et al. (2008) suggest CSR can be considered a part of an employee value proposition p - marketing CSR helps solidify legitimacy Valentine and Fleischman (2008): ethics programs are associated with greater perceived CSR activity i and job satisfaction, and perceived CSR mediates positive relationship between ethics program/job satisfaction 5

6 CSR and talent management Coldwell et al. (2008) conclude fit between individual EO and corporate ethical reputation generates positive attitudes among potential recruits In the practitioner literature, many third-party CSR and corporate citizenship rankings/ratings undertaken by journals, financial institutions, and other organizations Examples include Fortune s Most Admired, Admired Best Companies to Work For, Business Ethics Magazine s Annual Business Ethics Award, and many others 6 H1: The greater the employee perception of the employer having a positive stakeholder culture, the higher employee retention

7 HR practices and talent management HR practices have positive effects on employees and performance, in Western countries (Arthur, 1994; Collins & Clark, 2003; Delaney & Huselid, 1996; Delery & Doty, 1996; Ferris et al., 1998; Guthrie, 2001) When firms apply HR practices that t respond to external environment/ leverage internal capabilities, they achieve superior performance (Huselid, 1995; Lado and Wilson, 1994; Wright and McMahan, 1992) Not clear if practices yield similar outcomes in developing economies; empirical research needed (Luthans et al., 2006; Parker et al., 2003) Recent research on one or more BRIC countries suggests HR practices have different on employees in these environments 7

8 HR practices and talent management Gong and Chang (2008) found career opportunities in domestic private firms, Sino-foreign joint ventures, and wholly foreign-owned firms similar, but greater than that in SOEs; positive relationship to employee organizational commitment, citizenship behaviors, and firm performance Ngo et al. (2008) found levels of adoption of HR practices were lower in SOEs than in foreign-invested invested enterprises and privately owned enterprises; positive effects on performance Singh (2004) found significant relationship between two HR practices -- professional development and reward systems -- with perceived organizational and market performance H2: The greater the employee perception of comprehensive and formal HR practices, the higher employee retention 8

9 Managerial support and talent management Interpersonal dimension to responsible leadership: Responsible leaders mobilize, coach, and reinforce employees to achieve objectives in an ethical, respectful, and relationally intelligent way (Maak & Pless, 2006b) If employees perceive that t a leader s values and principles i match his or her actions, that he or she walks the talk, then they will attribute to the leader integrity and legitimacy, and with this trust (Pless & Maak, 2004) One of the primary ways a leader demonstrates responsibility is through leading by example (Waldman & Galvin, 2008). Bhatnagar (2007) concluded that mentors can enhance employee engagement, suggesting the important interpersonal role leader's play 9

10 Managerial support and talent management Manager-employee relationships for the experience of intrinsic rewards (Gomez and Rosen, 2001), and in linking people to their job and organization (Mitchell et al., 2001) Meta-analysis of the mentoring literature found that mentoring relationships were associated with subjective outcomes such as career satisfaction (Allen et al., 2004) Managerial support might be especially important in India, where researchers have argued Indian work culture requires transformational leadership ( nuturant-task leadership style) (Sparrow (p & Budhwar, 1997). Sparrow and Budhwar s work suggests that in India leaders need to have an interpersonal, social, and even spiritual orientation i H3: The greater the employee perception of positive managerial support, the higher employee retention 10

11 Mediating effect of employee pride/satisfaction Literature suggests a process whereby responsible leadership will lead to employee pride in the organization, and, in turn, retention. Turban and Greening (1997) found organizations CSR positively related to their reputations and attractiveness as an employer, reputation correlated with employee relations, and CSR initiatives give companies competitive advantage in attracting and retaining employees Branco and Rodrigues (2006) argue that a social responsibility reputation increases employees morale, commitment, and loyalty, contributing to one's pride in the organization Bhattacharya et al. (2008) state that there is growing evidence that a company s CSR activities comprise a legitimate, compelling and important way to attract and retain good employees and CSR contributes to an employee's identification and pride in the company Hence, responsible leadership should engender outcomes such as high levels l of commitment, t greater morale, job satisfaction, feelings of wellbeing, and a sense of pride H4a: Employee pride in the organization mediates the relationship between responsible leadership and employee retention. 11

