The Proof Is In The Profits: America's Happiest Companies Make More Money

Workplace happiness may seem like a fuzzy concept when it comes to financial value. But as the Parnassus Workplace Fund has proven, dignity has—and creates—value.

“Goodness is the only investment that never fails.” —Henry David Thoreau

Every year around this time, a new edition of the “100 Best Companies To Work For” is released, and employers deemed to have the happiest and most satisfied workers are heartily celebrated by the media.

What’s perplexing about all this fanfare, of course, is that we know most workplaces in the U.S. aren’t at all that good in sustaining employee morale. Gallup’s announcement a few months ago that only 19% of American workers are fully engaged in their jobs sufficiently validates this. It also suggests that few organizations have made it a priority to learn and model the leadership practices known to produce high employee contentment.

The question needing to be asked is whether or not we fully believe there’s a direct connection between having happy workers and improved profitability.

At this point, the evidence suggests many of us remain suspicious of any firm that, say, allows its employees to play foosball or shoot hoops during work hours. But our enduring cynicism may also have its roots in traditional beliefs about leadership effectiveness. Many of us have been taught that it’s actually desirable to have some worker unhappiness. The idea is that keeping people under some constant tension actually is a more powerful driver of productivity. There’s also the concern that when employees are cared for to any extent they’re likely to get soft in the middle—so sufficiently sated that motivation to work hard and produce is spoiled.

One person who may have the answer is Jerome Dodson, the founder in 1984 of Parnassus Investments. Since April 2005, Dodson has held the additional role of portfolio manager for the Parnassus Workplace Fund, a mutual fund that invests exclusively in large American firms proven to have outstanding workplaces.

“The idea of creating a fund that only invested in organizations where employees were really happy,” Dodson told me recently, “was brought to me a decade or so ago by a journalist named Milton Moskowitz.” In 1998, Moskowitz and his associate Robert Levering (cofounder of the ) oversaw the production of the first “Best Companies To Work For” list ever published in Fortune magazine.

“He told me that the Russell Investments, publishers of the Russell 2000 Index, had performed an investment return analysis of all the “100 Best Companies To Work For” and proved it was phenomenal and much better than the S&P Index, one of the most commonly used benchmarks for the overall U.S. stock market. So, Moskowitz said, 'Why don’t you start a fund like this?'"

Initially, Dodson, a Harvard Business School graduate, was resistant and told Moskowitz directly, “It’s a little different using real money compared to doing an analysis on a hypothetical basis.” But soon after their conversation, Dodson said, “the idea struck a chord in me because I’d always felt that having a happy workforce really meant a much better business as an investment. But until then I had no way of proving it.”

To get the fund going, Dodson and his firm invested $600,000 and solicited investors in other Parnassus funds to contribute more. In the first few years, with no track record of performance to draw on, along with an unproven premise, the fund grew very slowly.

Dodson spent his time scouring the country for companies that had built solid reputations for treating employees with profound respect and which supported them through ongoing training and personal development. To quote Moskowitz, they were the kinds of firms that “genuinely cared about their employees as people, not just hired hands.”

Other important characteristics of the firms Dodson inevitably selected: they provided some meaningful form of profit sharing, health care, and retirement benefits while also being especially supportive of working mothers. He found many of these firms amongst the “100 Best Companies To Work For” list and discovered others that had never submitted the documentation to be officially considered an outstanding workplace. Ultimately, he chose companies like Intel, Google, Charles Schwab, Microsoft, and Gilead Sciences and then waited to see how they would all perform.

To Dodson—and Moskowitz’s—delight, the Parnassus Workplace Fund proved immediately, enormously, and enduringly successful. Since the fund’s inception (April 2005-January 2013) it’s had a 9.63% annualized return. This compares to the S&P Index which has earned just 5.58% during the same period. “Our fund has had returns over 4% better than the S&P Index every year,” Dodson noted. “Eight years later, the performance of the fund confirms what I’ve always believed. Treating people well and authentically respecting them does lead to far better business performance. We proved it works.”

