Here is the final piece of my review of Dan Price and the impact of his decision to increase the minimum salary of all his employees to $70,000 minimum salary over three years.
Business Conduct and Corporate Governance
Every business has business conduct policies that detail its organizational’s values, ethics, and beliefs alongside the rules that govern legal compliance. Gravity’s business focus was on providing ethical and fair payment solutions for small businesses, while also working to increase awareness of income inequality and promote social responsibility in the business world. Hence the mission of Gravity was not strictly motivated by financial gains. Consequently, the salary increase reflects Dan’s belief that companies should prioritize the well-being of their employees and their communities over maximizing profits for shareholders.
In compliance with Corporate Governance (CG) rules, there is a clear distinction between powers of the Board and the Management of companies. A company’s CEO has the ultimate authority in making management decisions and the salary increase sits in the purview of the CEO. In addition, Maria Harley, Vice-President of Operations had publicly supported the CEO’s decision which confirms that most likely Dan has obtained his management team’s buy-in on the decision.
For a 2-shareholder company like Gravity, can one really segment the company from its owners? For big blue-chip multinational companies with several shareholders, trading on the Stock Exchange, CG would be a big deal in such corporations and Regulators would be closely watching. Gravity is a private company and would not be subjected to strict CG requirements.
However best practice CG require management to get the Board’s support on a decision which significantly impacts the profits of the company. The power of persuasion, in addition to arguments and evidence showing the risk mitigation plan supporting the decision would have avoided the conflict which eventually was raised by Lucas Price. The Board would have supported Dan Price with recommendations which could have avoided some of the negative reactions experienced.
Tenability of the Lawsuit
The lawsuit alleged that Dan Price had “taken millions of dollars out of the company for himself” favouring his personal interest above the other shareholder’s interest. It is an established rule of law that in criminal cases, whoever alleges criminality must prove his case. Nothing in the case study revealed a criminal intent of Dan to amass wealth for himself. Also, from a decision-making point, Dan in his capacity as the CEO could make such a decision. It was also clear that Lucas was not actively involved in the management and daily operations of the company making his grievance to a large extent, mute.
There is a clear need to separate business from work as there is an intersection of the shareholders’ personal issues with business which was receiving negative media attention.
My recommendations are that the lawsuit be withdrawn from the court and terms of settlement be reached in an amicable manner. Dan should consider a possible purchase of Lucas interest in Gravity Payments. Family wise, Dan should make peace with his brother in line with his Christian principles and focus efforts in running the company.
Can other companies replicate Gravity’s decision? What are the learnings?
Every business is set up with different business objectives. In most cases, businesses are set up with a capitalist mindset, i.e., to maximize profits. While such companies may want to provide the best possible remuneration for their employees, the objective to deliver dividends to shareholders is usually placed above employees’ compensation.
We can say Gravity’s decision to raise the minimum wage for its employees was not directly related to its business objective but rather a decision made by the company’s CEO, Dan Price, based on his personal values and beliefs about fairness and equality in the workplace. But how can a company that already gives $3 million of its company’s revenue to charity, fail to see that “charity begins from home?” The decision from my view was not taken lightly nor was it an emotional decision. It fits nicely into the mission of the company which Dan, its CEO, strongly advocates for.
Replication of the decision therefore should be reviewed and taken on case-by-case basis in line with each company’s business objectives and its world view on values and beliefs.
In conclusion, wage fairness and equality in the workplace continues to be controversial and a lot of corporates continue to make best efforts per time for its employees. Similar to what Dan did, he took a chance on his employees by investing in their well-being which included him leading by example. While some of the negative effects of the decision could have been avoided (for instance equity over equality), I salute Dan’s bold move and hope other business leaders take similar steps to change the narrative in as many workplaces as possible.
The consciousness that people are the heartbeat of businesses and drivers of successful companies should always motivate compensation decisions. Compensation should not be based on the minimum requirement of Labour laws, it should be hinged rather on equity and fairness across board. It’s an ambition companies must, in good faith, strive to achieve.
htuR #EMBA28
