Scott E. Friedman, Andrea H. HusVar, and Eliza P. Friedman
Last week we began exploring the pinnacle of “Stage 4 Planning:” positive psychology. We discussed what it is– the scientific study of how people and organizations flourish—and how its findings can help improve family business dynamics.
This week, we further our exploration with a look at why creating a positive work culture is so important.
A large and growing body of research demonstrates that a negative, high pressure, “eat what you kill” environment is harmful to productivity and the “bottom line,” while a positive and nurturing environment in which employees feel valued, secure, supported, and respected, provides numerous benefits to employees, employers—and the “bottom line.”
For example, researchers at the Queens School of Business and the Gallup Organization found that disengaged workers had a thirty-seven percent higher absenteeism rate, were forty-nine percent more likely to have accidents, and sixty percent more likely to make errors.  Further findings determined that disengaged employees were less productive, less profitable, and, over time, reduced a company’s value by up to sixty-five percent.
Discussing this research, Emma Seppala and Kim Cameron observe that “[t]oo many companies bet on having a cut-throat, high-pressure, take-no-prisoners culture to drive their financial success . . . Although there’s an assumption that stress and pressure push employees to perform more, better, and faster, what cutthroat organizations fail to recognize is the hidden costs incurred.”
By contrast, Shawn Anchor, a former Harvard University professor and a respected business consultant, whose work focuses on the competitive advantages of a positive attitude and work culture, observes that those who are happy experience thirty-one percent higher productivity, thirty-seven percent higher sales, three times greater creativity, and twenty-three percent fewer fatigue symptoms. Happy people are also up to ten times more engaged, forty percent more likely to receive a promotion, and thirty-nine percent more likely to live to age ninety-four. Numerous studies have demonstrated that employees prefer a happier workplace to increased compensation, a workplace characterized by forgiveness, kindness, trust, respect, and inspiration. And many of those studies demonstrate, in turn, that “a positive work culture leads to improved employee loyalty, engagement, performance, creativity, and productivity.”
We’ll continue our discussion next week by outlining strategies that, when effectively implemented, have been proven to provide benefits to individuals and organizations.
. There are a number of theories that have been proposed to help explain the effects of work environment on employee productivity. The “presence of well-being” theory posits that positivity in the workplace increases employee engagement, that, in turn, drives committed and dedicated performance, in turn driving productivity, and, finally, in turn and by extension, the “bottom-line.” Barbara Fredrickson theorizes that positive emotions, like negative emotions, have evolutionary roots. While “negative emotions may lead to fight or flight behavior and a narrowing of cognitive activity,” positive emotions, such as “joy, interest, and love” broaden cognitive activity, including an individual’s “information-processing strategies,” “creative thinking,” and memory. This “loosening” of cognitive abilities, in turn, encourages the “bonding of individuals to each other, their work, and their organization,” leading to actions that translate into “successful business outcomes within organizations.” James K. Harter et al., Well-Being in the Workplace and its Relationship to Business Outcomes: A Review of the Gallup Studies, NHS Employers 5, 6, http://www.nhsemployers.org/~/media/Employers/Documents/Retain%20and%20improve/Harter%20et%20al%202002%20WellbeingReview.pdf (last visited Apr. 4, 2017) (summarizing Barbara L. Fredrickson, The Role of Positive Emotions in Positive Psychology: The Broaden-and-Build Theory of Positive Emotions, 56 Am. Psychol. 218 (2001)).
. Emma Seppala & Kim Cameron, Proof That Positive Work Cultures Are More Productive, Harv. Bus. Rev. (Dec. 1, 2015), https://hbr.org/2015/12/proof-that-positive-work-cultures-are-more-productive. The Gallup Organization surveyed hundreds of organizations around the world and found a clear—and compelling—relationship between employee engagement (i.e., the emotional commitment of an employee to his workplace) and profitability. For example, business units with employees that “know what is expected” of them, have “opportunit[ies] to do what [they] do best,” believe managers “care” about them and their opinions, and who have “opportunities to learn and grow,” had lower employee turnover rates, higher customer satisfaction and loyalty rates, higher employee productivity rates, and higher profitability. In fact, “business units with employee engagement at the 95th percentile for a given company have . . . more than double the success rate of [business units with employee engagement] at the 5th percentile.” Harter et al., supra note 126, at 9–14. The study has lead researchers to conclude that “[b]usiness units that use principles of positive psychology may be able to influence employee engagement, and this then may enhance the bottom line.” Id. at 14.
. Seppala & Cameron, supra note 127.
. Id. The investment banking world—an industry that is well-known for its intensely competitive environment and well-compensated risk-takers—is rife with examples of extremely toxic behavior. Such behavior often leads to significant corporate losses. For example, Howie Hubler at Morgan Stanley (lost $9.4 billion), Jerome Kerviel at Societe Generale (lost $7 billion), Brian Hunter at Amaranth Advisors (lost $6.6 billion and firm closed), John Meriwether at Long-Term Capital Management (lost $4.6 billion and firm dissolved), and Bruno Iksil at JPMorgan Chase (lost $2 billion). Cory Mitchell, 10 Traders Who Cost Their Companies Billions, TraderHQ: Trader U. (June 11, 2014), http://traderhq.com/traders-cost-company-billions. Although individuals who exhibit certain personality traits such as overconfidence, high self-regard, and strict adherence to rules, are more likely than others to engage in toxic behavior negative culture and/or proximity to toxic workers promotes and breeds more toxicity. See Michael Housman & Dylan Minor, Toxic Workers (Harvard Bus. Sch., Working Paper No. 16-057, 2015), http://hbs.edu/faculty/Publication%20Files/16-057_d45c0b4f-fa19-49de-8f1b-4b12fe054fea.pdf. This, in turn, has been attributed to causing “major organizational costs, including customer loss, loss of employee morale, increased turnover, and loss of legitimacy among important external stakeholders.” Id. at 2. Indeed, the study posits that bad workers have a stronger effect on a firm than good workers, concluding that avoiding “toxic workers” provides more cost-benefit to a firm than finding and retaining a “superstar.” Id. at 3, 19–21. Moreover, research shows that workplace stress can increase voluntary job turnover by almost fifty percent, creating incremental costs associated with recruiting and training new employees while losing the productivity associated with experienced employees. See generally Christine Pearson & Christine Porath, The Cost of Bad Behavior: How Incivility is Damaging Your Business and What to do About It 89–90 (2009). Adam Grant, a Wharton Professor known for his research on culture, including the advantages of cooperating and helping (“giving”) compared to the disadvantages of selfish behavior (“taking”), writes:
Consider a landmark meta-analysis led by Nathan Podsakoff, of the University of Arizona. His team examined 38 studies of organizational behavior, representing more than 3,500 business units and many different industries, and found that the link between employee giving and desirable business outcomes was surprisingly robust. Higher rates of giving were predictive of higher unit profitability, productivity, efficiency, and customer satisfaction, along with lower costs and turnover rates. When employees act like givers, they facilitate efficient problem solving and coordination and build cohesive, supportive cultures that appeal to customers, suppliers, and top talent alike.
Adam Grant, In the Company of Givers and Takers, Harv. Bus. Rev. (Apr. 2013), https://hbr.org/2013/04/in-the-company-of-givers-and-takers.
. Achor, supra note 96, at 189.
. Emma Seppala, Good Bosses Create More Wellness Than Wellness Plans Do, Huffington Post (Oct. 24, 2016), http://www.huffingtonpost.com/emma-seppala-phd/good-bosses-create-more-w_b_12602574.html.