Jeffrey Pfeffer: Companies Emphasize the Environment Over Employees

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Jeffrey Pfeffer: Companies Emphasize the Environment Over Employees

A professor of organizational behavior argues that “human sustainability” may pay off too.
We should care as much about people as we do about polar bears. (Reuters)

Eight years ago, Lee Scott, then CEO of Wal-Mart, made the first speech in the company's history broadcast to all of its associates. In that speech, Scott committed the company to the goals of being 100 percent supplied by renewable energy, creating zero waste, and selling products that sustain resources and the environment. Meanwhile, Wal-Mart paid its employees almost 15 percent less than other large retailers, and because of the lower pay, its employees made greater use of public health and welfare programs. In 2005, 46 percent of Wal-Mart employees' children were either uninsured or on Medicaid.

Wal-Mart's relative emphasis on the physical environment over its employees is far from unusual. British Petroleum, a company that touts its environmental credentials in its advertising and other presentations, was one of the first major oil companies to devote significant investment to alternative energy. Apparently less concerned about its people, the company paid a record fine of $87 million for an explosion in its Texas City, Texas, refinery that killed 15 workers.

There seems to be overwhelming evidence that organizational decisions have profound effects on employee health and even people's life spans.

Likewise, many other businesses have appointed "eco-managers" to oversee company efforts to become more energy-efficient and environmentally conscious, and companies track and publicly report carbon emissions from their activities. Yet one would be hard-pressed to find similar efforts focused on employees.

This lack of concern is puzzling given that health care costs, related in part to what companies do in the workplace, are an enormous problem in the United States and throughout the industrialized world. It is all the more surprising given the large epidemiological and public health literature that suggests there may be important organizational effects on human health and life span.

For example, in the United States, employer decisions about offering health insurance and the cost to employees, which can affect access, are consequential because there is a great deal of evidence showing that having health insurance affects health status. One study, by Andrew Wilper and his colleagues at Harvard University, estimated that there were more than 44,000 excess deaths per year in the United States because of lack of health insurance. Having health insurance also affects economic well-being. In 2005, Harvard's David U. Himmelstein and others published a study on a sample of personal-bankruptcy filers in five federal courts. About half the people filing for bankruptcy cited medical causes.

The relationship between other organizational behaviors and health are also widely established. Research shows that layoffs are very harmful to the physical and mental health of those laid off. It increases the likelihood that an individual will engage in violent behavior by some 600 percent, according to a study by Ralph Catalano at the University of California, Berkeley. A study of plant closings conducted in Sweden, a country with a relatively generous social safety net, found that mortality risk increased 44 percent in the four years following job loss. A New Zealand study reported that unemployed 25- to 64-year-olds had more than twice the odds of committing suicide. And downsizing is associated with negative changes in work behavior, increased smoking, less spousal support, and twice the rate of absence from work because of sickness.

Long hours also affect health. Haiou Yang, at the University of California, Irvine, found that compared with people who worked less than 40 hours a week, those who worked more than 51 hours were 29 percent more likely to report having hypertension, even after controlling for variables such as socioeconomic status, gender, age, diabetes, tobacco use, sedentary lifestyle, and body mass index. Long work hours also increase the likelihood that people will face a conflict between work and family responsibilities, which in turn is related to alcohol use, depression, and poor physical health, according to a 1996 study in the Journal of Occupational Health Psychology.

Job design also has important psychological consequences. High job demands that people cannot control, because they have little or no discretion over the pace and content of their work, coupled with work that is socially isolating, produce job stress. A series of studies of the British Civil Service showed that, even after controlling for numerous individual characteristics such as family background, serum cholesterol levels, blood pressure, and so forth, it was nevertheless the case that the higher someone's rank in the bureaucracy, the lower that person's risk of cardiovascular disease and death from heart attack.

Why the Physical Environment Takes Precedence Over Human Sustainability

There seems to be overwhelming evidence that organizational decisions have profound effects on employee physical and mental health and even people's life spans. Why, then does the human dimension of sustainability remain largely in the background? Why are polar bears, for instance, or even milk jugs more important than people, not only in terms of research attention, but also as a focus of company initiatives?

One possibility is that the consequences of organizational actions on the physical environment are frequently much more visible. You can see the icebergs melting, polar bears stranded, forests cut down, and mountaintops reshaped by mining, and experience firsthand the dirty air and water that can come from company economic activities that impose externalities. Workers' reduced life expectancy and poorer physical and mental health status are more hidden from view. Even the occasional and well-publicized act of employee or ex-employee violence has multiple causes and is often seen as aberrant behavior outside of the control and responsibility of the employer.

Another explanation is the differential actions taken to make sustainability salient. Organizations and groups focused on improving the physical environment have taken steps to increase the visibility of what companies do — reporting on carbon emissions and measures of environmental compliance, for instance, and trying to ensure that these reports generate news coverage.

Another factor that may explain the difference between environmental and human sustainability derives from the different actors in the two systems and the presumption of choice. Few would argue that trees choose to be cut down, that the air or water decides to be dirty, or that polar bears make decisions that result in the disappearance of food and habitat. Therefore, there is an implicit assumption that people must act on behalf of the environment because these entities can't act to affect their own interests. Employees, however, have choices, and exercise their choices in a labor market in which they compete for jobs and employers compete for talent. Presumably, if they don't like the conditions of their jobs, including the degree of inequality, the amount of stress, or the absence of health insurance, employees can decide to work elsewhere. At the limit, if the conditions of work are really life-threatening, employees can choose unemployment over ill health or premature death.

Does Human Sustainability Pay Off?

One of the major issues addressed by research on environmental sustainability has been whether adopting sustainability practices imposes net costs on companies, thereby eroding their competitiveness, or whether the benefits of being "green" more than outweigh any costs incurred.

Completely parallel questions and issues confront a focus on human sustainability. First, just as in the case of environmental pollution, companies that do not provide health insurance, lay people off, pay inadequate wages, and have work arrangements that stress their employees also impose externalities that others pay for even as they save on their own costs.

That's because some portion of the extra costs of increased illness fall on the broader health system through, for instance, increased use of public health and emergency room facilities. Second, just as green companies enjoy reputational benefits that help in brand building and product differentiation, so, too, we might expect that companies with better records of human sustainability could enjoy benefits in attracting and retaining employees and also in building a reputation that could attract additional consumer demand.

Indeed, there are some data that suggest that human sustainability may pay off for companies. Each year, the Great Place to Work Institute, in conjunction with Fortune, publishes lists of the best places to work. Most of the places are noted for their provision of good working conditions and benefits, including vacations, sick days, health insurance, training, and jobs that provide people with autonomy and challenge. The institute's website shows data indicating that companies on the "best companies" list consistently outperform benchmark indices over varying periods of time, indicating that, at least as measured by stock market performance, it is good to be a great place to work. How and why these returns accrue remains to be explored in more detail. But it is quite likely that, just as in the case of environmental sustainability, human sustainability pays.

Why is it so difficult to get companies to adopt practices consistent with human sustainability? After all, there is no reason why building sustainable companies should focus just on the physical and not the social environment. It is not just the natural world that is at risk from harmful business practices. We should care as much about people as we do about polar bears — or the environmental savings from using better milk jugs — and also understand the causes and consequences of how we focus our attention.

Jeffrey Pfeffer is Stanford GSB' Thomas D. Dee II Professor of Organizational Behavior and the Winnick Family Faculty Fellow for 2012-2013.

This piece is adapted from an article originally published in Academy of Management Perspectives, February 1, 2010, Vol. 24 no. 1, pages 34-45, DOI: 10.5465/AMP.2010.50304415

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