This £10bn industry has turned into a waste of human resources

For a young person considering their employment options and trying to judge where to deploy their skills and talents, there is a curious and concerning trend in the modern economy. You may be well advised to avoid a path that involves directly doing things or building things. Increasingly, a better bet is to get into the area of regulatory compliance — to issue guidance to and impose rulings on the doers rather than being a doer oneself. In particular, the field of human resources is a booming industry — directing not what a business actually does but how it behaves.

Across the entire UK workforce there are now nearly 300,000 HR employees. Their combined salary packages amount to more than £10 billion a year and when you factor in the proportion of other employee time spent dealing directly with HR departmental work, you’re probably looking at much more than twice this figure in the amount paid out by British businesses in wages alone.


The idea that “everyone should row in the same direction” produces sterility
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One might argue that this is a small price to pay for a more even-handed approach to questions of gender, race and sexuality and for a workplace culture in which employees in general feel empowered and well treated rather than exploited as mere wage slaves. The question, however, is whether the explosion in the HR profession is a cause of enlightenment or a largely unintended and irritating consequence of it. There is a real danger that HR processes are trumping almost all other business considerations.

A misstep in following exact protocols, even if relatively minor in nature, can pose an enormous, possibly even existential, threat to an enterprise. The average cost of defending tribunal litigation is calculated by the British Chambers of Commerce to be about £8,500. With more than 80,000 such applications every year, businesses are shelling out £700 million a year in legal fees alone. Given the Supreme Court has recently struck down the government’s policy of charging a modest fee for complainants, we can expect this number to rise.

Employers and employees will respond rationally to the incentives enshrined in the rules of the game. So, employers are quite likely to agree to a compensatory payout even if they feel certain of their innocence, simply to avoid the cost and time involved in defending themselves. Similarly, a disgruntled employee has a strong temptation not simply to seek employment elsewhere but to file a complaint about their treatment — even if this involves claiming to take offence at something relatively trivial. Of course, this doesn’t mean that every grievance is frivolous, but it seems far too many are.

Individual cases may not be conclusive, but they can be illustrative. In one recent instance, a worker was seeking to secure £15,000 in compensation. Their claim failed, but the successful employer incurred unrecoverable legal fees of £50,000.

There is also the strange case of the sexagenarian jewellery salesman who was awarded £63,000 in damages for age discrimination. Perhaps he was wrongly dismissed, but he was able to adduce in evidence that he was nicknamed “Gramps” by younger staff, although there had been no apparent complaint from him about this while he was employed.

The stranglehold of human resources concerns isn’t limited to the costs and chilling effects of treading on eggshells. We may be taking the even greater risk of creating a sterile, monocultural environment both within and across different businesses. Although the terms “equality” and “diversity” are often coupled together in an attempt to describe the ideal working environment, there is a degree to which the former mitigates against the latter. Disagreements and different views within the workplace can often be the sign of a healthy and successful business. If “diversity training” makes us all think in exactly the same fashion, we are almost certainly undermining teamwork not improving it.

Writing in the Harvard Business Review, Liane Davey describes phrases such as “all in the same boat” or “rowing in the same direction” as “ridiculously idyllic”. She concludes that collaboration without tension, disagreement or conflict is pointless. Instead, such clashes are necessary to expose risks inherent in any business plan and to enhance trust among participants in the enterprise. A study conducted by the University of Adelaide also pours cold water on the idea that tranquil unanimity should be an aspiration. In fact, unanimous agreement weakens confidence that the correct answer has been reached and increases the chances that the conclusion is due to inherent biases in the decision-making process.

This does not mean it is advisable to include the occasional white supremacist or outright misogynist in your company’s key discussions. However, it does mean that if your key staff are inhibited in speaking out and honestly expressing themselves for fear of being misinterpreted or causing offence then you have a major problem. You won’t be getting the most out of your human resources, you will simply be creating an illusion that you are doing so.

No doubt it is worth spending time, effort and money on ensuring that employees are well treated. But you can create a risk-averse, unimaginative and insipid working environment. If we really want to create an enterprising British economy, then we need a change of direction. That means accepting we have allowed the orthodoxy of the modern human resources industry to grow too fast and to spread its influence too far.

Mark Littlewood Director-General of the Institute of Economic Affairs

The Times