"The Nordic region must capitalise on social capital"

The Nordic region enjoys a high level of social capital. For companies it means a high level of trust between management and workers. This can give Nordic countries an enormous competitive edge as long as business leaders learn how to explore the potential of this particular resource and resist the temptation to focus solely on economic capital because of the crisis. 

That's the message from three Danish researchers in the new book 'Leadership and Social Capital', which focuses on business leaders' responsibilities and opportunities to develop social capital. Through a range of case studies, authors Peter Hasle, Eva Thoft and Kristian Gylling Olesen show how leaders in both private and public enterprises can promote their business' social capital.

"Social capital is an enormous and unique resource which is found to a certain degree in all Nordic companies. Our message is that leaders face new and considerable demands to realise this resource," says Eva Thoft, a consultant at engineering and management consultants Grontmij Carl Bro. One of her jobs is helping companies' develop their social capital. 

No soft leadership

Social capital means human relations built on fairness, trust and the ability to cooperate. Leadership with focus on protecting and developing social capital can result in improved efficiency and the optimisation of worker resources, knowledge and competence. This benefits both workers and businesses - and consequently the Nordic countries' ability to compete, the authors argue.

Businesses which enjoy high levels of trust, fairness and cooperation also perform better on the international stage. Trust saves a company both money and effort compared to mistrust, control and conflicts. It can concentrate its efforts on creating results instead. Studies show that fair processes in the workplace are crucial to a good working environment and reduced stress. 

"It looks like a high level of social capital reduces stress. The stress factor is reduced when workers can solve their tasks in time, understand them and feel their achievements are being appreciated," says Eva Thoft

Yet showing leadership which stimulates trust and fairness is easier said than done, and it must not be confused with democracy or soft leadership.

"Leaders must show trust, but not blind trust. Leaders must support and govern. Leaders can in fact undermine workers' trust in them by failing to be firm when someone is going off in the wrong direction. To lead social capital is not the same as democratic leadership and it can be very tough. You must be able to fire workers who fail to cooperate," says Eva Thoft.

When a leader balances between power and trust, fairness becomes very important. Yet the worker's need for fairness must not be confused with a demand for equality. It must be made very clear why one worker earns advantages while others do not.

"Most workers can deal with being treated unequally, but management must make it clear why and how this happens. It should not happen because the worker who's been promoted is a good friend of managers. They must protect social capital by acting according to known principles and follow through what they have promised. This creates trust," she says.

A resource for times of crisis

During times of crisis, like the one we are going through right now, it can become very tempting for a business to focus solely on economic capital to the detriment of social capital, the authors warn. They argue social capital is a valuable resource also during times of crisis. One example used in the book is Swedish hospitals which at the end of the 1990s were about to merge, cut and reduce their workforce. This, according to a Swedish investigation, led to an increase in sick leave and a general lowering of well-being among workers. Yet two hospitals did not fall into this pattern - because they had created and maintained a high level of social capital. They managed to maintain a high level of trust and professional pride and had support from management in times when tough priorities had to be made.

In order to protect and use social capital in times of crisis you need transparency, a high degree of worker participation in the decision making process and necessary action. In a crisis most companies resort to so-called change management. The authors warn leaders should think carefully before going down that path.

Change management relies on creating a 'burning platform' - a feeling of crisis which justifies radical change. The idea is tempting but detrimental to social capital because management comes up with a preconceived idea of what will come out of the crisis - without the involvement of workers' representatives.

Important social value 

The authors also consider well maintained social capital to be a benefit to the Nordic welfare societies. They recommend the nurturing of trust - both in society as a whole and within companies - even though this means running the risk of disappointing those who put their trust in their leaders. It is better to risk disappointment than to introduce a regime of control which only indicates to citizens and workers that there is no trust in their willingness to do their best, and no trust in them not cheating. 

Some might call this naive, but the authors argue this kind of trust is what makes Nordic societies tick today. The authors fear the Nordic countries are about to throw the baby out with the bath water - that they feel under so much pressure to finance the welfare system in an increasingly competitive international market with increased individualisation that they begin to copy other societies which focus solely on economic motivation and meaningless control.  

So far the Nordic region has been successful in developing its own model built on trust and on the special opportunities presented through the Nordic culture. "We are convinced we must continue this strategy," says the book's authors.