Strong company cultures produce higher stock returns
It makes sense that investing in a strong company culture will lead to increased communication, collaboration and overall better teamwork. We’ve also known for some time that investing in a strong company culture broadens the applicant pool, increases retention rates and cuts down on hiring costs. But, at the end of the fiscal year, does a strong culture actually generate more profits and produce higher stock returns?
We at Great Place to Work® know that it does; independent financial analysis shows that publicly-traded 100 Best Companies consistently outperform major stock indices by a factor of 3. Researchers at the Wharton School for Business also recently found that the FORTUNE 100 Best Companies to Work For generated higher stock returns (2.4-3.7% per year) than their peers from 1984-2009. The article, The Link between Job Satisfaction and Firm Value takes a different approach than studies conducted in the past. By factoring in reverse causality, this was the first paper to measure stock performance over time. The findings were statistically significant; there is a strong and robust link between job satisfaction and stock returns.
As a Wharton alumna myself, I am not at all surprised by the findings. In a recent blog, the CEO of Gallup discusses the Wharton findings and the difference between employees who are actively engaged versus disengaged. We all know the benefits of an engaged workforce, but the logic doesn’t stop there. Executives should also invest in a dynamic and engaged workplace for themselves.
If I were to rate my own job, I would check the ‘Extremely Satisfied’ box. I love coming to work. On a daily basis, I am surrounded by intelligent and engaged people who aren’t afraid to toss out ideas on how to improve every area of the business. This keeps me on my toes and I often find that it is my team inspiring me, not the other way around. With a renewed sense of vigor, I tackle projects with newfound insight and energy that is fuelled by our dynamic and innovative company culture (no need for hard data to confirm that this is a competitive advantage).
Envious? Don’t be. Learn how your organization can build a strong company culture by partnering with Great Place to Work.