Since the introduction of the triple bottom line into business language, one of the most obvious so-called non-financial factors has largely been disregarded by stakeholders, including investors. That factor is the health of employees.
Admittedly, there has been a focus on health, but this has mostly been confined to the area of occupational safety and health (OSH). As long as accidents were avoided and employees were not exposed to illegal levels of noise or toxins, the OHS boxes could be ticked and the compliance officers remained happy. For many years, elaborate business cases were constructed for environmental and social interventions (strategic CSR or, more recently, Creating Shared Value), but almost nobody paid attention to the following logic: Improve the health of employees, which will improve productivity, which will improve profits, which will improve the share price.
Healthy employees – a New Prescription
Fortunately, things have changed. The World Economic Forum has identified the growing importance of health in the economy as one of the top 10 global trends for 2015. Third on the list of the proposed Sustainable Development Goals is to “ensure healthy lives and promote well-being for all at all ages”. The Vitality Institute Commission on Health Promotion and the Prevention of Chronic Disease in Working-Age Americans produced a comprehensive report with far-reaching recommendations for health policies and actions in the United States.
From an investment perspective, the value of healthy employees is becoming increasingly clear. A 2013 study in the US by Ray Fabius and others concluded that companies engaging in efforts to promote workforce well-being and safety yielded greater value to investors through reduced health care costs, increased productivity and improved financial performance. The study tracked the performance of a group of US companies that had won awards for their health and safety programs. Between 1999 and 2012, an investment into this group of stocks achieved a rate of return that outperformed the S&P 500 average.
This study was recently replicated in South Africa, where the market performance of eligible companies based on Discovery’s Healthy Company Index was measured. The past performance of a portfolio of “healthy” companies was tracked under three investment scenarios and the results were compared to the market performance of the JSE FTSE All Share Index over the same period. The portfolio of healthy companies consistently outperformed the market during three different simulations.
Reporting on Health
It is not surprising that empirical data provides additional impetus to help companies move beyond the lip service of “our people are our greatest assets”. But getting it right is more complex than providing an apple a day. Companies that are taking the lead are looking for assistance, not only in terms of what to do, but also on how to measure and report on progress.
The shift towards integrated reporting (IR) is closing the gap between performance, measuring and reporting. Although the conceptual framework of IR is solid, the details are (intentionally) sketchy. The health of employees clearly resides under human capital (alongside financial, manufactured, social & relationship, intellectual and natural capital), but the IR framework is not intended to provide specific reporting metrics. The Global Reporting Initiative does provide metrics, but currently remains focused on the more traditional OHS issues. The Vitality Institute has taken the lead in this regard.
One of the recommendations of the Vitality Institute’s Commission is to integrate health metrics into corporate reporting. A group of pilot companies is currently experimenting with innovative health metrics that cover a broad range of topics, including the culture of health, leadership and internal reporting to the board of directors. With due regard for possible privacy concerns, and fully aligned with existing international reporting standards, potential metrics include the following:
- Physical exercise
- Eating habits
- Alcohol consumption
- Body mass index or waist circumference
- Blood pressure
- Tobacco use
To the uninformed, these might seem like measures only a GP would be interested in during an annual medical check-up. To leading companies and investors they present a business case. To all of us it should be obvious.
Daniel Malan is a Senior Lecturer in Ethics and Governance and Director of the Centre for Corporate Governance in Africa at the University of Stellenbosch Business School in South Africa. His focus areas are corporate governance, business ethics and corporate responsibility. He is a member of the World Economic Forum’s Global Agenda Council on Values, the International Corporate Governance Network’s Integrated Business Reporting Committee and the Anti-Corruption Working Group of the United Nations Principles for Responsible Management Education (PRME). He is also a portfolio partner at the International Centre for Corporate Governance at the University of St Gallen.