12 Mediating effect of employee pride/satisfaction Literature suggests process whereby responsible leadership will lead to employee satisfaction with organization, in turn, retention Riordon, et al. (1997) suggest CSR and corporate image is related to attitudes of organization's employees; corporate image related to job satisfaction; job satisfaction negatively related to intentions to leave With respect to the managerial support component, meta-analysis of mentoring literature found mentoring relationships were associated with subjective outcomes, such as career satisfaction (Allen et al., 2004) Research consistently suggests the greater employee satisfaction with the organization, the less the intention to leave (Hom & Kinicki, 2001). H4b: Employee satisfaction with the organization mediates the relationship between responsible leadership and employee retention. 12

13 Survey design and administration Research part of study of HR practices, employee motivation and satisfaction, and retention in Indian companies conducted by a global HR/talent management consultancy (Right Management), in collaboration with a Villanova faculty team Over 100 firms identified d for possible inclusion; i sample of 35 firms selected (approximately 1/3 each MNC, international, national and 1/3 each from IT, manufacturing, and services (financial and business processing) Stratified random sample of employees was identified by sponsor; Employees directed to survey; individuals were assured the confidentiality of their responses A survey was obtained from 4,811 employees out of the 9,301 randomly identified and invited (54% response) 13

14 Survey design and administration Survey items either standard or created with intention that they would become part of composite scales 24 items analyzed using principle components factor analysis with Varimax rotation forcing a 6 factor solution;. 6 factor solution accounted for 77% of the item variance RL composite measure calculated as simple average of stakeholder culture, HR practices, managerial support Measure used to identify three near equal mutually exclusive and exhaustive groups, segmenting the 32 corporate entities To examine whether pride and satisfaction were mediators, interaction terms constructed as product of RL with other variables 14

15 Results: Regression Intention ti to Leave Turnover Regression Equation Beta t Beta t Step 1: Control Variables Length of Service.14 82** 8.2**.11 62** 6.2** Age Gender (0 = male, 1 = female) Responsibility Level Number Supervised Education Level ** -3.5** ** -3.6** Regression Step 1 R2 F R2 F ** ** Regression Equation Beta t Beta t Step 2: Study Variables Stakeholder Culture Human Resource Practices Managerial Support Pride in the Organization Satisfaction with the Organization ** -5.5** -2.8* ** Regression Step 1 plus Step 2 R2 F R2 F N = 4,251 * p <.01 ** p < ** -4.3** * 2.5* -21.2** *** ***

16 Results: Groupings Responsible Leadership Employee Retention Rate (% who left within 1 year) N=4352 4,352 Company Turnover (annual turnover rate) N = 32 High (mean = , sd s.d. =.33) Medium (mean = 5.4, s.d. =.25) Low (mean = 3.9, s.d. =.83) 8.5% 14.9% 14.4% 19.7% 36.8% 21.6% Pearson Chi-Square for Employee Retention was 413.6, p <.001; Eta =.31 Pearson Chi-Square for Company Turnover was 26.2,,p <.001; Eta =.08 16

17 Interaction effect of RL & pride w/ turnover 17 Turnover = RL Pride Pride*RL (R2 =.12) Linear equation for low Responsible Leadership: Turnover = * Pride (Pride mean = 5.2, s.d. = 1.21) Linear equation for medium Responsible Leadership: Turnover = * Pride (Pride mean = 6.1, s.d. =.60) Linear equation for high Responsible Leadership: Turnover = * Pride (Pride mean = 6.6, s.d. =.46)

