For his dissertation as part of the Executive Global Master’s in Management programme, Ben Colton focused on how companies engage with their employees. Using employee engagement surveys as his focus, his work revealed the correlation between employee engagement and other indicators of progressive attitudes – and even with financial success or failure.
Over the past decade, the boards and executive management teams of public companies have become more engaged with external stakeholders. Levels of engagement with shareholders have increased substantially since the turn of the century. Newly equipped with social media accounts, connected consumers are able to voice their views at lower costs and with higher impact than ever before.
Insofar as this makes corporations more mindful of their customers and society at large, this is a good thing. Although corporations are becoming more engaged with external stakeholders, they risk neglecting the voices of another key stakeholder group: their employees.
The importance of employees to their company cannot be overstated. Employees provide the human capital necessary to operate the business and play a fundamental role in a company’s success – or failure.
Whether they work in business lines, interacting with end customers, or in product development, they often have insights about the company that can otherwise be hard to come by. After all, given how much of their lives they spend enmeshed with their employer company, it’s only natural that employees should develop useful, practical insights about their business. When properly harnessed, these insights can help a company learn from itself, exploit hidden opportunities and avoid harmful pitfalls.
In short, listening to the perspectives of employees can provide a firm’s leaders with vital information that can be used to improve decision-making and organizational efficiency. When their voice is unheeded, employees may become unsatisfied and leadership forfeits critical information, thereby increasing the organization’s exposure to high impact risks. Even when employees can’t provide useful business insights, ignoring them is perilous.
In order to understand the impact of employee voice, I undertook a dissertation comparing the characteristics between public corporations with and without employee engagement surveys in place. This enabled me to gain a deeper insight into the connections between companies and their employees.
Interestingly, my dissertation established evidence of the relationship between companies utilizing employee engagement surveys and various long-term performance indicators. In other words, companies with employee engagement surveys generate significantly higher returns with lower volatility while also displaying a lower probability of default. So not only do they tend to perform better than those firms which do not offer employee engagement survey’s, they do so with more a tolerable risk profile.
Secondly, I discovered correlations between companies with established employee engagement survey programs and indicators of diversity at the senior management and board levels. There’s a correlation between these employee engagement programmes and director independence, gender diversity and other ‘progressive’ qualities. Broadly speaking, the existence of employee engagement surveys provides an additional, robust proxy to gauge the level of diversity in thought within an organization.
Thirdly, I also found a positive relationship between employee voice opportunities and their satisfaction level with leadership. Employees tend to be more positive about their company’s senior staff if their firm actively seeks their opinion.
While the voice of the employee is important, obtaining information from public corporations is challenging. Disclosure on gender diversity, turnover, and other human capital measures tend to be sparse and inconsistent. Public companies are usually reluctant to disclose fundamental information about their employees, which creates difficulties for not only for researchers like myself but also for investors. Equipping investors with more robust data could encourage them to allocate their capital in ways that are better aligned with specific values and investment objectives. It could also help to establish a basis for improving shareholder dialogue with investee companies.
Management teams and boards of directors are constantly challenged to make difficult decisions about their businesses. They are obligated to be conscientious of the landscape in which they operate and the stakeholders who they impact. Listening to and considering the perspectives of a wide range of stakeholders, including employees, can empower leadership to make more effective decisions. As they consider the diverse and sometimes competing views of various stakeholders, they must not forget the voice of the employee.
ABOUT THE AUTHOR
Ben Colton studied as a collegiate athlete at the University of Nevada. He then chose to pursue an international finance Master’s while completing an exchange semester at the University of Oslo. Upon completing his studies, he started his professional career working for Norges Bank Investment Management (NBIM) based in Oslo, Norway while simultaneously studying for his Executive Global Master’s in Management at LSE. He’s about to embark on a new journey as State Street Global Advisors as a Vice President Head of Asia-Pacific based in Tokyo, Japan.