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Value Creation May be Thanksgiving’s Superpower

Can data and data science be used to link culture, human capital and equity performance? A 2020 study looking at stock market performance during the COVID-19 pandemic determines evaluated how culture drives returns.

The Link Between Culture, Thanks, and Business Performance*

Can data and data science be used to link culture, human capital and equity performance? A 2020 study, jointly produced by Energage® and Irrational Capital through their research collaboration, shows a credible linkage between corporate culture and equity performance. Looking at stock market performance during the COVID-19 pandemic, they evaluated how culture drives returns.

 

Background

The study included 1,400 public companies recognized as Top Workplaces as determined by their employee engagement scores against Energage’s reference benchmarks. Analyzing 10 years of data, 80 million data points, 2.7 million employees and the companies’ daily stock returns, Irrational Capital created portfolios of these top workplaces and concluded that “culture driver” portfolios outperformed the S&P 500.

 

Return-on-Culture

The study also looked at what drives return-on-culture (ROC), a metric indicating productivity as a function of stock market performance. They looked to see which companies were more profitable and why, and the link between how people felt about the company and its performance. The study concluded: “It’s really easy to beat the S&P 500. To do so, you need to ask employees questions and understand what is going on in the company.”

 

The Top 3 Culture Drivers

Specifically, this research sought to understand which culture drivers mattered the most during the pandemic. The top three drivers, in order of importance were:

 

1 | People managers who care, help, and appreciate

This was the number-one driver of performance, accounting for more than 10% higher returns for Top Workplace companies over the S&P 500 during the period March through September 2020. Managers helped employees learn and grow, demonstrated their appreciation, and visibly cared about employees’ concerns.

 

2 | Inclusive innovation

This means being open to new and diverse ideas, continuously looking for opportunities for improvement from employees. As a function of openness and flexibility, organizations must ensure all employees have a voice and are being heard, as well as provide autonomy and a sense of individual control. This also means accelerating new ideas and innovation and putting these ideas into practice. The enemy of this practice is indifference and perceived punishment for trying something new. Inclusion is evident in both the number of ideas and the continuously improving quality of ideas.

 

3 | Is the company moving in the right direction?

Direction was seen as critically important during a period when so much is unknown. Employees needed to feel they were all working toward something. Employee buy-in to the mission of the company was viewed as especially important when employees were not physically co-located and were struggling with increased stress and distraction.

 

Analyzing the Data

The data showed an increase in caring has a substantial tangible improvement on an organization’s economic performance during a crisis. During the first six months of the 2020 pandemic, Top Workplaces did not lose as much value as compared to other S&P 500 companies and outperformed the S&P 500 by three times during their initial recovery.

According to Dan Ariely, co-founder and partner at Irrational Capital:

The results point to the value of recognizing that a person is more than their function at work. Demonstrating that as your manager, I care about you as a person and we understand each other’s needs — creating a reciprocal relationship in a dynamic, evolving way. That I want you to develop, improve and grow. I have an interest in your future. People don’t recognize the value of appreciation. Saying, ‘Thank you.’ In an Intel study we conducted[,] we found that compliments from a manager or boss, even via email, generated higher returns and contributed to greater long-term value than spot bonuses or gifts. To put this into context, in this Intel study, saying ‘Thank you,’ compared to not saying thank you increased production performance in one manufacturing facility by 6%. That’s a big deal!

 

Applying it to Private Companies

When asked if the 2020 study’s findings could be extrapolated to private companies, Ariely said his organization had created a dependent measure for the study: stock market performance.

Doug Claffey, founder of Energage, added,

“If you think of corporate environments as a machine, there are forces that increase productivity and forces that decrease productivity. The same forces that influence stock market performance in big or public companies apply to similar measures of performance in small or private companies. The distribution of effects in private and small companies is even greater than in large or public companies.”

 

Let’s Talk Turkey

While discussing corporate gifting, my husband reminded me that his employer was unable to provide their annual free turkeys to employees because of supply shortages. This inspired a conversation about ways to show meaningful appreciation and regard to our teams and colleagues. As the research above reminds us, the traditional Thanksgiving turkey may actually diminish employees’ feelings of appreciation and engagement–especially if this recognition is one of few touchpoints demonstrating how much you truly value their contribution. At the same time, a cornerstone of developing an engaged workforce includes a dimension that is all grounded in history and tradition. We cannot know how to move the organization forward without a solid understanding of the past and how we got here.

 

Giving Thanks

Make it a point to give thanks every day. It’s easier than you think.

  1. Personally thank employees and colleagues for their hard work and dedication.
  2. Acknowledge individual contributions – be specific about what and why.
  3. Make time to connect with your peers and team members personally.
  4. Keep your commitments to your team and colleagues.
  5. Regularly recognize and celebrate individual and collective achievements.

 

We are deeply grateful to all of you. Thank you for trusting us to be your partner in human capital value creation as you navigate transactions and business transitions.

*Adapted from People Economics: Defining and Measuring the True Value of Human Capital

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solomondevel

Author / Editor

Laura Queen

Partner, Human Capital Solutions

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