18 Interaction effect of RL & satisfaction w/ turnover 18 Turnover = RL Sat Sat*RL (R2 =.22, F = 403.0) Linear equation for low Responsible Leadership: Turnover = * Satisfaction ( satisfaction mean = 4.4, s.d. = 1.21) Linear equation for medium Responsible Leadership: Turnover = * Satisfaction ( satisfaction mean = 5.5, s.d. =.74) Linear equation for high Responsible Leadership: Turnover = * Satisfaction ( satisfaction mean = 6.2, s.d. =.5)

19 Discussion/conclusions Results reinforce/underscore role of RL for retention Four times as many employees left who rated their organization as low in responsible leadership compared those who rated their firm as high in responsible leadership (36.8% versus 8.5%). The average company turnover rates follow the same pattern but are less strikingly different (21.6% versus 14.9%). These results suggest that there is both an individual effect and a company effect. Hence, an individual and company effect - engaging gg gin RL is especially meaningful when those actions meet or exceed employee expectation Employers must successfully communicate and demonstrate values and actions to employees. These values and actions are reinforced by employee pride and satisfaction in the organization in predicting both intention to leave and turnover 19

20 Discussion/conclusions Among 3 components of responsible leadership, employees perceiving greater stakeholder culture had largest unique effect in predicting intention to leave and turnover once pride in and satisfaction with the organization were considered However, effect was in direction opposite of prediction It may be that once the effects of these stakeholder cultural factors have enhanced the employees' perceptions of pride in the organization and satisfaction with it, some employees may perceive the organization being overly focused on non-profit making social actions Overall results support making responsible leadership attitudes and behaviors (among others) visible to employees as a way to increase retention 20

21 Discussion/conclusions Worst situation is having unsatisfied employees (means below 4.0) and moderate or low levels of RL as the employee retention rates were observed to approach 50% annually Our research contributes to literatures on RL and HR management tby extending many findings from Western organizations to organizations operating in India offering definition and operationalization of RL within context of what employees' value in their employer, its HR practices, and leaders In addition, we contribute to broader role of CSR, reputation, and stakeholder perceptions and support of the organization (Barnett & Hoffman (2008) 21

22 Appendix: Survey items Stakeholder Culture (Responsible Leadership Component) This organization takes an active role in its community. This organization takes ethics seriously (e.g., is committed to ethics training). This organization responds well to a diverse group of stakeholders. This organization takes corporate social responsibility seriously (e.g., has a clear policy that reflects its commitment to one or more social causes). Human Resource Practices (Responsible Leadership Component) Our performance appraisal programs are effectively used to retain the best talent. Our compensation programs are effectively used to retain the best talent. Our organization believes that all employees deserve to be actively managed as talent. Our organization s program for high potentials helps in talent retention. The company has a formal 'high potential' program -- people know what they need to do to get into it and to advance within it. Managerial Support (Responsible Leadership Component) My immediate manager leads by example. My immediate manager gives me the support I need to do my job well. My immediate manager is effective. My immediate manager is good at developing people. Pride in the Organization I am proud to work for my organization. I speak highly of my organization s products and services. I am confident in this organization s ability to do the right thing. I am proud of this organization s reputation. Satisfaction with the Organization I would recommend my organization to my friends/colleagues as a great place to work. Overall, I am satisfied with my present job. I expect to be a part of this organization two or more years from now (subsequently deleted from the scale). Overall, I am satisfied with my organization as an employer. Intention to Leave I am actively looking for alternative employment. I intend to leave my current position within the next year. I plan to work at a different organization within a year. Turnover Turnover was assessed 12 months after completion of the survey by determining i if the respondents were still affiliated (coded d 0) or no longer affiliated (coded d 1). 22

23 Appendix: Principal component analysis Factor Component Actual Item Number HR Managerial Pride in Stakeholder Satisfaction 23 Practices Support the Org. Culture Intention to Leave with Org. VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR VAR % of Variance Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Coefficients in bold loaded above.40 on the expected factor and were included in that dimension. The underscored coefficients under the Pride in Organization heading (VAR35 and VAR39) were NOT included in Pride; they were included in the factor receiving the highest loading. VAR45 was deleted from the scale as its content was ambiguous as to whether is was a satisfaction or intention to leave item.