Companies do not operate in a vacuum and the Covid-19 pandemic has shown the importance of how companies treat their employees.
“Our employees are our greatest asset” - This is a message echoed by management teams across industries. It underpins the notion that companies should try to build positive, strong relationships with their workforce.
The importance of the employee-employer relationship is a longstanding idea which stands as one of the core components of stakeholder capitalism. Broadly, this is the idea that companies should focus on the needs of all stakeholders (such as customers, suppliers and employees), not just shareholders.
The importance of employees to their firms, even in an era of increasing automation, is clear: employees drive innovation, build products and shape the customer experience. Management teams know recruiting the best talent and engaging their workforce matters hugely to the overall success of their business.
A notable cost of poor workforce management is a lack of productivity; in Germany, Gallup estimates that disengaged workers cost the country’s economy approximately 2.5% of GDP each year. Other costs associated with poor employee-employer relationships relate to dismissal, replacement, retraining, and of course the opportunity cost of how much an engaged employee might have contributed to the company in the first place.
In the European Equities team at Schroders, we measure how a company interacts with its employees, as well as other key stakeholders, through our quantitative sustainable investment tool CONTEXT. By assessing non-financial metrics which relate to themes that are otherwise quite abstract, CONTEXT allows us to view ESG (environmental, social and governance) factors in a systematic way. This makes comparisons within sectors possible.
For employees, we use metrics such as staff turnover and Glassdoor ratings to discern company loyalty; training hours undertaken by employees to understand company commitment to employee development; the gender pay gap as well as board diversity to uncover whether a company champions equality through its actions. We also engage with our companies to increase disclosure around internal employee surveys to provide us with deeper insights where necessary.
How a company treats its employees has perhaps never been under as much scrutiny as it is now. Our internal news flow tracker highlighted a nine-fold increase in the number of articles discussing employee pay in April 2020 compared to a five-year average.
The Covid-19 pandemic has abruptly forced companies to think about solvency and survival as opposed to growth. It is against this backdrop, where the tide has truly gone out, that those companies who put their employees first come to the fore. While not all companies are in a position to respond in the same way, as the fallout from Covid-19 has impacted industries unequally, there are a number of encouraging examples.
Despite these positive examples, not all companies have acted in an exemplary manner. Numerous media outlets reported that Teleperformance, a business support firm, provided boarding conditions that were incompatible with social distancing in its Philippines offices and inadequate sanitary care for their employees in France. Although the company moved quickly to address its errors after press reports surfaced, this example serves to illustrate the shortcomings of some employers and the public’s sensitivity to perceptions of negligence.
Moving from the anecdotal to the data-driven, the broader picture mirrors this split between saints and sinners. The Financial Times reported only 43% of 13,000 people surveyed in a global study thought companies were protecting their employees sufficiently.
Current public perception is likely to impact a company’s future prospects as 81% of all respondents also said that whether brands do the right thing during the crisis would influence their future purchasing decisions. While this finding is especially pertinent for consumer facing companies, the broader trend is one for all companies
Given the prevalence of this issue it is no surprise that much has been written about how the present crisis has shone a spotlight on the ‘S’ in ESG and brought it to the fore. We have long argued that companies do not operate in a social vacuum. In a time where their treatment of employees is determining their social license to operate, never has this felt more true.
References to companies are for illustrative purposes only and is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy.
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