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E-MailBenjamin Colton is the Head of Asia-Pacific, Asset Stewardship at State Street Global Advisors. This post is based on his recent paper as a graduate student at the London School of Economics and Political Science.
Levels of engagement between public corporations and certain stakeholders have increased in recent decades. Shareholders more frequently address environmental, social, and governance matters and customers express their viewpoints at lower costs and with higher amplitude than ever before. Although companies are more regularly considering the perspectives of key external stakeholders, it is important that they also listen to the voice of their own employees.
Employees and the human capital they provide are central to the sustained success of a company. Whether they work in business lines, interact with end customers, or develop products, employees possess insights about their company that can be difficult for management to ascertain. The perspectives of employees can provide leadership with information valuable for improved decision-making and organizational efficiency. When silenced, employees may become unsatisfied and leadership may not receive critical information, thereby increasing the organization’s exposure to high impact risks.
While many leaders of companies recognize the importance of employee voice and can take steps to encourage such engagement, fewer believe the potential benefits of employee engagement have been realized in practice. Of the many different mechanisms available to facilitate upward communication, employee engagement surveys are among the most commonly used at organizations.
In effort to better understand the impacts of employee voice, I surveyed public corporations across North America and Europe to determine if, and to what extent, firms utilize employee engagement surveys. I then compared the characteristics between companies with employee engagement surveys in place to those without them. My analysis established that the companies with employee engagement surveys are more likely to demonstrate the following:
- higher long-term rates of return
- lower implied volatility
- lower probability of default
- greater percentage of gender diversity at the board and executive management levels
- higher levels of employee satisfaction
While my study establishes that the utilization of employee engagement surveys positively correlates with various dimensions of performance, diversity, and satisfaction, publicly available information about the workforce at public corporations is sparse and inconsistent. Improving human capital related disclosure regimes would help to close the information gap, benefitting researchers and investors alike. More comprehensive disclosure could enhance investors’ abilities to assess portfolio risks and would also provide a basis for discussion between shareholder and investee companies.
Top leadership at public corporations is continuously challenged to make complex decisions about their businesses. Listening to and considering the perspectives of a wide range of stakeholders, including employees, can inform more balanced and effective decision making.
The full paper is available for download here
