Investors can sometimes bury themselves under endless numbers ? the cash flow statement, balance sheet, profit margins, winning lottery combinations etc. ? and fail to spot what?s really driving these returns: People.
Motley Fool?s CEO, Tom Gardner, once summarised his entire investing philosophy into two words, ?People first?. His powerful statement meant that the most rewarding companies for investors are often the ones who think as much about its employees, customers, suppliers and shareholders as its bottom line. And this emphasis on its people can often…
Investors can sometimes bury themselves under endless numbers – the cash flow statement, balance sheet, profit margins, winning lottery combinations etc. – and fail to spot what’s really driving these returns: People.
Motley Fool’s CEO, Tom Gardner, once summarised his entire investing philosophy into two words, “People first”. His powerful statement meant that the most rewarding companies for investors are often the ones who think as much about its employees, customers, suppliers and shareholders as its bottom line. And this emphasis on its people can often be summarised as a company having a ‘great workplace’ or corporate culture.
It’s Not All About the Numbers
A ‘great workplace’ sounds like a fluffy term with no objective measure. But, according to the Great Place to Work® company, they believe that a great workplace is one where “employees trust the people they work for; have pride in what they do; and enjoy the people they work with”.
All this looks altruistically good, but can it really deliver better business performance and shareholder returns over time? Well, according to Great Place to Work, it can.
The company works with FORTUNE to produce an annual list of the ‘100 Best Companies to Work For®’ in the USA. Since 1997, this list of companies have produced cumulative stock market returns of 366%, four times higher than the S&P 500 Index’s (a widely followed US stock-market index) 93% return.
Furthermore, the ‘100 Best’ companies experience up to 50% less employee turnover compared to the industry average. Business owners will know the teething problems and costs of assimilating and getting new employees up to speed, so lower employee turnover is a definite plus.
While these results were compiled in the USA, it wouldn’t require a huge leap of faith to see how they might be translated over to our own backyard in Singapore.
Can it Work in Singapore?
Let’s take a look at luxury watch retailer The Hour Glass (SGX: E5P). The company’s chairman, Dr Henry Tay, wrote an interesting paragraph on workplace culture in its 2011 Annual Report:
“The executive committee and I spend many hours debating the compensation and welfare of our team members, especially ensuring that those at entry level positions in the company can take home enough to comfortably support themselves and their families. I was surprised but happy to hear from our Managing Director for Singapore, that the head of an international luxury brand had commented to her that they could not afford to hire The Hour Glass retail staff because they were amongst the best rewarded in the industry. This is reflected in our Group staff turnover rate where the average tenure of employment is 9 years. We believe in the ideals of a corporate family, in the value of human relationships and we will stick with our trusted team members through the good times and bad.”
So it seems management places a great emphasis on making sure employees can bring home the bacon and remain happy. And, the company’s business performance seems to reflect that, as profit has grown by more than 20 times from 2002’s S$2.6m to 2011’s S$54.7m. In the process, Hour Glass’s stock has also grown by 1,700% since 2003 to its current price of $1.81.
During a recent site visit to Biosensors International’s (SGX: B20) manufacturing plant in Kaki Bukit, we also got to see some nice examples of a healthy workplace culture. A chat with the bio-technology company’s manufacturing plant-manager revealed that cushioned-floor mats were introduced into the plant after management received employee feedback on the discomfort they faced while having to remain on their feet for long hours while at work.
Recognising the importance of retaining skilled workers, the company works hard to maintain healthy two-way communication channels. Long-service is also cherished as the plant-manager shared anecdotes of how Biosensors is always looking to promote from within.
Companies that manage to create a great work place could lead to outsized profit growth and shareholder returns. The jury may still be out on Biosensors, but at the very least, they have taken steps in a positive direction. The 105% return of the company’s shares since May 2005 – double the Straits Times Index’s (SGX: ^STI) 51% return – seems to suggest so as well.
Foolish Bottom Line
It is important to analyse the financial figures of a company in investing matters, but it is also important to cast our eyes on qualitative factors, such as the attractiveness of a company’s workplace. Having such analytical tools can enhance our toolkit and make us better investors.
Interestingly, Great Place to Work has a list of ‘Best Workplaces’ internationally but unfortunately, there’s no such list for Singapore yet. I, for one, would be eagerly awaiting such a list to appear on our shores to benefit employees, management, business owners (that’s us, the investors!) and ultimately, society – are you?
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.