Imposing harsh return-to-office mandates on employees was like taking candy from a baby. But CEOs will have to answer to their own bosses–investors

by NEW YORK DIGITAL NEWS



Today’s smart investors are not just looking at financials–they’re diving deep into a company’s culture, including flexible work policies, recognizing them as a significant indicator of future success.

The Q4 2023 Scoop Flex Index reveals an intriguing trend: Companies that embrace flexible work arrangements are not just surviving–they’re flourishing. The evidence is staggering: From 2020 to 2022, companies with full flexibility led their peers by a remarkable 16% in revenue growth, adjusted for industry differences. And the trend wasn’t confined to the tech world–non-tech companies with flexible policies still boasted a 13% growth advantage.

Companies that follow hybrid models, which blend remote and office work, are also showing their prowess, outpacing fully in-office companies by a growth margin of 3%. The difference may seem modest, but it highlights the efficacy of a balanced approach to flexible work in driving business growth.

Why investors are looking at work-from-home policies when making decisions

The corporate world’s shift toward flexibility is unmistakable. By the end of 2023, 62% of U.S. companies had adopted some form of work location flexibility, a significant increase from 51% at the beginning of the year. Meanwhile, companies insisting on full-time office work dwindled to 38%. This shift transcends a mere pandemic reaction–it’s a strategic move towards adaptability and resilience.

I get dozens of calls a week from investors who want to consult with me on evaluating the work-from-home policies of companies in which they want to invest–whether it’s a startup or a well-established company. These investors are not just interested in surface-level details. They are keen on understanding how WFH policies translate into tangible business outcomes that affect the bottom line. Their primary concern is not what feels comfortable for company leadership. Rather, they are focused on identifying policies that are optimized for organizational success. This shift in investor perspective marks a significant departure from traditional investment evaluation criteria, where leadership comfort often played a more central role.

In a recent op-ed, one investor highlighted that in his decision-making of which companies deserve investment, the efficacy of WFH policies is undeniable. That’s especially the case for sectors where human capital reigns supreme, such as tech. With company assets primarily comprising laptops and data storage, the real value lies in the talent pool–from engineers to sales experts. How these teams collaborate significantly influences overall performance as seamless customer journeys are critical to these businesses.

Startups are leading this change, with 93% offering flexible work arrangements. This number stands strong even outside the tech sector. The message is clear: the future business landscape will prioritize flexible work, with traditional office work likely dwindling to a minority.

Startups need to realize that their WFH policies are increasingly becoming a key criterion for investment evaluation. The message is clear: In the modern business landscape, WFH policies are not just employee perks. Instead, they should be viewed as crucial determinants of a company’s growth trajectory and, consequently, its attractiveness to investors.

What investors look at when assessing flexible work policies

Importantly, investors look for companies that are not just adopting flexibility for the sake of it but are following best practices grounded in empirical research. These best practices are evident in the companies that have integrated flexibility into their core operational strategy, recognizing it as a driver of growth. As the Scoop Flex Index finds, companies offering flexible working arrangements are growing at a faster pace compared to those sticking to rigid, traditional models. This growth is not just in terms of revenue but also market share and innovation capacity.

Moreover, the clarity of a company’s WFH policy and the degree of employee buy-in are critical factors that investors should evaluate. Policies that are well-defined, transparent, and have the support of the workforce lead to improved retention rates. In the current job market, where talent acquisition and retention are increasingly challenging, the ability to keep skilled employees is invaluable. Companies with strong, clear WFH policies are more likely to attract a diverse talent pool, offering them the flexibility and work-life balance that modern employees seek.

Additionally, these policies play a significant role in enhancing employee engagement and morale. When employees feel that their needs and preferences are acknowledged and accommodated, it fosters a sense of belonging and commitment to the organization. This heightened engagement translates into higher productivity, creativity, and overall job satisfaction, which are key drivers of business success.

In essence, for investors looking to gauge the potential of a company, evaluating its WFH policies offers a window into its future performance. Companies that have successfully integrated flexible work arrangements, backed by clear policies and strong employee support, are setting themselves apart as forward-thinking, resilient, and adaptable. These are the companies poised for sustainable growth in an increasingly dynamic and competitive business landscape, making them attractive prospects for discerning investors.

Addressing biased thinking to appeal to investors

Incorporating an understanding of cognitive biases into the decision-making process regarding WFH policies can greatly enhance a CEO’s ability to align with investor expectations. Two particularly relevant cognitive biases in this context are the status quo bias and the empathy gap.

The status quo bias, which is the preference for the current state of affairs, often leads to resistance to change. In the realm of WFH policies, this bias might cause CEOs to lean towards maintaining traditional office-centric models due to comfort with the known, overlooking the potential benefits of flexible work models. This can result in missed opportunities for growth and innovation that flexible policies might bring. As one angel investor notes, “It is the fear of the unknown and the wish to stay in the comfort zones of the last 20 years that makes managers call people back to the office. Successful managers will embrace remote work as an opportunity for improvement and find smart solutions for the benefit of the company and the employees.” To counteract this, CEOs should challenge their assumptions about traditional work models, engaging in scenario planning and examining data from companies that have successfully implemented flexible work arrangements.

Similarly, the empathy gap, which is the difficulty in understanding others’ feelings when they are in a different emotional or physical state, can create a disconnect between understanding the actual needs and preferences of employees regarding WFH policies. If a CEO hasn’t experienced the challenges and benefits of remote work personally, they might underestimate the value of flexibility for employees. This gap in understanding can lead to policies that do not fully address employee needs, reducing effectiveness in terms of morale, productivity, and ultimately, business performance. To bridge this gap, it’s crucial for CEOs to engage directly with employees to understand their experiences and perspectives. Conducting surveys, focus groups, or informal discussions can provide valuable insights into what employees actually need and value in WFH arrangements. Being aware of and actively addressing these cognitive biases can lead to more informed, balanced decisions that benefit the entire organization and enhance its appeal to investors.

As we navigate the ever-evolving business environment, the focus on WFH policies as a key investment criterion is not just a trend but also a strategic necessity. Companies that recognize and adapt to this change are set to lead, and investors who identify and leverage this insight will find themselves at the forefront of a new era of smart investing.

Gleb Tsipursky, Ph.D. (a.k.a. “the office whisperer”), helps tech and finance industry executives drive collaboration, innovation, and retention in hybrid work. He serves as the CEO of the boutique future-of-work consultancy Disaster Avoidance Experts. He is the bestselling author of seven books, including Never Go With Your Gut and Leading Hybrid and Remote Teams. His expertise comes from over 20 years of consulting for Fortune 500 companies from Aflac to Xerox and over 15 years in academia as a behavioral scientist at UNC–Chapel Hill and Ohio State.

More must-read commentary published by Fortune:

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The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

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