Happy Employees = 1,000% Shareholder Return

Time magazine recently published an article, “How to Succeed? Make Employees Happy,” which included interviews with the highly successful CEOs of The Container Store (Kip Tindell) and Whole Foods (John Mackey). Both men discuss their epiphany that the 1990s philosophy of trying to please shareholders at all costs is faulty. Mackey says, “Simultaneously we hit upon the philosophy that I think will be dominant philosophy in business in the 21st century. It’s the principle that the purpose of business is not to maximize shareholder value.”

If the proposal is to tear down this foundational principle, what is to replace it? An emphasis on employees, says Tidwell. By focusing on all stakeholders, but the employee most of all, “There’s a harmonic effect that takes place. It not only provides a higher return – compensation for the employees, return for the shareholders, this crafting of a mutually beneficial relationship with the vendors – but it enriches the lives of those people.”

I’ve blogged before about the success that can be found by putting employees first. Now there seems to be quantifiable proof. Buried in an much longer transcript of the interview with Tindell and Mackey is a reference to a 2007 book: Firms of Endearment. The authors identified 28 firms that, by their standards of measurement, “are truly loved by all who come in contact with them - customers, employees, suppliers, environmentalists, the community, even governments! These companies pay their employees very well, provide great value to customers, and have thriving, profitable suppliers. They are also wonderful for investors, returning 1025% over the past 10 years, compared to only 122% for the S&P 500 and 316% for the companies profiled in the bestselling book Good to Great -- companies selected purely on the basis of their ability to deliver superior returns to investors.”

It’s hard to argue with numbers like that! And when taking care of employees can be as simple as saying “thank you” – frequently, sincerely, and in ways that are meaningful to the individual employee, companies cannot lose.

What firms are on your Firms of Endearment list? Does the company you work for make the list?