Why does well-being matter in business?

The financial bottom line is a key measure often used to indicate a for-profit business’ flourishing. The reasoning is that an organization has little purpose if it can’t sustain itself to keep doing business. Many leaders focus myopically on the key metrics of business performance (e.g., ROA, ROI, debt ratio), ignoring some factors that lead to success and, thus, excellent metrics. One often-overlooked factor is the well-being of those working at a firm—from the lowest-level employees to the highest-level top management team. Indeed, when employees are at their best, exhibited by well-being across all dimensions of physical, career, social, financial, and community, they are better able to make sound financial decisions in the best interest of the company.[i]

Well-being and Executive Functioning

Well-being impacts decision-makers’ executive functioning capabilities, or the cognitive abilities needed to effectively manage and direct attention.[ii] Having high executive functioning means being able to easily access working memory, exhibit speedy cognitive flexibility, and control inhibitions. These are functions needed in a workplace on a daily basis. For instance, in a weekly meeting conversation, a marketing manager at a corporation must quickly answer a question about recent budgets from memory, then switch to discussing the creative art for the next campaign, all while not giving in to the urge to eat the sugary donuts at the table and ruin diet progress.

All in all, executive functioning impacts how well managers or other employees can perform their job duties, and that performance directly impacts the organization as a whole.[iii] Researchers who study financial decision-making in organizations usually focus on big-picture topics such as mergers and acquisitions, capital budgeting, and valuation techniques. However, emergent behavioral research is beginning to recognize the importance of individual well-being and executive function, which impact these big-picture decisions.

Past Experiences Affect Executive Decision Making

One research study examined managers who make corporate finance decisions and how these are linked to these managers’ individual traits. The results show that CEOs whose formative years were during the Great Depression tend not to take calculated risks. In addition, managers who have military experience are much more aggressive in their decision-making. The conclusion from these findings is that workers’ pasts can drastically affect their executive functioning and the outcomes of a business.[iv] In terms of well-being, living through an extremely stressful circumstance such as the Great Depression or military service can impact physical and psychological well-being, which in turn can have an effect on decision-making.

It seems boards understand that the overall well-being—including the traumatic background—of a manager can affect a company greatly. A recent study shows that boards pick healthy CEOs whose health is measured using a health index based on many physical and mental health factors.[v] While this does not mean one should hire employees based on their health, it does point to the importance of a healthy workforce. Improving employee health can improve decision-making on the job.

Poor Air Quality Increases Decision Making Bias & Lowers Performance

In a study of investment analysts at various financial companies in China, where air pollution is prevalent at high levels, air quality was discovered to affect employee decision-making. Specifically, analysts misvalued the companies they analyzed when air quality was worse. They exhibited more bias in decision-making and pessimism when the air was relatively dirtier.[vi] In terms of well-being, poor air quality can significantly inhibit physical health, which is lowered by breathing in toxins that the body must then struggle to eliminate; it puts an additional strain on the system. Thus, even something as seemingly insignificant as poor outdoor air quality can have short-term impacts on decision-making.

However, poor air quality can even impact employees’ psychological well-being. Another study in China gathered data from employees across two weeks on their air pollution appraisals and how this impacted their self-control and behavior at work. The researchers found that when employees think that the air quality is bad (i.e., their appraisal), their self-control is depleted, so their work performance suffers; they are less helpful to co-workers and the organization (i.e., decreased organizational citizenship behaviors) and more likely to be deviant at work.[vii] This is interesting because this second study (although controlling for objective air quality) simply asked employees about air quality perceptions, yet even these impacted performance.

Employee Well-being Programs Improve Financial Performance

Research also finds that workplace well-being programs and practices that improve decision-making are associated with improved financial performance. One study showed that employee-friendly practices that boost employee well-being have a positive relationship with firm productivity. In addition, firms with higher employee well-being tend to be able to access capital more cheaply.[viii] Not only does poor employee health hurt firms but also improving well-being helps them. This shows the importance of being proactive in supporting individual well-being in any firm.

How can leaders use this?

  1. Take action to improve your own well-being. First, take steps to help yourself become a better decision-maker by improving your own well-being. While not all traits affecting wellness that impact decision-making are possible to change (e.g., having the trauma of growing up during the Great Depression), there are ways to improve well-being to offset factors that impact executive functioning negatively. For instance, executive functioning is not static, so it can change in one person over time. In fact, research has connected many well-being techniques to improved executive functioning, such as mindfulness meditation,[ix] exercise,[x] and blood sugar regulation.[xi]
  2. Advocate for others’ well-being. Second, be an advocate for the well-being of others in your organization. Recognize that small things can change individuals’ ability to perform for the organization. Encouraging small healthy habits may be effective for improving the bottom line.