Holding Firms Accountable for Measuring and Reporting Emotional Impact (long version)

Society bears the brunt of the externalities of bad management in the form of mental health disorders and addiction — even in the best of times.

Given the deepening mental health pandemic, deploying bad management and policies on increasingly psychologically vulnerable employees is a recipe for deep distress, poor productivity and loss of life.

For the past three decades, companies have been encouraged to think about operating with a triple bottom line — financial, environmental, and social. Some implemented programs to assess their performance along multiple, non-direct financial aspects. Many corporate social responsibility initiatives develop and assess the firm’s impact on environmental and social well-being with no specific mention of mental health measures. Regulators punish polluters, except mental health polluters.

Seizing the moment

Let’s make 2021 the year we work together to define how to measure the emotional health and impact of the companies we support with our human, financial, and attention resources.

Let us find a way to reward companies for investing in the well-being of employees deeply affected by the pandemic in way that accrues to their balance sheet and builds their value to investors.

Let us enable investors and regulators to embrace the idea of mental health for all and by all. Rigorous and independent evaluation, meaningful metrics and data confidentiality is key.

We need a new accreditation for human sustainability.

The approach we have in mind would be a management system, rating approach and accounting standard.

We have precedents for inspiration.

In mid 1990s companies gravitated to the Balanced Scorecard, a strategic planning and management system, to identify the leading indicators they should track.

Later that decade came the U.S. Leadership in Energy and Environmental Design (LEED) program (adopted by the USGBC and launched with the help of the Federal Energy Management Program). The rating system evaluates the “environmental performance of a building and encourage[s] market transformation towards sustainable design.” Most buildings today are rated and companies brag about their ratings.

In 2011 the Sustainability Accounting Standards Board helps investors and companies agree on sustainability topics and measures.

Why Now?

The Covid crisis has pushed people around the world to demonstrate heroic strength, but has also revealed profound weaknesses in our society. Widening gaps in income, wealth and opportunity in the years before the virus hit left everyone more vulnerable to the disease and the attendant chaos. More than ever before, people realize today the incalculable toll of socio-economic divides in our societies, and how the pandemic is exacerbating them.

2020 has certainly been a challenging year. But it has also been a year that has experienced dramatic trends and movements calling for radical change in our economies and societies:

1. Rising importance of Mental Health Support. ​In an increasingly knowledge-based and remote workplace, employees’ well-being is more important than ever for business performance and economic productivity. “$4 is returned to the economy for every $1 spent caring for people with mental health issues.” A research found that about 86%of employees reported improved work performance and lower rates of absenteeism after receiving treatment for depression. Investment in Mental Health have skyrocketed, with Equity funding for mental health startups reached a record high of $576 milliom in the first quarter of 2020 — surpassing the prior quarterly record by over 60%.
2. Investment in Diversity, Equity and Inclusion becomes a priority at the light of 2020 racial protests and increasing evidence of diversity on business performance. In the VC world, success rate of acquisitions and IPOs was 26.4% to 32.2% higher for partners with diverse ethnicity vs those with shared ethnicity. One-third of Fortune 1000 companies made a public statement on racial equity, with 57% of them publicly pledging a total of $66 billion on racial equity initiatives.

Given the increasing role of work in our lives, our aim is to first start transforming a short-term shareholders-based capitalism to a more sustainable stakeholders-driven one. The Human Sustainability Index:

1. Caters to both employee and leader needs, both executives and employees experiencing increased stress related to Covid and remote work).
2. Focuses on the intersection of Mental Health and Diversity, Equity & Inclusion. More than a race for quotas, DEI is also about well-being, with women and people of color being the most affected by mental health challenges and lack of access.
3. Uses a new accounting method so that investments in employee well-being and mental health are accounted as assets versus costs.
4. Accounting for Investment AND Impact
5. In the current accounting treatment, investments made into programs to support employees are a cost on the Income Statement. At the same time liabilities that may result (lost productivity, legal claims, costs of support programs) will not be recognized on the balance sheet and considered remote.
6. Given soaring depression, anxiety, substance use, as well as sleep and eating disorder diagnoses, mental health risks must be considered as a potential liability during and after the Pandemic. If the liability is probable then it should be recognized.
7. Financial investments into programs to reduce that risk and support employees both reduce the liability and create investment into an organization’s reputation with each employee through the license to operate.

Distinguishing Investments from Impact

A great EAP with a low single digit utilization rate is not an investment, it is a waste. So is a fancy on-site gym that people don’t use because of a toxic work environment.

Since the 2018 publication of our book on Compassionate Management of Mental Health in the Workplace, we have been working to define the Human Sustainability Index (HSI) we called for. We encouraged managers to think about how they would develop such a process of evaluation and “certification.” What factors would you measure and how for your HSI? Below are a few question to prompt reflection.

1. What objectives would you set for your HSI?

2. What data would you track (individual, team, organization and sector), and how would you do so in a confidential, sustainable way?

3. What kind of data would you want to collect from EAPs and other entities? What other partners do you want to bring into this conversation?

4. What are the macro and micro signals you would track? And how would you be clear about what they mean? Take the example of mental health leaves in a company — more than average could signal a problem in the company or could suggest that its employees feel comfortable getting support and taking the time to heal.

5. How can you look out for “Burning Out,” “Boring Out” and “Sensing Out”?

6. What are key inflection points you need to watch?

7. How do you balance trade-offs? Do you have to accept under-performance to be over-supportive?

8. How could you use an HSI as an early warning signal for yourself and your teams?

9. How would you account for the “normal wear and tear” to be expected from someone (of similar demographics) in this position and in the industry? We are all part of a broader system with performance expectations.

10. How would you go about making sure that such an index would be in service to the employee and not pose a potential career risk? Employees need to understand that much like tracking carbon dioxide keeps them safe, so does tracking issues become a workplace becomes emotionally toxic.

11. What are tools that you are already using (employee engagement surveys, disability leave data) that could be combined? If we had more such tools, how do you think your organization and broader community would perform and benefit? Do you have existing tools, such as performance evaluation process, that can be tweaked to ask key questions? One might be, “do you feel that your manager cares about your well-being?”

Accounting for Investment AND Impact

In the current accounting treatment, investments made into programs to support employees are a cost on the Income Statement. At the same time liabilities that may result (lost productivity, legal claims, costs of support programs) will not be recognized on the balance sheet and considered remote.

Given soaring depression, anxiety, substance use, as well as sleep and eating disorder diagnoses, mental health risks must be considered as a potential liability during and after the Pandemic. If the liability is probable then it should be recognized.

Financial investments into programs to reduce that risk and support employees both reduce the liability and create investment into an organization’s reputation with each employee through the license to operate.

12. What biases might the tools and policies and benefits your firm uses reflect that you have not considered?

13. To whom would you talk and what would you ask?

14. How could I use this process to encourage an emotional impact audit of various aspects of the firm?

The crucible of this crisis provides the unique opportunity to begin to put things right, to ensure that societies emerge more equitable, sustainable, and resilient. Our vision for an alternative way of being starts with a belief in the infinite dignity of each human person. But intentions need to be paired with the right metrics. To guide and adjust actions, we need data.

Well-being is a collective issue. It is both a bottom-up and top-down movement. Much as is the case with climate change, tackling emotional climate change requires that citizens, employees, experts, investors, corporations and non-governmental organizations rethink how they operate and how their actions impact others.

Authors Bahia El Oddi and Carin-Isabel Knoop research and write about human sustainability.