We investors can examine a variety of factors when we work to identify solid stocks for our portfolios. Corporate culture is one attribute that's growing in popularity. It's all about carving out a strong competitive advantage that, behind the scenes, can build the best foundations for businesses' future growth and profits.
Granted, culture is notoriously difficult to quantify or even define, but sources like the website Glassdoor, which collects anonymous employee reviews and assigns ratings to companies, can be extremely helpful for virtually peeking behind closed doors.
This past week, Glassdoor released its 50 Best Places to Work 2016 list. While the collection gives great ideas for potential job seekers, investors can also use the list to ponder which companies are nurturing workforces that can take their businesses from "good" to "great."
One significant takeaway is the tech industry's dominance -- tech companies comprised nearly half of Glassdoor's list, far outshining other industries.
Facebook employees. Image source: Glassdoor.
Culture forward in tech
Some companies on Glassdoor's list are privately held. Airbnb, widely known as one of the private "unicorn" companies and a denizen of the disruptive "sharing economy," took the No. 1 spot this year. That's highly impressive given the fact that this is its debut on the list.
Some contenders have made the grade for all eight years the Glassdoor list has existed: Google, Apple (AAPL 0.17%), Bain & Company, and Chevron (CVX 2.48%) can boast that achievement.
Glassdoor's entire list called out 21 tech companies out of 50. The top 10 definitely leaned techie, with seven, including lesser-known companies such as GuideWire (GWRE +0.73%) and HubSpot (HUBS +0.56%) at the No. 3 and No. 4 spots, respectively.
Then there are the household names. Take Facebook (FB +4.39%), coming in at No. 5 with a high 4.4 out of 5 Glassdoor rating. This may not be a surprising outcome, since Facebook receives a lot of press for its employee perks. However, according to one Glassdoor reviewer, "The culture is really amazing and in my opinion even better than the media portrays it."
One particularly important takeaway: Facebook has been able to grow its head count without diluting and diminishing its strong culture. As of September, it had about 12,000 employees. The larger a company gets, the easier it is to falter in that area, particularly when it has to think about the whims of Wall Street. So far, Facebook appears to be getting it right.
Another social media company, professional networking site LinkedIn (LNKD +0.00%), followed closely on Facebook's coattails, also earning a 4.4 rating.
Tech giant Google, which recently changed its name to Alphabet (GOOG +3.52%) (GOOGL +3.61%), is one of the pioneering examples of Silicon Valley companies offering top-of-the-line perks intended to draw top talent and spur employee engagement and business innovation.
Google took the No. 8 spot with a 4.3 rating. That's notable given the fact that it possessed the No. 1 spot last year.
Although Google's fall is something to consider, again, its massive size apparently hasn't resulted in total culture shock. As of July, 57,000 people could call themselves professional Googlers and given its retention of a spot in the top 10, it looks like it's still going strong in pleasing its workforce.
Real estate website Zillow (Z +1.11%) may be considered a bit of a sleeper, since it doesn't generally get as much widespread press for employee perks as other tech companies do. However, it made it onto the No. 10 spot in this Glassdoor list with a 4.3 rating.
The tech industry's drive to provide best-in-class work environments is most definitely a win for American workers, since it gives some ideas and frameworks other companies can follow regarding cultural strength, regardless of industry.
There's another angle, too. Maybe it goes without saying that Silicon Valley companies these days have to offer great incentives to draw great employees who will give their all, so we can be cognizant of the importance of the battle for talent in that area.
Positive culture can boost profits
Paying attention to culture doesn't mean investors should throw considerations like valuation and growth prospects out the window, but it can say a lot about a company's potential staying power. Happy employees are more productive, and will feel far more inclined to be loyal and even go above and beyond in innovation.
Toxic cultures, on the other hand, can indicate a shaky future. Employees are the life's blood of any business, but workers who feel uninspired or even disrespected likely won't feel driven to excel on any level. The "It's just a paycheck" attitude can deteriorate a company's competitive standing and future performance.
High levels of turnover represent very real employer costs, too, in the form of hiring, training, and even lost intellectual capital.
The concept that engaged employees are better for business seems like common sense, but for any doubters, there's also data to back up why cultural health is a big advantage to a business.
Gallup provided one of the best-known employee engagement studies in 2013. According to its research, companies with high levels of employee engagement outperformed the competition in areas like turnover, customer ratings, absenteeism, safety, quality control, and, maybe most notably for many investors, straight-up profits.
For example, companies with an average of 9.3 engaged employees for every one actively disengaged worker in the 2010-2011 period generated 147% higher earnings per share (EPS) than their competition did in the ensuing year.
On the other side of the cultural fence, companies with an average of 2.6 engaged employees for every one actively disengaged worker experienced 2% lower EPS than their competition over the same time frame.
In another interesting finding, companies with engaged employees rebounded faster as the economy improved, regaining and growing EPS at a faster rate than their competitors.
Essential assets
More and more people recognize the importance of treating employees well from both an ethical and business standpoint. Checking out cultural attributes through sources like Glassdoor can most certainly help investors get a feel for how companies care about one of their most important assets: workers.
Check back at Fool.com for Alyce Lomax's columns on environmental, social, and governance topics.
