The Business of Corporate Culture: Part II

June 23, 2023

Read Part I here.

Although the overall health of a company is usually measured by profitability metrics these metrics aren’t often linked to a company’s culture, but recent data suggests a strong correlation between profitability and strong corporate culture. One of the most compelling data points involves stock market returns. According to research from FTSE Russell, companies that make the Fortune 100 Best Companies to Work For list outperform the market by a factor of 3.36. 

To further make the case Kitterman cites five metrics as being the most responsible for this result.

The first metric concerns retention rates. The data suggests that the Fortune 100 Best Companies to Work For experience half the turnover rate of their peer companies. He notes how expensive turnover can be. At a typical hospital in 2022, losses in hospital staff cost between $5 and $9 million. In terms of replacing workers, according to the Society for Human Management (SHRM), a company spends an average or $4,700 per new hire.

The second metric concerns burnout. Some employees become unhappy enough to quit, while others resort to “quiet quitting.” In any case researchers argue that workplace stress costs the U.S. economy $500 billion. Workers who report burnout are 2.6 times as likely to actively seek a different job, 63% more likely to take a sick day and 23% more likely to visit the emergency room. In terms of employee satisfaction, the data suggests that only 16% of workers at a typical U.S. workplace are thriving, whereas at the 100 Best Companies that number is 58%. In research on working parents 80% preferred to stay with a company they felt provided a psychologically safe and healthy working environment.

The third metric relates to innovation. When employee satisfaction is high workers tend to work harder, contribute more, and drive higher levels of innovation and productivity. Research indicates that empowerment is key. More empowerment and inclusion increases innovation. Companies that connect innovation with inclusion have a median year-over year revenue growth that is five times higher than companies in the bottom quartile. When workers agree that their colleagues adapt to change and that management seeks out new ideas, business results follow.

Research suggests that great workplaces rebound faster from a recession. Five groups were identified as driving performance over the past 15 years (including the great recession from 2007-2009)—women, front-line workers, hourly male workers, long -tenured employees, and people of color. A group of 69 companies that were identified as “thriving” didn’t follow the 35.5% stock decline of the S&P 500 from 2007 to 2009, and in fact saw an increase of 14.4%. After the recession these same companies continued to beat expectations. From 2006 to 2014 the S&P 500 companies recorded gains of 9%, whereas the thriving companies remained at 35%.

The final metric concerns stock returns and long-term business success. Research from Alex Edmans of the London School of Economics confirms this. Edmans analyzed the history of the 100 Best Company lists from 1984 to 2009. Controlling for firm size, industry, past returns, and many other variables, he demonstrated that companies on the list outperformed the stock market by 2% to 3% per year.

Taken as a whole, it is tempting to conclude that employee well-being is just an indicator of running a profitable business. The more money you make, the more perks and benefits you can offer. Ted Kitterman argues that this is only partly true. Treating employees well doesn’t just correlate with higher stock returns, it predicts future performance. It takes four to five years before the market catches up to the value of employees’ job satisfaction. Profits don’t create great workplaces. It’s the other way around.

Back to the coffee and bagels, smiles and frowns. As an office manager I don’t chart the course for the company, I don’t make corporate policy decisions, I don’t determine personnel numbers or qualifications or set salaries or budgets. In fact, there isn’t a lot I have control over as it relates to APCO North America or APCO global. What I do have some control over is employee satisfaction in the Chicago office. I can listen to my colleagues and stock the cupboards and refrigerator with the snacks and drinks and fresh fruit they prefer. I can order team lunches from a variety of restaurants they suggest. I can make every effort to ensure the technology in the office is available and in optimal working condition. I can find a way to get to yes on any reasonable request and even on a few unreasonable ones. Perhaps most importantly I can make my colleagues old and new, local or not, director or intern, feel heard, seen, valued and welcomed. I can choose to engage. A smile costs me nothing, but to someone having a tough day it could be invaluable. Is any of this good for business? The research says it is.

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