Social Capital

Every firm requires capital, and there are a number of different kinds. There is what we think of as financial capital, of course, consisting of the monetary and physical investment needed to get a firm going and keep it operating. Then there is human capital, which we generally think of as the skills and abilities of our employees and leaders, the intangible resources needed to perform the company’s mission. But one that often gets overlooked is social capital, and it is worth understanding this concept so that, as leaders, we can try to develop it in a way that most helps our organization.

What is social capital? Essentially, it is the accrued benefit of the relationships between people. As your employees trust each other, as they develop customs and protocol for interaction, or as relationships get defined informally, the path is smoothed for better dealings among your employees, or between your employees and you. Social capital is like a lubricant that allows the “machinery” of your business to work more easily.

How social capital manifests itself will of course be different in different firms. In smaller companies it is more important to have good relationships between individuals, whereas in bigger firms it might be more useful to focus on relationships between different departments that have to cooperate. When individual work is the norm the relationship between leader and employee is critical, whereas in team-oriented work the relationships between employees tend to be the dominant concern.

The benefits of strong social capital are easy to see. People who know each other are more likely to help each other, rather than dropping everything to meet a stranger’s request. Employees who understand each other’s abilities can work together without a lot of supervision. When employees trust their leaders to take care of them, they can focus less on administrative concerns and more on their value-adding work. When leaders trust their employees, they spend a lot less time double-checking their work. Informal rules of conduct that are developed by employees are more likely to be followed, because they come from within rather than being imposed by bosses, and such rules allow for better interaction because people know what is expected of them and what they can expect of others. The culture in a firm with strong social capital tends to support the firm’s work.

Purposely creating strong social capital is tricky; it is better for relationships and customs to develop naturally. Still, there are things you can do to guide its development. Have a comprehensive orientation for new employees, and for that matter, try explaining some of your corporate culture as early as the interview process so potential employees know what is expected of them. Encourage your employees to get to know each other, whether in the office, through company functions (while avoiding mandatory fun as much as you can) or through remote means if your employees are scattered around the country or the world (a company Facebook group, used actively, might be one way to do this, or perhaps an e-mail newsletter that keeps employees informed about what is going on and what others are doing). As you see customs or informal relationships emerge, watch to see if they will help the business. If so, encourage them; if not, consider trying to stop them from taking hold. That last point is important…negative social capital hurts, so if you see things happening that can hurt your company, look for ways to avoid them.

A Harvard professor named Robert Putnam wrote a now-classic book a few years back entitled Bowling Alone: The Collapse and Revival of American Community, which talks about the reduction in association between individuals and how society faces a loss of social capital as a result (look around the bus or the train at all the people staring at their phones instead of interacting with others, and you will get a sense of what he means). In his follow-up book from 2004, Better Together: Restoring the American Community, he shows how new forms of association are making their way into society. Leaders would benefit from these books, as they offer ideas about society on a large scale that can be tailored for the “society” of your organization (and do not be put off by the word “American” in the title — all developed societies are seeing similar changes). There are new methods for association that Putnam doesn’t think much of, including social-networking tools and Meet Up groups, and you should consider how to use these tools to enhance associations and increase social capital within your company, depending on your particular situation. Another good source of thought can be found in the simply, and aptly, named Social Capital.

In Asia we are starting to focus more carefully on human capital, looking at the technical skills our employees bring and the style of thinking their education provides. But very few employees are going to be completely independent, so it is important to look at those interactions and figure out how we can make the best use of them. Understanding what social capital is, why it helps, and how to develop it, gives you an additional form of capital your competitors might not have.