Advancing Human Capital Strategies in Tougher Times with Jefferies LLC

Michael C. Bush (00:00):

One of the things that happens a lot in our work is we'll have conversations with companies and we're usually talking to somebody, often in the HR area, maybe the marketing area, and they will say, I need you to talk to my CEO. Why? Because I need you to convince my CEO that having a great culture, and having strong leaders, treating people with respect is good for business. Now in my brain I'm like, are you kidding me? But yet the question is sincere. So it's being able to, as John did today, talking about how he doubled the size of his company based on the employee experience and the leaders, drives more money, the financial performance and a great place to work. We call it the Great Place To Work Effect. So I invited Matt to come and join us for that reason. So are you okay with us talking about money for about 45 minutes? Okay. Because what we're actually about to do, which is the whole point of being in business. So Matt, if you could give us a little understanding of what Jefferies is and then share some data to let people know that yes, indeed, if you want to make a lot of money, this is a great way to do it. 

Matt Spring (01:22):

Absolutely. I can see my mic is now on, so thank you for that. And thank you Michael for having me and inviting me to speak today. It's been a great day so far and really appreciate being invited to share some of our data and our research on this topic. Now, just by way of introduction, I am a senior associate on the sustainability and transition strategy team at Jefferies. Jefferies is an investment bank, global investment bank, headquartered in New York City, and we have been in the equity research department. It is our role to produce content for all types of institutional investors. So this is large public equity investors, but also private equity, venture capital and companies as well. And so within the equity research department, many teams are covering stocks and producing recommendations on those companies within our team. We don't cover stocks themselves, but we produce thematic research related to sustainability topics. 

Matt Spring (02:27):

And for the last several years I have led our focus on human capital and corporate culture analysis. And we do this with one question in mind, which is, how does a human capital strategy for a company impact the performance of the business? How does it move the price of the stock? And to answer this question, we have hosted probably a hundred expert calls with renowned thought leaders in this space like Professor Jim Heskett from Harvard or Shivaram Rajgopal from Columbia Business School. We've hosted culture consultants like Human Synergistics or Culture Amp and many others. We've hosted companies on our platform, many that have already been ranked by the Great Place To Work certification. And we hear from executives on how their human capital strategy is differentiated. And we saw just earlier this morning how important it is to hear from CEOs and other executive leaders on this topic. And our team, we are also running our own data analysis to better understand the performance of human capital leaders and to portray those human capital leaders to our institutional investor clients. And so with that as background, I'm just going to fly through a handful of slides to show some of the data that we have analyzed over the past few years and also to frame the argument that companies should continue to advance their human capital strategies even amidst macroeconomic headwinds, amidst tightening budgets and just generally tougher times. So with that, I'll kick off the slides. 

Matt Spring (04:16):

Okay. Now look, there is a remarkable amount of academic research that already exists in this space. We did not come up with the question at Jefferies as to whether or not the 100 Best Companies to Work For do or do not outperform the market. And I'm sure you're all familiar with Alex Edmonds and some of the great work that he has done over the last several years. There was also a more recent report called Long Run Stock Returns and Employee Satisfaction. And this was by two authors, Hamid Boustanifar and Young Dae Kang. And they analyzed this question of “do the 100 Best Companies to Work For outperform the market?” And they do this from 1984 to 2020. And they do a great job but look at Jefferies, we're research analysts. We're naturally skeptical and we wanted to replicate this work frankly, to see how could this possibly be true that the 100 Best Companies to Work For have outperformed the market by this much. 

Matt Spring (05:20):

And so we do. We replicate the work. We started it in 1998 because that's the year where these rankings started being published annually. And we create an equal weighted basket of the publicly listed companies in the 1998 list. And it's as if you invested in all of those companies, you hold them for the year, total returns, so dividends reinvested and compound return. And on the day that the 1999 rankings are published, you switch over your portfolio to the public stocks and the next rankings and you continue onward. And you do this every year all the way through 2024. And now we've just had the 2025 list. But if you had done this, if you had invested in those stocks in 1998 and as the new rankings are announced, switched your portfolio over, in comparison to the S&P 500 and equal weighted S&P 500, you would've outperformed by 2000%. Now that's about 6% annually. And we do this as well against a market weighted S&P 500. We think it makes the most sense to compare an equal weighted basket of the best companies to an equal weighted S&P 500. But there's many different ways you can cut this up and analyze it. But if you had outperformed the market by about 6% every year for 28 years, you would be the best investor of all time. You would be an incredible, incredible investor. 

