Small business: Loyalty shouldn't trump competence

Competence, like truth, beauty and contact lenses, is in the eye of the beholder.

-- Laurence J. Pete

I was helping an entrepreneur who had not laid off or fired any workers for more than 10 years. When I asked about this, she said they were loyal to her and her company and she felt loyalty was so much more important than anything else you could ask of an employee.

There were more than 50 employees, and unfortunately, there was very little accountability among them. The owner frequently complained about the errors in their work, but she never took any steps to correct the bad behavior. Over time, the staff had come to feel they could do almost anything they wanted to with no repercussions. Just about every one of them felt they were entitled to their job and their salary.

This business owner had traded competence for loyalty. Her staff was loyal, but they were ineffective, which was causing all kinds of financial problems. Because she was rewarding loyalty, her staff had no incentive to be competent. If she had chosen to reward competence rather than loyalty, her business would have been more profitable and a better place to work.

Now, I am not saying loyalty is not important. My point is simply that competence is much more important to your business than loyalty. You can have competence without loyalty, but you cannot have loyalty without competence.

Another pitfall of valuing loyalty above all else is that rewarding loyalty can be construed by other staff as favoritism. Another firm

I was working with had a group of employees other staff members called "the untouchables."

Everyone knew they could not be fired or demoted since they had worked with the boss for many years and he believed they were loyal to him. Because of this situation, morale was in the dumps. The staff felt this favoritism gave "the untouchables" an advantage in terms of salary increases and promotions.

In yet another example, a business owner was employing his best friend. They had started the business together, but the friend was not competent enough to be the sales manager. As time passed, the company's sales just kept getting worse. Despite this employee's poor performance, the CEO kept him on because he felt guilty about letting his friend go and putting his family in that position.

The owner eventually discovered his friend had stolen more than $100,000 from the company in just three years.

In hindsight, the owner recognized he had been displaying favoritism toward this employee because they were friends and because he thought he was loyal to him. It was now painfully obvious how damaging that had been to his company. Looking back, he said if he had it to do again, he would set up some goals to hold this employee accountable.

Sometimes managers and entrepreneurs do not even realize they are favoring loyalty over competence. And even if you have it right, you may be giving the wrong impression. The best way to know how your staff perceives you is to ask. Enlist the help of an employee you trust will be honest with you and send them out to ask other staff members if they feel you reward loyalty or competence.

You might be surprised by what you discover.

Jerry Osteryoung, a consultant to businesses, is Jim Moran professor of entrepreneurship (emeritus) and professor of finance (emeritus) at Florida State University. Reach him at