The Daily Sabbatical/Rotman | Aug 17, 2012 | 21697 views

Building Sustainable Organizations: The Human Factor

Itís time to broaden our focus on environmental sustainability practices and social responsibility to also include organizational effects on employee health and mortality
Building Sustainable Organizations: The Human Factor
Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational Behaviour at Stanfordís Graduate School of Business.


n October of 2005, Walmart CEO H. Lee Scott Jr. made the first address in the company’s history to be broadcast to all of its associates and its 60,000 suppliers.  In the speech, titled 21st Century Leadership, Scott committed his company to using 100 per cent renewable energy, creating zero waste, and selling products that sustain resources and the environment.

At the time, Walmart paid its employees almost 15 per cent less than other large retailers and 46 per cent of employees’ children were either uninsured or on Medicaid, a state program to provide medical care to low-income people. Clearly, environmental sustainability must be a priority for every modern organization. Nonetheless, the emphasis on the natural environment raises an interesting question: why are polar bears, for instance, or even milk jugs more important than people as a focus of company initiatives?

Even as businesses have appointed ‘eco-managers’ to oversee efforts to become more energy efficient and publicly report carbon emissions from their activities, one would be hard-pressed to find similar efforts focused on employees.  I believe it’s time to broaden our focus on environmental sustainability practices and social responsibility to also include organizational effects on employee health and mortality.

Just as there is concern for protecting natural resources, there could be a similar level of concern for protecting human resources and human sustainability. For example, there has been no groundswell of reporting on employee physical and mental health and wellness, even though that might be an interesting and informative indicator of what companies are doing about the sustainability of their people.

In assessing and evaluating countries and other political units, measures of population health (e.g., infant mortality and life span) are frequently used as indicators of societal effectiveness and the level of country development. Indeed, some researchers have argued that health functions as a kind of ‘social accountant’: if health suffers, it tells us that human needs are not being met.

What is true for countries or other political units is also true for organizations. The health status of the workforce is a particularly relevant indicator of human sustainability and well-being because there is evidence that many organizational decisions about how they reward and manage their employees have profound effects on human health and mortality.

Following are just a few of the many ways company decisions affect the health and welfare of their people.

1.Providing Health Insurance. In the U.S., in contrast to every other advanced industrialized country, access to health insurance depends on whether or not one’s employer voluntarily chooses to offer medical insurance as a benefit. Approximately half of the U.S. population today receives health insurance through an employer, and the evidence shows that the proportion of employers offering insurance has declined while the amount employees pay for their coverage has increased. The Kaiser Family Foundation reported that between 1999 and 2009, worker contributions to health insurance premiums increased by 128%, while the proportion of companies offering health benefits fell from 66% to 60%.

There is a great deal of evidence showing that having health insurance affects health status. Hundreds of studies have shown that the uninsured have worse health outcomes than people with access to insurance. Researchers recently replicated the results of an earlier panel study showing significantly higher mortality for people without health insurance. This result held when age, gender, income, education, race, smoking, alcohol use, exercise, body mass index, and initial physician-rated health were all statistically controlled. Based on their empirical results and population parameter estimates, they estimated that there were more than 44,000 excess deaths per year in the U.S. because of lack of health insurance.

Other studies show that people without health insurance are, not surprisingly, less likely to obtain various preventive screening tests for blood pressure and elevated cholesterol, Pap smears, and so forth. Such screening reduces mortality and morbidity through the early detection of harmful physical conditions. Moreover, the data show that even short periods of not having health insurance substantially reduce the utilization of preventive services. Having health insurance also affects people’s economic well-being, because medical bills are a large contributor to personal bankruptcy. Clearly, when employers decide to drop or curtail medical coverage, there are health and economic well-being consequences for their people.

2.The Effects of Layoffs. Employers decide whether or not to have layoffs, how many people to lay off, and who will get laid off. Researchers have found that layoffs are ‘contagious’, in the sense that they spread through similarly-situated and socially-connected firms, which appear to model others’ layoff behaviour. There is also consistent evidence that job loss is a significant predictor of reported symptoms of psychological disorders. For instance, being laid off increases the likelihood that an individual will engage in violent behavior by some 600 per cent. One study reported that job displacement increased the death rate of those laid off by about 17 per cent during the following 20 years, so that someone laid off at age 40 would be expected to live 1.5 fewer years than someone not laid off. Downsizing is also associated with negative changes in work behaviour, increased smoking, less spousal support, and twice the rate of absence from work because of sickness.

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Comments (2)
Shashank Neppalli Aug 24, 2012
.. and concentrate their energies on improving short term value.

IRR based calculations are given more importance than EVA based calculations.

As a result thereof, there is no long term value generated.

Employees suffer because there are very few leaders in the Business landscape who don't succumb to the pulls and pressures of the short term investor. Even their term at office is relatively small to realize long term impact.

Leaders must ideally bear upon the fact that business, if properly run, become an instrument of societal revolution and can touch many lives.

Employees are forced to choose between the lesser evil, given the general trend. Factors like Job change ratio and others are also weighed before deciding to switch employers.

Moral of the story is that employment of holistic measures like Total Productivity Maintenance and others that generate value in the long term need to be given their due and quick fix solutions that generate value over a short term only, must be dispensed with. CEOs must be leaders, not managers !
Shashank Neppalli Aug 24, 2012
This problem has 2 dimensions-

1) Company's lust for increasing shareholder value (profits)
2) Alternative options that employees have

An overwhelming majority of today's shareholders are short term investors. Statistics reveal that the average investment hold time of a shareholder is only 214 days or something like 7 months !

I long for that day when shareholders will stay invested in a company beyond a 10 year period.

A person who stays invested in a company for only 7 months will not be interested in long term value realization but will look for immediate returns on his capital. Consequently, he'll promote short term value creation measures like layoffs, downsizing, and not long term measures like Brand building, Innovation, Total Productivity Management and Knowledge management.

CEOs are therefore, under pressure to ignore long term gains
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