Companies and Employees Are in the Same Boat—What 'Retained Earnings' and 'Employees Who Don't Work' Reveal

There are two common voices regarding companies.

One comes from employees and the public: 'Companies just hoard retained earnings. They should give more back to their employees.' The other comes from management: 'Our employees only do what they're told. They don't act on their own initiative.'

At first glance, these seem like separate complaints from opposite sides. But I believe both stem from the same misunderstanding. It is the misunderstanding that the company and the employees are on different boats.

Today, I would like to consider retained earnings and the nature of work together, from the perspective of being in the 'same boat.' This will be a somewhat long discussion.

First, 'retained earnings' is not cash in a safe

The demand to 'stop hoarding retained earnings and distribute them to employees' is usually based on a misconception. It is the misconception that retained earnings are like stacks of bills piled up in the president's office safe.

Retained earnings (earned surplus) are the accumulation of profits earned in the past. However, those profits are not just sitting there as cash. Much of it has become factories and equipment, product inventory, and investments in future business. Even if the financial statements say 'this much profit has been accumulated,' most of it has already changed form and is at work.

Therefore, the argument to 'release retained earnings and put them toward salaries' often doesn't hold up in the first place. Even if you wanted to distribute them, they aren't cash in a safe. I want to establish this point clearly first.

Why must the dam be thick?

With that in mind, there is a clear meaning to keeping the portion of retained earnings held as cash—the 'thickness' of it—high.

I previously wrote about 'dam-style management.' You don't use everything up during good times; you save a surplus. The idea is that when a drought (recession) comes, you survive on the water in that dam. A thick reserve of retained earnings and abundant cash on hand is exactly the water level of this dam.

And here is the important part. This dam is not just for the management. When winter comes and sales are cut in half, a company with an empty dam can no longer pay salaries and has no choice but to lay people off. But a company with a thick dam can use that water to keep paying its employees' salaries for a while.

In other words, thick retained earnings are also a provision to protect the place where employees can continue to work tomorrow when the time comes. Saying 'don't hoard it, distribute it all' is, in effect, saying 'empty the dam.' That is close to telling the company to choose a path where it—along with its employees—sinks the moment winter arrives. Holding substantial assets is by no means evil in itself.

However, 'the more, the better' is not true either

For the sake of fairness, I should also address the opposite side.

So, is it true that the thicker the retained earnings, the better? Not necessarily. A company that just piles up cash without investing it or returning it to employees, even when there is no clear purpose for it, will be criticized for 'letting money go to waste.' Money only creates value when it is put to use.

Therefore, the truth is this: there is certainly a water level in the dam necessary to survive the winter. But going far beyond that and hoarding it without meaning is a different issue. 'Where healthy preparation ends and excessive hoarding begins' is not something that can be easily divided. This is an area that management must decide while considering the instability of the business.

The important thing is that 'thick retained earnings' is neither 'evil' nor 'the more, the better.' A water level as a safety net is necessary. That one point remains unshakable.

The manager's job is to create a system that works even when they aren't working

Now, let's move on to the other voice: 'Employees don't work on their own initiative.'

To be honest, managers who complain about this have the order wrong. They build systems based on the 'premise' that people will act spontaneously and with passion. Therefore, when that premise collapses, they end up lamenting, 'Why aren't they moving?'

But the real job of a manager is the opposite.First, create a system that works properly even if no one acts spontaneously. This is the foundation.

Think about it. A system that relies on people's goodwill or passion is, to use a dam analogy, a 'dam that assumes it rains every day.' If it stays sunny, it dries up. It is very fragile. If you build a foundation where 'things work even if no one tries extra hard,' it won't sink even during a drought. Reducing dependence on people is the same philosophy as narrowing down fixed risks.

Therefore, I will say it clearly. It is not the employees' fault that they do not act spontaneously.It is a design flaw on the part of the person who did not first create a system that works even if they don't move.As long as you blame people for this, management will always remain at the mercy of the weather.

Who do you run that system with?

Writing 'a system that works even if people don't work' might sound cold. But in reality, it is still people who run a company. And managers need three types of people with different roles.

One is the right-hand person. This is someone who can make almost the same judgments as the president and act in the same way. If you have one, there is no more reassuring presence.

The second is the person who connects the gaps (manager). They convey the management's intentions to the front lines and return the voices of the front lines to management. It is not about top and bottom, but about connecting people with different roles—those who build the system and those who run it—while translating between them.

The third is the person who steadily runs the system that has been built. They reliably move the established flow forward. For the machine called a company to function, this role is absolutely indispensable.