Another compelling statistic buried in the Parnassus prospectus: Over the past five years—the height of the Great Recession—the average annual return on the Workplace Fund was an incredible 10.81%. The S&P Index for the same period was just 3.97%, a 6.84% difference. Dodson believes the wide gap in performance is easily explained: “I think what happens when you have a contented workplace, people are willing to put out more effort to improve operations during really difficult times. While I think every organization has their ups and downs, the downs are not as pronounced because everybody pulls together to try to get through the crisis. And, of course, this consistently more engaged performance inevitably reveals itself in the firm’s bottom line.”

After five years, investments in the Workplace Fund had grown to $80 million. Today, less than 3 years later, balances have ballooned to over $300 million. As reported by rating agency Morningstar, the fund also ranks highest in shareholder return compared to 1,303 other peer funds.

According to a 1997 article in the San Francisco Chronicle, many business leaders dismissed Moskowitz’s earliest list of “Best Places To Work” and derided it as being “a ’beauty contest’ that didn’t matter to anyone outside of corporate personnel departments.” But Moskowitz, and soon after, Dodson, have gone on to prove that the leaders at organizations which ensure employees feel valued, supported, developed, and rewarded are the most enlightened. They inspire a greatly expanded bottom line and set an example for all to follow in this 21st century.

Related: Secrets Of America's Happiest Companies

Mark C. Crowley is the author of Lead From The Heart: Transformational Leadership For The 21st Century. Reach him via his website, markccrowley.com, on Twitter at @markccrowley and on Facebook.

[Image: Flickr user Joaquin Villaverde]

Add New Comment

20 Comments

  • JohnA

    Hi Mark, The key strength about this story is proof, and it continues to amaze how many CEOs talk the good game when it comes to engaging their people, but so few do very little about it.

  • Robert Tanner

    At a gut common-sense level, it always made sense that leaders who sincerely engage their employees and practiced good management would see better financial returns over time. Observation and anecdotal evidence supports that employees give more to bosses and organizations that live by the motto: "Our people are our greatest assets."

    You need more than common sense and anecdotal evidence however to change some behavior. The statistics in this article make a powerful case for sound leadership that leads to employee engagement. Interesting---but not surprising---how these companies performed so well during the recession!

    Robert Tanner
    Founder, Business Consulting Solutions LLC

  • wtbillmckibben

    The authors of "Firms of Endearment" laid out the research supporting this approach and the bottom line return. I followed it up with some history and more support in my book "Play Nice, Make Money." We all want to do business with organizations that strive to do the right thing.

  • Marc Binkley

    This is fantastic news!  I've been looking for more proof to add to my arsenal to advocate for employee engagement and morale.  Thanks for publishing this great piece!

    Cheers,
    Marc 

  • Andrew Tarvin

    It's great to see more data behind the success of companies with a great work environment. It helps lends credibility to something I tell my clients: humor and happiness in the workplace isn't a "nice-to-have," it's a must-have if you want to compete and succeed in today's world.

  • Jeanine Broderick

    I help companies and employees enjoy the benefits of greater happiness.  Traditional medical interventions take employees with low emotional states from -10 to zero. We  give them tools and techniques that can take them from where they are up to +10 and beyond.  How far they go is up to them but the knowledge and tools are so empowering that most never stop improving.  Funny thing is - unlike diets - these exercises feel good and reward the person immediately and long-term.  The benefits to employees and businesses are so great (based on solid science) they are almost unbelievable.  

    Sometimes I say that if we could get the same benefits from a pill or vaccine it would be mandatory -- they really are that profound.  

    Jeanine Founder, Happiness 1st Institute
    Get happy 1st and your life will flow better

  • Chris Reich

    In my practice I strive, and often lose, to teach managers that having fun at work is essential to workplace health and productivity. I am amazed that I must argue this point with the rigor of a Supreme Court case. More often than not I am unable to persuade management to allow fun. Business not only do not want fun to become part of the culture, many work actively to prevent it.

    Foolishness. Look around the world. Fun at work could give U.S. companies a huge advantage. Think about it. How long will it be until it's fun to work at a factory in China?

  • BEC

    I totally agree with you. Yet some of the status quo management teams are clueless. The bigger the company, the harder to change and without change, there is no future. I also have to make a plea to change the status quo and stop labeling the unemployed and those over 50 as unemployable. You get more for your money and an extremely dedicated worker. I am so sick of hearing about the skills gap when the people with the skills are right under your nose. As one article called it - the hiring process is broken. 

