Are family-friendly workplace practices worth their money? New evidence

Do family-friendly work practices – offering flexibility in case of unexpected childcare emergencies, job sharing schemes, subsidy for childcare, entitlement to work from home, switch to part-time work, etc. – enhance the performance of the firm that adopts them?

Quite a bit of research suggests they do: Several studies have provided evidence that firms offering such practices have higher levels of employee retention, organizational citizenship behavior, and work attitudes. However, I also have to admit that I am a bit skeptical of such “evidence from research”… for several reasons:

First, it is often clear that the researchers conducting these studies wanted to find such a positive relationship, and I cannot suppress a suspicion that there might be just as many studies conducted that fail to turn up the same heart-warming evidence but, as a result of this failure, therefore are not published, and hence we never hear about them.

Second – and at least as important – even if we’d accept this evidence as a given, it does not take into account the financial costs of implementing the family-friendly humbug. Sure, higher levels of employee retention, citizenship behavior and so on, are nice things to have, and I am sure they help an organization become better, but they don’t come for free; family-friendly workplace practices are sometimes plain expensive, and it is not clear from the studies conducted whether the (alleged) benefits outweigh these often substantial financial costs. Past research measured the benefits, but did not take into account the costs involved.

New evidence

Fortunately, recently, professors Nick Bloom, Toby Kretschmer, and John van Reenen (from Stanford, the University of Munich, and the London School of Economics) conducted an extensive study examining the effect of family-friendly practices on hard variables such as firm sales per employee and return on capital employed, using a large database of firms from the US, the UK, Germany, and France. What they found was intriguing and surprising, slightly disappointing, but also reassuring – and, yes, all at the same time.

In their initial, relatively simple statistical analysis, they too found a positive relation between how many family-friendly practices a firm employed and its financial performance – that is, companies with a lot of family-friendly practices generally were more profitable than those without them. But then Nick, Toby, and John decided to correct these statistical models for the quality of the firm’s management. They used an extensive survey and interview procedure (using and elaborate so-called double-blind procedure) to determine the quality of each firm’s management. And then they found that those firms that implemented family-friendly practices were already good to start with. It is not that the practices made them any better; well-managed firms adopted them more often than their more poorly managed counterparts.

Happiness for free

Hence, Nick, Toby, and John’s models showed that well-performing firms implemented family-friendly practices, but subsequently those family-friendly practices did not increase their financial performance even further. Don’t be mistaken; this does not mean that the family-friendly practices did not improve these organizations beyond their original starting point; they probably did. It is just that these benefits did not outweigh the costs incurred; at the end of the day, financially it didn’t make any difference whatsoever whether you adopted them or not. To conclude, firms that had implemented a bunch of family-friendly practices fared well as a result of the increased employee retention, citizenship behavior, and improved work attitudes, but the amount of money they had to spent on the practices exactly equaled the financial benefits that resulted from them.

And I would say that that is not so bad. Basically, family-friendly practices come “for free”; sure, they are expensive, but the benefits you experience from them exactly cover those (substantial) costs. Or, as Nick and his colleagues put it: “this rebuts the claim that providing family-friendly workplace practices detracts from profits. Our results show that although providing family friendly workplace practices may not increase profits, they at least pay for themselves”.

And in a way I like that even better than when firms had been implementing them just because they increased financial performance. Now, it shows that firms do not adopt them out of selfish reasons, but because good managers understand that it does not cost them any money (although it doesn’t make them any either). Because when you can basically increase the happiness of your employees without it costing you a single dime, why not do it? Good managers let the world be a nicer place, not because they benefit from it themselves, but just because they can.