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042 How Prioritizing Employee Wellbeing Can Lead to Outperformance

This is the final part of the three-part series on the Business Case for Stakeholder Capitalism.

In the first part, I presented research that cast doubt on the financial benefits of stakeholder capitalism. In the second installment, I highlighted other studies that argued the opposite.

I believe the truth lies in between—it is not enough to talk about leading a purpose-driven business without a sustainable culture focused on employee wellbeing. In this third and final part, I discuss how prioritizing employees over short-term growth can enable organizations to build purpose-driven organizations.

Start With Employees and Culture

Employees want to do more meaningful work. They want employers who are not just ethical but also create a sustainable impact for people and the planet. They are arguably one of the more critical business stakeholders whose needs leaders should meet.

The CEO and his executives need every employee to buy in and engage in what they are doing to build a purpose-driven organization that treats suppliers fairly and delivers value to customers and investors. Creating impact at the individual, organization, and societal level requires bottom-up execution—boots on the ground need to believe in what they are doing.


The Great Resignation is another reason to focus on employees at the moment. Many workers have quit their jobs in the past twelve months. The most significant increase in resignations is in the tech and healthcare sector, with a 20 percent increase in mid-career employees between 30 and 45 years old. Increases in workload and treatment of workers during the COVID-19 pandemic have led some to rethink what they want from work. Many seek more flexibility and better work-life balance.

Take Care of the Team

Aneel Bhusri, co-founder and co-CEO of Workday, the HR software company, agrees that taking care of employees will enable the business to take better care of customers. During the COVID-19 pandemic, taking care of employees meant providing more flexibility at work and understanding that each person has different family responsibilities.

But taking care of employees does not mean not firing them. Sometimes the organization is not a fit with the employee. If, after coaching, training, and direct conversations, the situation with an employee does not improve, it may be better to part ways. If you think you are kind by not firing someone, consider the employee's self-worth and overall office morale by keeping them in the role longer than you should. The employee could find another role better suited to their abilities and interests.


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According to Dame Vivian Hunt, Senior Partner at McKinsey, the key to layoffs is establishing trust through transparent communication, including trade-offs that the business has to make. Have confidence in the team that, given the context, they will understand the difficult choice the business needs to make and what should be done for the greater good.


Invest without Quantifying Returns

She cited examples of PayPal and Costco that put employees at the center of their strategy. These companies outperformed their peers in revenue and job growth by paying fair wages and taking a long-term outlook on the business.

Howard Schultz, the former CEO of Starbucks, often asked himself how he could change the lives of his employees and customers for the better. Was the business decision going to make the employee or customer proud?

He implemented initiatives that some investors and ROI-focused finance professionals would question. He gave shares and ownership of Starbucks even to part-time baristas and free college education to employees without the requirement that they remain with the company. The culture that he built grew an army of loyal employees, intimacy with the customer, and ultimately, brand equity.


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Increase Workplace Flexibility

The four-day workweek is an emerging trend that seems to put employee wellbeing before financial return. Companies are implementing this to provide work-life balance without reducing salaries or requiring teams to work the same hours in four days.

Companies such as Microsoft in Japan, Uncharted, a social impact accelerator, and Kickstarter, the crowdsourcing platform, found that giving their employees an additional day off with no expectation to check in on emails or stay connected reduced stress levels without any impact on employee cohesion. Employees can spend the extra day taking care of home responsibilities, spending time with family and friends, or investing time in their hobbies.

The four-day workweek is one of the different initiatives companies are experimenting with to provide more flexibility to employees and improve their wellbeing. Companies can attract and retain talent by allowing employees to organize their work-life around their personal life. Managers can offer flexibility across different dimensions: the workplace (remote, hybrid, or onsite), schedule (work hours vary depending on expectations), and continuity (time off for health, parental, education, or other similar reasons).


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Such initiatives require a mindset shift. Managers need to look at an individual's contribution and the value they create, rather than the number of hours they spent at their desk or how quickly they respond to emails.

In return for the flexibility offered, managers are rewarded with higher retention of talent and improved productivity and creativity. While these are intangible and unquantifiable, instinctively, we know that this is good for business.

Lead Employee through Purpose

Initiatives such as the four-day workweek or investing in employees' learning and education put teams and the culture before quantifying the benefits from such investment. I believe that such initiatives could only reap financial benefits when the purpose and values are clear and shared by everyone in the organization.

Workday ("people are the core of our business. Without them, we would not have a business"), PayPal, Costco, and Starbucks ("to inspire and nurture the human spirit") have strong team cultures grounded in purpose and values.

Kantar, a data analytics and market research company, reported that companies that achieved profit through purpose grew their brand value by 2.5 times more than brands perceived to have a low impact on their stakeholders.


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With this in mind, leaders should take another look at building purpose-driven organizations, starting first with their employees and culture. To quote Simon Sinek, Start with Why. It is not enough to craft a perfectly written copy of the company's Vision and Mission Statement. The company's purpose needs to be part of the strategy and operations and fully embedded in the supply chain to create business value.

Embed Purpose Everywhere

What is the purpose of the company at the individual, organization, and community level? These should align for the purpose to be effective. Otherwise, this would be disregarded by business stakeholders as marketing or greenwashing. The sustainability and social innovation activities should not be confined to the company's sustainability, and corporate social responsibility (CSR) teams alone. They should be the responsibility of every individual.

The purpose should also make sense with the business and what the company is good at. Otherwise, it will not resonate, or worse, alienate its employees, customers, and investors. How does the purpose fit with the product or service offering, and what the customers understand about the brand? Ultimately, it boils down to authentic communication. Take a bold stand and rally others with you towards a common goal.


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According to Reid Hoffman, co-founder of LinkedIn and partner at Greylock Partners, "great companies are built on great stories. And great stories are completely, transparently honest… (Leaders) need to craft a compelling narrative that engages (their) employees and (their) customers, builds a community, and infuses people with purpose… But most important, (leaders) have to avoid the trap of stretching the truth.”


People as Competitive Advantage

A well-written vision, mission statement, or sustainability campaigns will not bring investors or the business financial returns. Instead, a company culture centered on employees, particularly their wellbeing, tied in with the purpose and business strategy likely will result in business outperformance.

The intense demand for talent means that leaders need to invest in their teams responsibly and communicate with honesty and transparency. Initiatives such as the four-day workweek and giving ownership to employees build trust that enhances employee happiness and wellbeing.

To achieve the delicate balance of stakeholder capitalism, leaders should look first to investing in sustainable workplace culture.

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