• Feb 01 2018

Why Corporations Should Invest Their Tax Cut in Leadership Development

The passage of the Tax Cuts and Jobs Act is a boon for corporations, which—among other changes—slashes the top corporate tax rate from 35% to 21%. Forbes states that over the next decade the tax plan will save corporations $600 billion, with an additional $350 billion in savings for pass-through entities. Major corporations have been unclear about how they plan to allocate the full savings, with just 39 of the S&P 500 saying they will raise wages, hand out bonuses, or improve employee benefits.

Corporations that are still deciding how to spend their windfall have a unique opportunity to create stronger, long-term ROI for shareholders by making human capital investments. With these additional funds, corporations have the opportunity to improve individual skills and organizational capabilities, solidify their leadership bench, improve employee satisfaction, and boost publicity—all of which contribute to long-term outperformance.

Here are the reasons why corporations should invest their tax cut in leadership development:

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Increase Revenue

The best organizations have robust learning and development programs that generate leaders with the skills to propel their business ahead of competition. Studies show that top leaders can increase an organization’s revenue by as much as 2x. Organizations have the opportunity to invest a portion of their tax break in development initiatives such as starting or expanding a HIPO program, which will produce top leaders.

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Reduce Costs

According to The Herman Group, 75% of employees who voluntarily leave their jobs do so because of bad managers and poor leadership. By investing in leadership development, organizations can increase employee retention and cut down on costly recruitment efforts. The Society for Human Resource Management estimates that on average each time a business replaces a salaried employee, it costs 6 to 9 months of the individual’s salary.

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Build Brand Value

By investing in employees, corporations can generate positive press and strengthen the public’s perception of their brand. The Trump Administration’s argument for the tax cut is that it frees up corporations to create jobs and raise wages. Aside from creating new jobs, and increasing wages, corporations can invest in the employees they currently have, and then share success stories. By doing so, corporations can improve their brand image and build political capital in Washington, D.C. Organizations that have already received positive press by investing in employees include AT&T, Fifth Third Bancorp, Southwest Airlines, and several others.

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Increase Productivity

According to Gallup, employees who are actively disengaged cost about $500 billion in lost productivity annually. Through leadership development initiatives, organizations can train their leaders to engage employees and win back productivity.

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Solidify Your Leadership Bench

CEB research shows that 38% of HR leaders are dissatisfied with their current succession management process. By investing in leadership development, organization can improve their succession pipeline, which will minimize risk to the organization and produce top leaders capable of driving long-term growth.

To achieve success, corporations should look beyond stock buybacks, dividend hikes and short-term employee satisfaction tactics, and invest in leadership development initiatives. Companies that do so will significantly reduce their risk of falling behind those innovative enterprises who are building more capable, more skilled, and more productive employees.

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