Michael C. Bush (06:46):

You also wouldn't be here today. 

Matt Spring (06:48):

Yeah, I would not be in my role today if I had done that. But that's what we found. We were able to replicate the amazing work that the academics had already done. And the academic literature goes into much greater detail on this thesis. They run their own regression analysis and their factor models and they account for certain variables and control for variables like the size of the companies and the sectors that they're in. The momentum of those companies, growth value, it doesn't matter. They were able to show that it's not because of the size of the companies or the sectors, it's not all tech companies. They're able to show that the market is undervaluing employee satisfaction. 

Matt Spring (07:33):

Now, what I think is the most, let's see, what I think is the most significant takeaway of this report is that not only do the 100 Best Companies to Work For outperform over a period of almost three decades, but this excess return is elevated in times of economic crisis. And so this report, they designate certain periods to be either a normal period, an economic boom or an economic crisis. And in terms of a crisis, this includes the dotcom crash as well as the global financial crisis is just two examples. And what this slide is showing is ultimately horizontally, these are five of the different factor models that are included in the report, just controlling for different sets of variables like the size and sectors of the companies. And you can see the different periods and just focus on the bottom left sell. And you can see that the 100 Best Companies to Work For outperform the market by over 1% annually, or sorry, over 1% per month in times of economic crisis. And again, at Jefferies, we just wanted to try to replicate this to see could this even be true? And so this is just an illustration of the dotcom crash. So April 2000 to October 2002, this is the specific time period from the report. We just took it and replicated the performance of our best company's portfolio versus an equal weighted S&P 500. And once again, we were able to very easily and clearly show that our portfolio of 100 Best Companies to Work For does in fact outperform an equal weighted S&P 500.  

Matt Spring (09:27):

And this brings us to where we are today. You can see that the 2024 100 Best Companies to Work For list did in fact outperform the market by 4% with majority of the outperformance since the election. Now I have to admit, I had to share my slides with Michael last week, I think about Wednesday just prior to the announcement of the tariffs. And so you could see this graph ending slightly upward. Now the market just closed another 3% down today, it's down about 12% in the last five days. So we're not naive to the fact that the market has taken a downturn, but it's important to still show that the market or 100 Best Companies to Work For have outperformed over the last 30 years. They've outperformed, especially in times of economic downturn. And even just if you looked at the 2024 list, they outperformed an equal weighted S&P 500.  

Matt Spring (10:31):

And I just want to conclude this by showing some of our survey work that we've been doing. Again, we have been all over this topic in every way that we can be. And one of those ways is we have been conducting a survey to full-time employees in the United States since November 2021. And we ask many different questions, but we've shown, and of course we're also aware that quitting has materially declined in the U.S. since 2021 or which was very close to all-time highs. Job openings have declined materially in the same time period. But as we continue to survey full-time employees in the US, we can see a consistency in some of the results. And included in that is almost nine out of 10 respondents would support a four day work week. And there are other questions in our survey that reflect this desire for more flexibility offered by employers. 

Matt Spring (11:31):

About two thirds of full-time employees and respondents to our survey are feeling the effects of burnout. This has not improved at all since we started running the survey in 2021, and it was one of the key drivers of the great resignation. And the percentage thinking about quitting their job within the next six months has stayed at around about a third of respondents. And again, we don't expect this to be a leading indicator for actual quitting in the U.S.but it is an indication of sentiment across U.S. employees. And mostly this is just a reflection to us that the U.S. worker remains unhappy, they remain generally unsatisfied with their working conditions. And I think given what I've presented today, this presents an opportunity for all of you where given these headwinds, given sort of a tightening budget to a human capital strategy and difficulties advancing human capital strategies, you have a real opportunity to continue to prioritize your employees. 

Matt Spring (12:38):

And just maybe perhaps part of the reason why the 100 Best Companies to Work For have outperformed the market so significantly over 28 years or so, and especially in times of economic crisis, is that when things get tougher, the Great Place To Work methodology would say to continue to prioritize your employees, continue to elevate trust and leadership, and perhaps as other companies begin to deprioritize some of their human capital strategies, you all have an opportunity to outperform the market in that way. And with that, I look forward to your questions. Thank you for letting me share some of this research. 

Michael C. Bush (13:17):

Round of applause. Just that was well done.