No Tipping – Smart Business Meets Social Responsibility

Earlier this week, Union Square Hospitality Group CEO, Danny Meyer,made an announcement that made headlines: they will eliminate tipping for service in their iconic Manhattan restaurants. In its place, the cost of hospitality will be included in the price of their menu items.  Meyer’s bold move reveals a leadership style that reflects the type of systems thinking that integrates social responsibility into smart business strategy. While risky, I believe that it will not only pay off in the long-run, but could help to catalyze further systemic change for the common good.

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Why? Because it combines many of the necessary ingredients for successful change:

  1. Contextual understanding
  2. Values-based motives that are clearly defined and communicated
  3. Leveraging a reputation for innovation and excellence
  4. Change the system – Change the rules
  5. A good sense of timing

Contextual understanding

The restaurant business is a system that is nested within larger societal systems that are showing signs of stress. After a certain point, continuing in a business-as-usual fashion is riskier than making changes that are more aligned with emerging trends.

  • A large and widening income and wealth gap
  • Fast-food workers organizing and demonstrating for a minimum wage of $15
  • The rise of public policy initiatives to raise the minimum wage
  • Social responsibility and worker treatment as an increasing concern for consumers
  • The success of disruptive businesses like Uber

Values-based motives that are clearly defined and communicated

When there’s a growing tension between doing well and doing good, something’s got to give. Some leaders see it as a binary choice; others search for innovative ways to bring them more into alignment. Based on the values of fairness and shared prosperity, Meyer’s new policy is aimed at addressing the growing pay disparity between kitchen staff and servers. And not just on moral grounds alone, but also for very practical reasons that directly impact the bottom-line like attracting and retaining qualified staff.

In any kind of structural change, those who are benefiting from the current system may see it as a threat. Meyer went to great lengths to communicate the change and its rationale to all employees, fully acknowledging the risks and potential trade-offs. While some servers may make less money, Meyer was able to win their support by explicitly talking about fairness as a value that is innate in each of us.

Demonstrators prepare signs supporting the raising of the federal minimum wage during May Day demonstrations in New York May 1, 2014. REUTERS/Lucas Jackson (UNITED STATES - Tags: CIVIL UNREST POLITICS BUSINESS EMPLOYMENT TPX IMAGES OF THE DAY) - RTR3NFQ0

Leveraging a reputation for innovation and excellence

Coming from someone else such a policy change could come off as gimmicky or a self-serving marketing ploy, but it is consistent with Meyer’s track record of innovation and excellence. So his credibility and reputational equity give him a unique degree of leverage that makes it more likely that the industry and media will take it seriously and amplify it more broadly as a viable strategy.

Change the system – change the rules

The pioneering environmental scientist Donella Meadows identified specific places to intervene in a system to help leverage large scale change. One of the most effective interventions is to change the rules that determine how the system functions. Large corporations and wealthy individuals already understand this, which is why they spend millions of dollars trying to influence elections and legislation.

Such a simple rule change – no more tipping – has an incredible amount of leverage to change the behavior of an entire industry and possibly catalyze a larger shift that will serve to narrow the income gap and reduce the number of working poor.

A good sense of timing

When is patience called for? When is it time to act decisively? Having an intuitive sense for addressing these questions is another quality that I think Meyer’s latest move illustrates. Sometimes leaders are ahead of their time and end up failing. Sometimes they wait too long and the opportunity passes.

The evolution of the above intermingling factors is like a process of ripening. Being able to see them both as separate and interdependent forces is the mark of a skilled systems thinker. And being a skilled systems thinker guided by a strong set of values is what distinguishes those who are leading the shift from an outmoded single bottom line model to a sustainable and equitable triple bottom line model.

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