AOL's Armstrong misfires again

AOL chief Tim Armstrong has now quietly withdrawn his plans to short-change employee 401(k) plans.

Seeking to cut costs, Armstrong had originally proposed witholding 401(k) matching funds until the end of the calendar year. His justification for the move was the rising cost of healthcare benefits, made worse, he said, by two "distressed babies": complicated pregnancies that had required over a million dollars of medical care each. 

That the plans, and the way he explained them, caused a firestorm should not have surprised Armstrong. Cutting the company’s 401(k) plan and delaying any company matching until the end of the calendar year manages to convey two negative messages simultaneously: We value our employees less – and we think the only way to stop them jumping ship is to delay paying them.

 If Armstrong seriously imagines that holding back promised retirement payments will keep his workforce from leaving, he must have a pretty dismal idea of what attracted them to the work in the first place. They stay just for the benefit plan? Would he consider delaying his senior executives’ pay (or his own) until the end of the calendar year, imagining that that would somehow inspire greater commitment?

Blaming the costs of healthcare benefits on two “distressed babies” is even more damaging. Why? Because it encourages employees to see each other as costs, implying that any one of them might be better off, were it not for the lamentable demands their health needs place on the company.

Fostering dog-eat-dog attitudes within an organization directly damages the company’s social capital: the inter-dependence, familiarity and trust that makes organizations creative and communities resilient.

In the media, everyone knows that companies don’t have ideas, only people do. But for them to come up with the most sparkling ideas and projects, they need to work in environments that are high on trust and safety and low on threat. Building social capital within companies takes time and effort – but destroying it is quick and easy. That AOL needs higher levels of creativity is obvious. How it will inspire those is harder than ever to discern.

Nor is this the first time that Armstrong has (to be charitable) misjudged the mood of a room. Last November, he abruptly fired an employee in the middle of a company meeting. The pair of errors can't help but convey the impression that Armstrong regards his workforce as a nuisance and a cost. This is unproductive in a business that fundamentally depends on people for ideas, insight and energy. 

That Armstrong's cost-cutting coincided with some of the company's best growth in a decade only made matters worse. There's real debate around the AOL business model and where the company is going. But there’s no real debate about the professional ineptitude implicit in blaming individual employees for the consequences of management decisions.

When Armstrong says he wants to be “open and transparent about the choices we make,” he should consider that transparency is not the same as thoughtless and openness should not be confused for shooting from the hip. For a leader to blame his decisions on the healthcare needs of pregnant women shows no leadership at all.

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    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.