Loyalty: a few initial thoughts

This tweet from Which? caught my eye the other day, and is something I've been thinking about a lot lately:

The tweet (which is currently pinned!) referred to the cost of sticking with the same broadband providers, and it reminded me of a similar tweet from ex Adam Smith Institute dude Sam Bowman before xmas:

And when I Googled "loyalty doesn't pay" I found other examples with the same message, like this:

In a way there's nothing new here. You'd expect advocates of market forces to argue that people (consumers) should move around rather than being "loyal" to a particular provider. They are typically very attached to "exit" as a discipline.

And obviously it's good advice on one level. There's not much point being loyal to an energy provider if you're paying more than using a competitor. If the amount involved is big enough to overcome the faff involved in switching it makes sense.

In the corner of the world that I inhabit, loyalty is not a prized value either. In fact incentives for loyalty are extremely unpopular. A significant case for me was DSM back in 2007. The company was seeking to introduce a loyalty dividend so that if you held the shares for longer you got slightly higher dividends. But it was attacked by asset managers and eventually scrapped.

At the time I was surprised, these days I am not surprised at all. A subsequent report on loyalty incentives by Mercer and Generation issued in 2013 found institutional investors opposed to loyalty rewards:

Respondents identified four main obstacles in utilising loyalty rewards as a means to overcome the root cause of the short term pressures found in the full investment chain: 1 – Discrimination between shareholders due to belief in “1 share, 1 vote” 2 – Risk of unintended consequences 3 – Administrative complexities 4 – Uncertainty that loyalty driven securities would incent a significant change in behaviour and address the root causes of short-termism

Just to be absolutely clear: investors oppose rewards for loyalty on principle even though they have the potential to gain from them. They do not want to see "exit" disincentivised (relatively). Perhaps views have changed in the 6 years since the Mercer report, but I doubt it.

I would argue that there has been a similar development in employment. Many employers have sought to shed their obligations to their workforce and they increasingly seek to deny an "employment" relationship at all. One of the most interesting books I read last year was The End Of Loyalty by Rick Wartzman (nice review here), which is all about the changing relationship between employers and employees (and their unions) from the immediate post-war period to the present day. The big theme is that as organised labour's power diminished so employers became less willing to offer long-term security to employees. Loyalty was undermined. Notably, he also sees the shift to shareholder value / shareholder primacy as part of the explanation.

Finally - and perhaps this is a bit of a reach - I personally find complaints from politically active and knowledgeable people that they are "politically homeless" a bit jarring. To me, they come across as betraying quite an entitled and transactional mindset - a political party should align with all my views and values or it cannot count on my vote. There's a great quote about politics that I read some time last year which was along the lines that loyalty that doesn't cost anything is meaningless.

I think there's a lot in all this worth exploring but here are a few initial thoughts. I think that to many actually existing humans, loyalty is an admirable quality, not something to be discouraged. Loyalty is at the core of some of the things we care most about. We actively profess loyalty to our football team, or our country, or our political party and, yes, sometimes even to brands and products. What's more, we demonstrate (and measure) loyalty by the length of our commitment and by what we endure along the way. We respect those who suffer for their support and loyalty, and denigrate those who only profess allegiance in the good times and/or go missing when it gets tough. In political/moral psychology, loyalty/betrayal is one of the pillars in the moral foundations theory associated with Jonathan Haidt.

Yet look at that Which? tweet again. Yes, there is a context but the message is very very clear: loyalty costs you, it's a self-defeating trait. I wonder what kind of reaction this creates. My gut feeling is that, rather than eliminating the concept of loyalty in this field (presumably the objective), it engenders distrust. If loyalty is a concept with which I make sense of the world (and likely it's part of my mental make-up for evolutionary reasons, so it's not something I can just "switch off"), and I discover (or am told, in this instance) that certain organisations will take advantage of my loyalty then I am not going to think highly of them. If I learn/am taught that my loyalty will be exploited by an entire sector (insurance companies, in Sam Bowman's tweet), I am likely to conclude that the whole sector will betray me and therefore cannot be trusted. I think it's less likely that I will conclude that my sense of loyalty is the problem.

When I look at the way that institutional shareholders react to loyalty rewards - which some would no doubt consider to be economically rational - I wonder what the reaction in turn of the humans working for companies like DSM is. Again, my gut feeling is that it suggests - or confirms - that you shouldn't trust asset managers. I think this is why the question of asset managers shorting their own clients jars with me. I don't believe that the human beings who are executives at the companies being shorted simply think "fair enough, that's how the systems operates, and they have Chinese walls". I think it will sting emotionally, at least some of them. I know some of them consider institutional shareholders to be entirely mercenary.

And in the world of employment, I suspect that we are still only starting to see the counter-reaction to the reduction of employer loyalty to employees. In the past a lot of employees felt some loyalty to their employer, it was part of their identity. But, if you read a book like Hired you can see that sense of loyalty is gone, along with social clubs and defined benefit pensions. If millennial workers don't trust employers (because of the lack of loyalty) we perhaps can't be surprised if they demand a lot to come onboard / stay onboard, because they expect to get shafted.

So perhaps the widespread distrust in institutions at least in part results from the violation of loyalty. And emphasising the desirability of "exit" - and the foolishness of remaining loyal - exacerbates this. (I think there is a link to the idea of self-interest as a norm, that I blogged about a few years back.)

Anyway, I think this is a theme I'll be blogging about more in future.