Want to Make a Fortune? Invest in Happy Workplaces

In: BlogDate: Apr 05, 2016By: Henry Stewart

There is hard financial evidence that happy workplaces perform better.

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Alex Edmans, then at Wharton Business School at the University of Pennsylvania, analyzed the result of investing in the companies listed in the Great Place to Work listings over the last 25 years. His detailed econometric study found a difference, compared to the stock market, of 3.5% a year. An investment which would have returned $100,000 in a tracker fund would have achieved $236,000 from investing in companies that focus on creating great workplaces.

CostCo: Being good to employees brings long term gain

At the recent Engage for Success conference Alex gave the example of US retailers CostCo and Walmart. CostCo is well known for treating their people well. For example, its $20.89 average wage compares to $11.83 at Walmart.

Back in 2004, in a BusinessWeek article, Deutsche Bank (DB) analyst Bill Dreher explained why he wouldn’t invest in CostCo: “At Costco, it’s better to be an employee or a customer than a shareholder.”

Analysing returns since that 2004 article shows how shortsighted Dreher was. $10,000 invested in CostCo then would be worth just under $40,000 now, an annual return of 12.1% a year. In contrast that investment in Walmart would be worth less than $12,000, or a return of just 1.3% a year. (Based on April 16 2016 stock prices.)

The investment fund that focuses on happy workplaces

Given the evidence, you might wonder why investment funds tend not to focus on how good a workplace is. Well, there is at least one that does: Jerome Dobson explains how he decided to create “a fund that only invested in organizations where employees were really happy,” on the advice of the creator of the Best Companies to Work For list (the list used by Edmans for his analysis).

Over the ten years to February 2016 the Parnassus Endeaver Fund (renamed from its original Workplace Fund title) has shown an average annual return of 11.13%, putting it in the top 1% of US mutual funds. Set up 13 years ago with just $600,000, the Fund now manages $1.3 billion.

Its stated focus is clear: “The Parnassus Workplace Fund invests in companies with outstanding workplaces. The philosophy behind this fund is that companies whose employees love going to work will do better than companies with poor workplaces.”

Focus on happy workplaces and see the results

That philosophy has at times made Parnusses the single best performing fund out of 1,303 according to rating agency MorningStar.

The mystery is why more funds do not follow this obvious route to success. I am not aware of any UK fund based on investing in great workplaces. Do tell me if you know of one, as I’d like to invest my pension there.

The conclusion is equally true for organisations. A focus on creating a happy workplace could be the best investment you ever make.

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Henry Stewart, Founder and Chief Happiness Officer

Henry is founder and Chief Happiness Officer of Happy Ltd, originally set up as Happy Computers in 1987. Inspired by Ricardo Semler’s book Maverick, he has built a company which has won multiple awards for some of the best customer service in the country and being one of the UK’s best places to work.

Henry was listed in the Guru Radar of the Thinkers 50 list of the most influential management thinkers in the world. "He is one of the thinkers who we believe will shape the future of business," explained list compiler Stuart Crainer.

His first book, Relax, was published in 2009. His second book, the Happy Manifesto, was published in 2013 and was short-listed for Business Book of the Year.

You can find Henry on LinkedIn and follow @happyhenry on Twitter.

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