Danny Meyer Wants to Change the Culture of the Restaurant Business

Danny Meyer Wants to Change the Culture of the Restaurant Business

Restaurateur Danny Meyer, the founder of Shake Shack and CEO of the Union Square Hospitality Group, is already famous for his employee-centered approach to restaurant management: By eliminating tipping in favor of higher wages and offering restaurant staff benefits like paid parental leave, he has broken the mold in an industry typically associated with high turnover, unpredictable incomes, and little in the way of job security or growth opportunities.

Meyer’s vision, which Aaron Hurst explored in an in-depth profile at Fast Company last week, is much bigger than simply abolishing tips. He’s looking to fundamentally transform the culture of his businesses, in large part by giving employees both a literal stake in the success of the restaurant and a greater sense of ownership toward the business and their careers:

When I asked Meyer how the change has turned out, he says when you make such a sweeping move across your business you have to make sure everyone is listened to, including your customers and your staff, “Our first priority was engaging and educating our own team in this conversation through a series of internal townhalls, so that they could be genuine ambassadors of the change. We started the conversation about “Hospitality Included” with our own people months before we made the news public or implemented it in any of our restaurants.” …

How do you persuade your waiters to forgo a 20% tip on each table they serve? Meyer says they never wanted to hire people who would only have been nice to you if they assessed it out of the four tables in their section, you were the richest or you were the most generous. “I would never want someone on our team who would go through that calculus. To say, “Who should I bring the food out for first?”

Now, the Wall Street Journal reported on Sunday, Meyer is taking his campaign to change beyond his own restaurants and even beyond the restaurant industry, launching a $220 million private equity fund called Enlightened Hospitality Investments LP to back companies that share his values of pursuing growth by taking the best possible care of their employees. Restaurant industry observers say the fund will likely get favorable terms on many of its investments because businesses want to be associated with Meyer’s brand.

Meyer’s approach reflects some of the best practices we surfaced in our latest research on culture change at CEB, now Gartner. Many organizations attempt to change their culture by changing their people—i.e., trying to hire candidates who fit the culture they want and attempting to influence their current employees’ behavior through training and top-down communications. These people-based tactics often don’t work, however, because the change isn’t reflected in the organization’s business processes: Even if employees are “on board” with the change and understand their intended role in it, they frequently encounter structural barriers or conflicts that prevent them from operationalizing it.

That’s why the companies that are seeing the most success in their culture change initiatives are devoting their resources to changing processes to support the desired culture, rather than people—and involving employees in the change at every step, rather than forcing it on them from above. In Meyer’s case, that means “building a culture where employees focus first on pleasing one another,” and keeping his finger on the pulse of how employees are feeling:

His restaurants offer employees a variety of rewards, from bonuses to birthday cakes. And employees in turn have discretion to give customers free extras, all creating a virtuous cycle of hospitality.

Meyer regularly tests his approach to see if it’s is working by asking members of the team to share their understanding and experience of the culture, “I think there’s a deep craving for understanding and being reminded and having the purpose of the company reinforced.” He says these discussions happen at pre-service meetings and in employee town halls, and through multiple internal channels that employees can use to offer their honest feedback.

The changes Meyer has made, particularly the shift away from tipping, have influenced the kind of people his restaurants hire. “[H]iring … emotionally intelligent people with hospitality in their DNA—has always been challenging,” he tells Hurst, but the radical overhaul in compensation practices has had the benefit of attracting people to work there “who are intrinsically motivated and not there just for the money.” So rather than simply training managers to hire for these qualities, Meyer made a more fundamental process change that made his businesses more attractive to the candidates he was looking for.

CEB Corporate Leadership Council members can attend one of our upcoming webinars or executive briefings to learn all about the full findings of our study, Creating a Culture that Performs.