One evening in 1961, John F Kennedy was at NASA when he came across a janitor mopping the floor. He asked the man why he was working so late. The janitor responded: ‘Mr. President, I am trying to put a man on the moon.’
This well-known tale captures how a sense of purpose can really drive people. And today, more and more employees want to be passionate about what they do. Pay still matters, but so does purpose.
In this new world of work, could socially responsible firms that care about more than just their bottom lines have an edge in attracting and retaining workers? Reams of research suggests that they do.
Attraction and retention
Jobseekers increasingly find socially responsible firms more attractive places to work. One survey found that seven out of ten workers at US companies would prefer to work for businesses with strong environmental credentials. And it is not just in the US, jobseekers across the world prefer to work for socially conscious firms.
In fact, people appear willing to take a pay cut to work for these firms. Studies suggest Swedes are prepared to sacrifice 10% of their pay and British workers are willing to give up £8000 a year.
This trend, moreover, is only likely to accelerate as Millennials and GenZers, who care most about sustainability, make up more of the workforce.
As well as attracting more workers, socially responsible firms are also better at keeping them. Donald Vitaliano at the Rensselaer Polytechnic Institute finds turnover at these businesses is 25% less than elsewhere. If you wanted to get an equivalent increase in retention by paying people more, salaries would have to go up by a full 10%.
Socially responsible firms are not just better at attracting and keeping workers; they could benefit from increased productivity too. Researchers in Maryland looked at firms across several sectors and found that positive ESG performance increases labour productivity.
The reason for this is not just that employees at sustainable firms feel better about their work; it’s that they’re motivated to work harder. Research shows that a desire to help others can increase a person’s ‘persistence, performance and productivity.’
This increased productivity is also linked to recruitment. If a company is attractive to jobseekers, it can have its pick of top performers. In some sectors, top talent can be up to 400% more productive than the average employee. Also, less turnover means less disruption; replacing workers can be time-consuming and expensive.
Tata: a case in point
One of our key holdings brings this research to life. Tata is a sprawling Indian conglomerate that owns Air India, Jaguar Land Rover and 30 other firms in sectors from steel to information technology.
The company has a clear social mission with the founder, Jamshedji Tata, declaring that ‘the community is not just another stakeholder in the business, but is in fact the very purpose of its existence.’
And these weren’t just empty words: 66% of the holding company, Tata Sons, is owned by philanthropic trusts and so a large portion of its profits automatically flow to charity. Tata has so far donated more than $100bn making Jamshedji Tata the most generous individual of the last century, ahead of even Bill Gates or Warren Buffett.
The company’s social mission has helped it attract talent. Peter Casey, who has written two books about the firm and helps them hire executives in Europe, says that it’s a lot easier to pitch Tata to prospective employees. He also told us that Tata executives tend to stick with the company for longer because they’re proud of its positive impact on Indian society.
Executives in India are also driven by the firm’s social mission. A former executive told us that the fact that the philanthropic trusts shared in Tata’s profits made him feel like he was working at ‘a non-profit with the discipline of a corporation.’ Every sale he made helped shareholders and society. That sense of purpose, he added, made his job ‘a joy.’
Tata is a clear example of a socially responsible firm where workers find purpose in its social mission which, in turn, propels it forward.
Purpose matters more than ever
Why does this matter for investors? In what is being called the Great Resignation, people are changing jobs in droves. This has added fuel to the ferocious war for talent.
Studies, and examples of holdings like Tata, show that socially responsible firms can have an edge in attracting and motivating workers which is crucial at a time of raging labour market competition. Identifying the best ESG firms could unearth companies with powerful workforce strategies that work for both shareholders and society.