Nigel YatesPortfolio Manager at AXA IM
June 24, 2022
CEOs must drive cultural change to tackle the ‘Great Resignation’
Companies with antiquated practices may not only suffer high staff turnover - they could also find themselves with compromised supply chains with links to firms with poor working conditions or environmental problems. Companies with best practice around employee issues, as just one part of the social aspect of ESG, may find that they are less likely to suffer from the ‘Great Resignation’ – and be potentially more attractive to investors as well.
5 minutes
Original Content: AXA IM
The so-called ‘Great Resignation’ shows little sign of abating. There has been a marked increase in people leaving their jobs as economies re-open after pandemic-driven lockdowns, perhaps as they reassess individual priorities but also consider corporate culture and working conditions.
According to a recent Deloitte survey, 28% of UK employees either left their job last year or plan to in 2022.1 The same trend can be seen across the globe, with the quit rate reaching a 20-year high in the US last November, while at least four million US workers resigned each month during the second half of 2021.2
It is clear the pandemic has dramatically transformed the way employees now view their workplace and employers must adapt to the new normal, ensuring mental wellbeing, flexibility and fair pay are a key part of their approach.
At the same time, the battle for talent has intensified, with companies across sectors seeking employees with similar skills as the world becomes increasingly digital. Company culture and employee engagement have never been more critical to attract and retain the very best in human capital.
Are companies walking the talk?
With very few exceptions, all the companies we speak to state that their people are their most valuable asset; yet many fail to retain or get the best out them.
Presenteeism and absenteeism collectively cost companies billions every year (more than £50bn in the UK alone in 2020-20213 ) as dissatisfaction with inflexible employers, poor cultures and burnout continue to prompt workers to quit in droves.
Today's employees and prospective employees want to work for companies with responsible business practices and a culture that engages and enables. And that, in turn, creates productive workforces: One study found that companies cited as being great places to work in the US saw their share prices rise by 2.3%-3.8% more per year compared to their peers.4
Whose responsibility is culture anyway?
As sustainable investors, we love to hear a chief executive officer (CEO) being passionate about culture. We know one who carries a ring binder with employee surveys in it - he calls it ‘his bible'. Often, though, we will meet a CEO and they will delegate employee or wider environmental, social and governance (ESG) questions to the head of sustainability. That is a concern because it raises doubts about the commitment of the business to embedding the right culture.
Other conversations can be even more revealing. The CEO of one company recently admitted to us he was having to hike salaries and benefits dramatically to retain staff. To our minds, this suggested that a poor culture had been allowed to develop, and he was trying to compensate through remuneration.
Making it happen
If CEO buy-in is essential to fostering a healthy culture, then companies, particularly large organisations, need the right frameworks in place to drive change and maintain good practices.
Employee networks are valuable because employees are often the ones who spot issues and can be best placed to offer suggestions on how to fix them.
ESG committees are also a good sign of companies doing the right thing, particularly when the CEO sits on them and offers leadership. Alternatively, we like to see a board member engage with the ESG committee and provide that vital link to the executive level.
The best companies go much further, for example by implementing global diversity and inclusion councils, bringing in colleagues from different levels across the business, and by taking demonstrable action to improve company culture, policies and practice, rather than just paying lip-service to the topic. More flexibility can perhaps be afforded to smaller companies where resources are scarcer. Information can flow better in smaller organisations and formal frameworks are sometimes less necessary.
Do your homework
Nuances around company size are partly why investors should not make judgements based on ESG data scores alone. Companies in the small- and mid-cap space can sometimes have less awareness of the necessary disclosures, which means their annual reports - the basis of most ESG scores - will lack the information that will improve their standing with the rating agencies.
In any case, one should bear in mind that this information is a current snapshot, as well as backward-looking - it will not tell you where that company is going to be in five years' time. Nor will it capture, for instance, the fact a new CEO may have joined with clear ideas about cultural progression.
Ultimately, the determination to improve is the critical factor. Companies with antiquated practices may not only suffer high staff turnover - they could also find themselves with compromised supply chains with links to firms with poor working conditions or environmental problems. Companies with best practice around employee issues, as just one part of the social aspect of ESG, may find that they are less likely to suffer from the ‘Great Resignation’ – and be potentially more attractive to investors as well.