  • Jeanine Broderick

    #1 - You'll never win by arguing.  I use a back door to first open the mind to new information using a variety of tools and stories depending on the circumstances.

    #2 - You must practice what you preach.  

    It is possible to maintain a positive state of mind (which can inspire others) even when those around you are actively attempting to bring you down.  I've done it.  It takes focus & determination.

  • Joy Jacob

    Joy Jacob
    I fully endorse the idea. However, it is essential to acknowledge the fact that personal needs and responses vary from person to person. Every individual needs mentoring though the scale differs. Trustworthiness of the leadership to deliver their expectations will motivate the shop floor personnel 

  • Chris Reich

     Not to be critical Joy but that collection of jargon is exactly the problem. Must caring be scalable? Must the motivation of decency be productivity?

    Treating people well doesn't mean sacrifice. There is a pervasive mentality that if the peasants are treated with decency they will overthrow the overlords. Actually, better treatment engenders loyalty. And it's not hard to do.

  • BEC

    I was just about to write the same thing. One can rationalize anything - for or against. Yet to see people having fun, kidding with each other, talking about the business over lunch among several departments is simply a joy to see, hear and be part of. Of course this has to start at the top and everyone has to walk the walk and talk the talk, but it is so much easier that one would expect. One our CEO’s won over the entire corp population by simplying saying - “Family First”.  It wasn’t the company, the profits, the board, your boss, etc first, it was family. He would actually come down to my office and scold me about staying too late. Now, it seems that more companies just want that blood out of a stone. People in any special bracket is afraid to even take a vacation, even though studies show it benefits the employees. 
    Loyalty comes from trust. 

  • Bolger

    Great article. The challenge is that even organizations that get the importance of Engagement don't know how to translate theory into practice and face considerable silos getting in the way. There's a bunch of people trying to do something about that through a curriculum and certification program at http://www.enterpriseengagemen...

  • Megan DaGata

    I see the alternative to this approach daily. I continually try to encourage people to counter balance by keeping their chin up and eyes on their goals. It doesn't always work, we've had massive turnovers and people refusing to show up at the end of a brutal week. There is much to be said for a professional relationship based on mutual kindness and respect. Mainly when treated properly people want to do their job well. By doing their job well they want to show up to work every day, do more with and for the company in their down time, and rally new troops when someone comes on board. I would love to teach a seminar and retrain some upper managers but my thoughts about micromanaging seem to fall on deaf ears.

  • Jeanine Broderick

    Keeping ones "chin up" or keeping "a stiff upper lip" will not bring greater well-being. 

    Emotions are literally feedback from a sensory system and emotions that feel bad are information that is telling us to make a change. 

    A change does not necessarily mean a change of circumstance.  The most appropriate change (based on scientific evidence) is a change of mindscape.  When the circumstances feel bad one can change their emotional response by re-framing the situation.  There are literally billions of different (and valid) perspectives that can be held about any circumstance and we can change ours if we desire.  Guess what - no one else holds exactly the same perspective you do about the same situation anyway.  We are all unique in that regard.  

    Keeping ones chin up disregards the communication from the emotional guidance system that is communicating to us that our current perspective does not serve us.  

    Fight or flight are old school responses which are supplemented by "Right Resposnes" (defined as a change of mindscape and which I would call a change of perspective) and Right Responses are the most appropriate response in most modern bad-feeling circumstances.  There are certainly still times when Fight, flight or freeze are still appropriate but not nearly as often as Right Responses.

    Jeanine Broderick,
    Founder, Happiness 1st Institute

  • Christopher Frawley

    Brilliant, obvious, and now proven.  Let's hope that inspired leaders can spark a massive shift towards a commerce culture of care.  Bravo Mark !

  • Wheel Media

    As the CEO of an interactive agency in the San a francisco Bay Area, I know how a happy employee impacts profits and growth. Keep the people smiling, and they will say good things to their (very socially-connected) friends who are looking for work. In my world finding talent is a huge challenge, and the people create the profits. Nice piece Matt.

  • Alamrafath

    Fully Agree  , Disgruntled Employees  lead to  Unhappy Organizations which ultimately leads to Less works i,e  less profits