The Cost Of Hardcore Culture: The Need To Balance Performance And People

AT&T CEO, John Stankey, recently sent a headline making memo to employees, doubling down on the organization’s return to office (RTO) policy and highlighting a transition away from a “familial” employer-employee relationship rooted in loyalty and tenure toward a culture of performance metrics and contribution. The memo also acknowledged a drop in overall employee engagement, despite a high percentage of workers who said they felt committed to their work. This memo brings up two important points leaders must consider.

First, many companies have implemented or are still considering varying degrees of RTO mandates (including Disney, Google, & JPMorgan Chase, to name a few), arguing that working remotely harms company culture and values and reduces employee productivity. This stance has created significant tension between many workers and companies, with workers arguing back that they are more productive and efficient when working from home and enjoy better overall well-being. In addition, many leaders appear to discount or ignore the research about remote vs. hybrid vs. in-office work, which doesn’t lend much support for their argument.

In fact, 80% of the more than 1,100 U.S.-based executives and workplace managers who responded to one survey said that had they had a more comprehensive understanding of the data in this area, they would have taken a “starkly different” approach to RTO plans. Almost 25% of the respondents admitted to making those decisions based on “gut instinct.” And as it turns out, many employees have decided to simply ignore the mandates.

A detailed paper studying the impact of RTO mandates on the performance of 137 S&P 500 companies showed these key results:

1. RTO mandates result in a significant decline in employee job satisfaction;
2. RTO mandates did not significantly impact either company profitability or firm stock valuation; and
3. RTO mandates are more likely in companies with poor recent stock performance and in those with powerful male CEOs.

Second, CEOs consistently miss the financial power that gets generated when a people-focused approach is combined with a performance-focused approach at work. Recently, researchers used crowd-sourced data from Indeed to examine the link between well-being and company performance. They looked at data from 1,636 publicly listed companies and measured employee well-being using the Indeed Work Well-Being Score, which looks at the dimensions of work happiness, purpose, stress, and job satisfaction. They discovered that well-being was a significant predictor of company performance across a variety of indicators. Specifically, the report found that higher levels of workforce well-being predicted:

• Higher firm valuations;
• Higher return on assets;
• Higher gross profits; and
• Better stock market performance.

They also found that higher levels of well-being are “not only predictive of contemporaneous company performance, but also of future firm performance.” This is so because they found that well-being positively influences productivity, creativity, social relationships, health, recruitment, and retention.

Another report looked at 1,793 large companies across multiple industry sectors in 15 countries and found that companies who outperform on both financial results (what I call performance focused only companies below) and human capital development (what I call people focused only companies below):

• Were 4.3 times more likely than the average company to maintain top-tier financial performance for 9 out of 10 years from 2010-2019
• From 2019-2021, they grew their revenues 2x faster than performance focused only companies (8% vs 4%)
• Had a lower attrition rate (8.5%) compared to the performance focused only companies (13.4%) and typical performers (13.5%), though slightly higher than the people focused only companies (7.9%)
• Had returns on invested capital equal to the performance focused only companies (both 28%), but far better than the people focused only companies (9%) and the typical performers (6%)
• Greater economic profit ($1.1B) compared to the performance focused only companies ($0.4B).

The performance focused only companies remind me of many of the law firms and professional services firms generally with whom I have worked, and they certainly sound like the type of culture Stankey seeks to drive. They are very goal-oriented, top-down, and challenging environments, with a near myopic focus on financial performance. Many leaders in performance focused only companies have pressed me directly as to why they should change since clearly model is making them money. As the report details, financial performance alone paints an incomplete picture. Performance focused only companies experience more “bumps in the road” getting to the same destination compared to companies that prioritize people and performance. Specifically, “Where market trends are in their favor, [performance focused only]

companies seem to be able to capture the upside well, but in periods of uncertainty, they lack the stability of the companies [that amplify people and performance equally]. Not prioritizing human capital development seems to increase the exposure of performance focused [only] companies to volatility and risk in turbulent times.”

Taking a performance focus in your organization is OK as long as you also create a culture of value and significance for your people. These six factors are what employees consistently report as critically important to their work:

1. Being valued by my manager;
2. Being valued by my organization;
3. Having caring and trusting teammates;
4. Potential for advancement;
5. Sense of belonging; and
6. Flexible work schedules.

Leaders often underprioritize these factors, and it shows. Nearly 50% of people report not feeling valued at work and only 24% of people think their employer cares about their well-being. John Stankey will likely see the outcomes he wants in the short term. People will comply because they need a job, and those who are able to will leave. It’s a great opportunity for forward-thinking companies to scoop up top talent. But what will the cost be to the organization long-term in asserting control rather than investing in trust? Only time will tell.

Paula Davis is the CEO of the Stress and Resilience Institute and is the author of the newly released book, Lead Well: 5 Mindsets to Engage, Retain, & Inspire Your Team.