Here, I want to write clearly so there is no misunderstanding. This is not about the status of human beings at all. These are merely names for 'functions' and 'roles' within an organization. It is not a matter of which role is superior. There is no top or bottom here. Employees are professionals who are selling their limited time to take on those roles. As long as the manager's job is to 'create a system that earns money,' the company will not move a single step without the professionals who run that system. Not everyone needs to be a right-hand person, and in the first place, they shouldn't be.

By the way, a right-hand person will not stay for long unless something extraordinary happens. That is natural. People who can do the same things as the president will eventually realize, 'It's faster if I do it myself.' That is why they leave. A right-hand person stays by your side only when there is something that makes them think, 'I want to be on this boat together,' not because of salary or title.

Identifying those who step out

So, after creating a 'system that works even if people don't work,' what should managers and leaders really be looking at?

It is not about blaming the 'people who don't work.' It is about finding people from within the system whostep out of the established framework and act of their own volition.

If someone appears who acts on their own initiative—even on a foundation designed so that no one has to try hard—that is a rare talent. You could even say you are lucky. Find that person and reward them properly. This is where the discerning work of managers and leaders lies.

In particular, I want managers who connect the gaps to keep this in mind. The thing managers fall into most easily is urging the people they work with to have passion, asking, 'Why don't you do it spontaneously?' But that is just repeating the same mistake as the manager on the front lines. A manager's job is not to urge passion.It is to create arrangements that work even without passion, and then find the people who step out and connect them to management. That is the true role of the person standing in the middle.

This design may seem cold, but it is actually the one that least destroys people. A workplace that demands, 'Everyone must be spontaneous and passionate,' quietly corners those who cannot respond to it. But if you base it on 'it works even if they don't move,' you don't have to bind people with excessive mentalism. You reward those who step out, and you don't corner those who don't. You can make both happen at the same time.

To employees—your weapon is value, not time

So far, I have talked from the perspective of the employer. Finally, I have one thing I want to convey to those who work.

As a major premise, salary is compensation for labor and a natural right firmly protected by law. It is not something that should be easily reduced just because the company is struggling. That is unwavering.

With that in mind, I would like you to consider something for a moment. Have you ever thought about your own productivity?

A common misconception is that 'because I am busy, my salary should go up.' But being busy is not value. Sweating for a long time and creating value for the company are two completely different things.

It might sound a bit extreme, but to be honest, it's okay to be idle. If you can generate significant sales or value in a short amount of time, that is much better. What the company is really looking at is not how many hours you were there, but what you created.

And this is not meant to corner you. It is actually the opposite. If you compete based on 'time,' people get worn out and eventually cannot keep going. But if you can compete based on 'value,' you are not bound by long hours and can work more freely. Trading your weapon from time to value is not just for the company's sake; it is also a path for you yourself to continue working for a long time with ease.

Companies and employees are crew members on the same ship

At this point, the two voices from the beginning connect to the same place.

'Distribute all retained earnings,' 'I'm doing you a favor by hiring you,' and 'I deserve my salary, so the company's finances are none of my business'—all of these come from that same misconception that the company and the employees are on different ships.

But in reality, it is the same ship. If the ship sinks, the management and the employees sink together. A thick dam (retained earnings) is not a treasure for the management to hoard for themselves, but a reserve of water for all crew members to survive when a storm comes. And for employees to create value is not just to make the management rich, but to move the ship they are on as far as possible.

Companies and employees are not opponents. They are crew members protecting the same dam and moving the same ship forward.

Previously, when discussing executive compensation, I wrote that the government and the president are facing the same direction on the single point of 'retaining profit.' The company and the employees are exactly the same. On the single point of 'keeping this ship moving for a long time without sinking,' their vectors are actually perfectly aligned.

Summary: 3 things to take away today

1. Retained earnings are not cash in a safe, but the accumulation of profit = water in a dam. Keeping it thick is a preparation for winter and a safeguard to protect the place where employees can work tomorrow as well (though hoarding too much is a different issue).

2. Employees not moving is a design flaw on the part of those who failed to create a system that works even if they don't move. The job of management and managers is not to urge passion, but to create a system and identify and reward those who emerge from it.

3. Salary is a natural right. On top of that, your weapon is value, not time. Companies and employees are crew members moving the same ship, and their direction is aligned on the single point of 'not letting the ship sink.'

Before demanding that 'retained earnings be distributed,' and before getting frustrated with 'employees who don't work,' try looking at the sea from the deck of the same ship for once. What needs to be protected is not the other party, but the fact that this ship is still afloat tomorrow.

With that in mind, how you row—that is for you to decide.

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This article is an explanation of general concepts and is not intended as advice for individual management, labor, or investment.