Human Capital is Loyalty Capital

Sep 10, 2023

Many people shy away from the phrase “human resources” these days, recognising that referring to people as resources is dehumanising. “Human capital” is another piece of business jargon that some prefer to reach for, rolling out the oft-quoted cliché, “people are our greatest asset”.

Unless you’re a slave owner, it’s just not true.

People are essential essential to your organisation succeeding, but you don’t own them. Don’t manage investment in your people by pretending you do.

What, then it an organisation’s asset? The loyalty, motivation, and trust of your team.

Shepherding the loyalty, motivation, and trust of the members of your team is that essential core. If “human capital” means anything, it doesn’t refer to bums-on-seats, so much as the emotional glue that sticks the two together.

I prefer to think of it as “Loyalty Capital”.

Loyalty Capital is the combined loyalty, motivation, and trust of your team members.

“Loyalty”? Ew!

“Corporate loyalty” is a dirty phrase these days: given the betrayal of loyalty that many companies gave their staff from the 1980s onwards, many find the idea of being loyal to a company inappropriate.

At a personal level, it’s good to avoid being blindly loyal to your place of work. However, in practice, people will often show a some loyalty to their employer.

People will be loyal to their team-mates.
People will trust leadership enough that they assume that changing jobs won’t fix whatever issue they’re struggling with.
If people have been treated well in the past, they will both feel some compulsion to “pay that back” as well as assume that they are likely to be treated well in the future.

Millennials, everyone’s favourite scapegoat generation, get a bad rap for showing a lack of appropriate corporate loyalty. For generations who had parents affected by the “corporate efficiency” moves, it’s unsurprising that corporate loyalty is a contingent proposition.

You can still build up loyalty capital with younger generations (not to mention that millennials are now entering their 40s), it just takes more work – it doesn’t come for free, and it’s not limitless.

Loyalty accounting

Loyalty Capital can be thought of as a “stock” in a stock and flow system. We can do things to build this stock up, and we can do things to deplete this stock. When your Loyalty Capital is high, benefits include:

People are more effective, productivity increases.
Your reputation outside the company improves through word of mouth and hiring becomes easier.
Staff leave less often.

The opposite is true when loyalty is low.

Another effect is that there is less blow-back when bad things happen. If you have run a tight ship and shepherded your Loyalty Capital before the event, such as being forced into making redundancies, it will still be a difficult event. However, it would be much worse if your team were running out of patience with the company’s leadership.

Loyalty will take a hit in times like these – in essence, you’re spending your Loyalty Capital – but having capital available to spend lessens the blow for everyone involved.

Building up loyalty

What can you do to build up your Loyalty Capital? It’s simple, really, but it’s not easy. For example:

Have a clear & meaningful mission.
Make important decisions in line with the company’s stated values, and hold people to account for operating in accordance with those values.
Demonstrate integrity, authenticity, and empathy.
Prioritise team members’ needs.

These are things that are easy to say and hard to do, although they’re easier to pull off when you believe in them deeply.

What about the opposite? Poor leadership, generally, will of course wear down your Loyalty Capital, but so will focusing exclusively “on the numbers” when making decisions. For example, if you make a push for efficiency without also prioritising team members’ needs, your Loyalty Capital will take a hit. Maybe it’s a cost worth incurring, but don’t do it blindly.

Over to you

The aim of this post was to introduce Loyalty Capital as a tool to support management decision-making. There's a lot more that I could say about it, but first I'd want to hand over to you.

What do you think? Does it give you a new way of thinking about a situation you’re dealing with? Is it a re-hash of existing ideas that I should read up on? Do you have any ideas that would build upon it?