Do Investors/Shareholders REALLY know what’s going on in their portfolio companies? Is past & current financial data enough to predict what will happen in the future? Or should they look toward more substantive people-related data? The power of people-driven performance variation that either inhibits or unleashes company (and stock) growth is the next big investment priority of the 21st century.
It´s not just ESG that matters
There is a lot of hype these days around ESG-reporting. A lot of investors want their portfolio to include “green-type” Companies that take Sustainability to heart. This is considered to be an important step in demonstrating that the investment community cares about the future of our planet, I guess.
Regardless of whether or not ESG-Investors are sincere in their motives (I hope they are), we at AC Authentic Consult (AC) believe that in all of the ESG-hype there are some important factors that are being overlooked, ones that should be elevated to a special status within ESG-reporting overall or at least separately considered in earnest when doing due diligence on investment opportunities.
People-Driven Performance
What we are referring to is elevating the importance of people-focused organizations. We believe, based on many years of working in the realm of reducing people-driven performance variation (RPV), that people are still the most overlooked resources that companies have.
Sure, we see a lot of “lip-service” out there saying much of what we say. We, of course, like all of you, often hear that the “number one” resource that companies have, are their people. Time and time again. And we all know Richard Branson´s (Virgin) line about “if you want happy customers, take care of your employees first!” Or something to that effect…
But what does the reality on the ground look like? Just take a look at Gallup´s Engagement Survey. It is conducted every few years in the U.S. and around the globe and has been conducted annually in Germany since 2003. The results tend to vary around the globe, but on average they indicate that about 15% of all employees in any given country are “highly engaged”, 70% are “not engaged” (i.e. they come to work for their monthly pay checks) and 15% are “actively disengaged”, in other words, they “hate” their workplaces and would like nothing more than to see their companies fail…
What do these survey numbers tell us? Well, initially they are just national averages, based on very qualified representative studies. But what does it actually look like in individual companies? Here the numbers vary quite significantly. Some companies have much better “Engagement” results than others. Highly engaged companies tend to perform much better than companies in which their employees are not as engaged. The hard facts of the matter are as follows:
Highly engaged companies have lower employee attrition rates (up to 40%) and higher productivity (18%), profitability (23%), customer engagement (10-20%) and 66% overall well-being amongst employees. Most importantly for investors (when they’re not focused on ESG), companies with engaged workforces have higher earnings per share – in fact, up to 147% higher EPS compared with their competition!
And we’re not talking about some fluke survey taken in one or two companies, Gallup has researched over 2.5 million employees in 276 companies across 54 industries in 96 countries before publishing their latest Meta-Analysis in 2020.
So what does this all mean for investors? Here are some of the key takeaways:
take people issues into strong consideration during due diligence before investing into companies.
look at the strength of the customer relationship based on engagement results in companies you want to invest in.
ensure that the company of interest is vested in an employee – customer – financial outcomes model and ensure that each link correlates to the next.
dig deeper to look at overall organisational health & corporate culture: leadership principles, diversity, well-being & people-driven innovation — these tend to be important indicators of engagement.
you might also want to check to see if a company has a plan to reduce people-driven performance variation (RPV) to drive positive change and increased performance while ensuring that people aren’t being driven to the point of burning out and thus leaving their companies (i.e. The Great Resignation…).
Finally, be sure that surveys that you have in place for your employees and customers are researched, validated, and fulfil the standards of being as close to being a predictive indicator as possible.
Gerald Wood
