Photo by Pontus Edenberg
Business is the art of bringing different people together to create commercial and wider value out of their interaction. Do values help that?
There is plenty of evidence that businesses with strong sets of values perform better than those without. Research on around seven hundred firms, using five years of data compiled by the Great Place to Work initiative, suggests that while there is no performance link with firms that have simply published a set of values, there is a strong positive link with those firms whose values are seen within the company to be prominent.
Interestingly, the same research concludes that going public reduces the extent to which companies can focus on “integrity as short-term decisions can carry undue weight. Privately-owned companies (including venture capital-backed organisations) tend to have higher levels of integrity than publicly-quoted companies.”
What the research can’t prove, though, is whether this is correlation or causation. Is it the case that the best performing firms are so well organized that, as an illustration of their high performance, they have strong, embedded values? Or is it the case that those values help to reinforce and even drive that high performance?
A different way to approach the case for investing in values is the extent to which they can drive positive norms and behaviours, such as loyalty or ideas for innovation, in customers, suppliers or employees. The extraordinary success of open source or free software, the importance of volunteering in the third sector, the power and reach of faith communities, are examples of institutional activity that are dependent on the free and willing collaboration of people on the basis of sufficient overlap of values and purpose.
As a nation, the UK has strong and positive values, even if that is not the story that we tell ourselves. There is a great new survey of values across the UK put together by the Common Cause Foundation, which suggests that 74% of people (higher for women, higher for men and women in Wales and Northern Ireland, lower in London) tend to put values of compassion above values of self-interest. But when it comes to their perception of other people and the values they hold, the reverse holds true – others are seen, unfairly perhaps, as putting self-interest higher than compassion.
Private integrity, public suspicion.
Adjusted compassionate values scores Source: Common Cause Foundation, Perceptions Matter, 2016
In commercial business, where participation is subject to contract and compensation, there are times when that same voluntarism is critical to the enterprise. An example is staff retention. For larger firms, staff recruitment is one of the clearest cost variables – and if strong values can mitigate high levels of staff turnover, the financial gains are significant.
One report in 2014 from Oxford Economics puts the total cost of replacing a member of staff at £30,000. It is less in retail, at around £20,000. Mostly these are hidden costs through looking at lost productivity. But even just stripping down their numbers just looking at advertising, backfill, interviewing and administration, they show more than £5,000 on average.
In the retail sector, labour turnover is estimated to be at the extraordinary level of 40% staff turnover per year. This is average, where best practice will be much lower. The John Lewis Partnership, employee owned and co-operative, has cited much lower rates, of 3.0% average in 2014. Even so, this is across the group, and in the food sector, for Waitrose, it is reasonable to assume that it is still a lot higher than this.
There are many commentators predicting that labour turnover is now set to increase, if unemployment continues to fall. So, for UK consumer retail co-operatives, even if they already have a lower staff turnover rate, if investing in values led to greater staff retention, then for every one per cent turnover reduced, the businesses would benefit to the tune of £21 million. £14 million of that would be for The Co-op Group.
A reasonable target over time for the co-operative retail sector would be to realize £100 million worth of gains on an annual basis, through reduced staff turnover. This is not just about values, but it is about the culture change that values and expectations of fair dealing are a critical dimension of, seeing employment in a co-operative as a psychological contract – as Professor Denise Rousseau of Carnegie Mellon University in the USA puts it – based on reciprocity, as much it is also a legal one.
The effect of values on business performance is explored in the academic research around employee ownership. Research by the Cass Business School shows that giving employees an ownership stake in the business significantly boosts their productivity. The real benefits come not from the simple fact of ownership but from having a culture of ownership.
In a recent research report, Professor Virginie Perotin draws on a range of international econometric studies to conclude that businesses create more sustainable employment where they are structured as worker co-operatives, in which the key feature is active employee control of, and involvement in, the life of the firm rather than philanthropic ownership in the name of employees. A study of family owned firms, by Henssen et al, argues likewise for an approach to ownership that includes its psychological dimension – the feeling of ownership – as crucial for understanding family business in addition to formal, legal ownership structures.
The effect of values in binding people in to a venture holds for customers too. Sue Pryor is a member and co-owner of The Bell Inn, an iconic music venue and pub in Bath that locals and musicians raised £750,000 to buy and save. Sue says that “when people come into the pub there’s a lot of pride that they’ve bought into something very special and part own it.”
It is the emotional benefits of ownership, with the values of being engaged, working together, taking responsibility, that explain why it is also a powerful driver for psychological well-being.
So there is a business case for values, but what happens if being unethical is even better for sales?
A survey in 2012 of 500 financial services professionals in the US and the UK suggested that one in four believe that, in order to succeed, financial services professionals may need to engage in unethical or illegal conduct.
A similar number reported that they have first-hand knowledge of wrongdoing in their workplace. To be ethical in a market that is systemically unethical is a point of differentiation, but may also be a straight commercial risk. The business graveyard has enough examples of businesses where the values didn’t change but the competitive position did.
Does that mean that the business case fails? No. That is to accept far too narrow a view of what business is and can be.
The true business case for fairness, and the best approach to making a success of it, is not to make it about financial costs and benefits. Fairness is more than a means to an end. From the extension of legislative rights around equalities to the growing interest in the space for faith in business, there is always a larger story than money.
At root, the business case for values, such as fairness or sustainability, is for the sake of fairness or sustainability.