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Study Shows Link Between Market Performance and Nurturing a Culture of Health

ABSTRACT

A growing body of evidence supports the idea that creating a culture of health and safety is good business, but can doing so also affect stock performance?

A recent study published in the Journal of Environmental Medicine compared the S&P 500 to four hypothetical stock portfolios comprised of winners of the American College of Occupational Medicine’s Corporate Health Achievement Award.

The researchers concluded that evidence strongly supports the view that focusing on the health and safety of a workforce can improve productivity and those improvements may well be reflected in the company’s stock performance.

INTRODUCTION

With evidence showing that improving workforce health and safety helps the bottom line, a recent study published in the Journal of Environmental Medicine explored whether companies that achieve greater productivity by creating a “culture of health” will see those gains reflected in their stock price.

The study tracked the stock market performance of organizations with proven health, safety, and environmental programs under four different scenarios.

The organizations studied all were recipients of the American College of Occupational and Environmental Medicine’s (ACOEM’s) Corporate Health Achievement Award (CHAA). ACOEM created the CHAAs to recognize the healthiest, safest companies in North America and to raise awareness of best practices in workplace health and safety programs.

Based on evidence that improving workplace health translates to improved productivity, the researchers tested the hypothesis that a financial portfolio of these companies would outperform the broader equity market.

Using simulation and past market performance, the researchers created four hypothetical $10,000 investment portfolios comprised of publicly traded CHAA winners and each with different assumptions. The portfolios were then compared with the performance of a comparable investment in the S&P 500.

RESULTS BY PORTFOLIO

Portfolio 1 – Five Securities
The first portfolio was comprised of equal investments in five publicly traded CHAA-winning companies — Lockheed Martin, Boeing, IBM, Johnson & Johnson, and Glaxo Wellcome (now Glaxo-Smith-Kline) — and tracked from July 1, 1999 through June 30, 2012. The initial $10,000 investment grew to $17,871.52, a cumulative return of 78.72% for the hypothetical portfolio. During the same period, the S&P 500 had a cumulative return of -0.77% and a final investment value of $9923.14.

Portfolio 2 – Weighted Portfolio
The second portfolio was weighted using ACOEM’s scoring process to test how the portfolio would do if the holdings were weighted on the basis of their companies’ scores in the year when they won the award. Comprised of the same companies as Portfolio 1, and tracked from July 1, 1999 to June 30, 2012, the portfolio’s initial $10,000 investment grew to $17,569.21, a cumulative return of 75.69%. The S&P 500 for that period had a cumulative return of -0.77% and a final investment value of $9923.14.

Portfolio 3 – Starting with First Winner
The third portfolio tracked the publicly traded award winners starting in the year that each company won the award, and redistributed shares equally as each company was added. The portfolio began with Lockheed Martin on July 1, 1997, when the first CHAA award was announced, and added results from the other winners through June 30, 2012. In this portfolio the initial $10,000 investment grew to $24,058.29, a cumulative return of 140.58%. During the same period, the S&P 500 had a cumulative return of 53.89% and a final investment value of $15,389.20.

Portfolio 4 – Excluding Outliers
The fourth portfolio was designed to eliminate outlier influence and deleted the best and worst performers from the five holdings in Portfolio 1. Measured from July 1, 1999 to June 30, 2012, the portfolio’s initial $10,000 investment grew to $19,404.12, a cumulative return of 94.04%. During the same period, the S&P 500 had a cumulative return of -0.77% and a final investment value of $9923.14.

CONCLUSIONS

Regardless of approach and assumptions, the market performance of ACOEM’s CHAA winners clearly outperformed the market, beating the S&P 500 average by a substantial margin.

From this, the study’s researchers concluded that their results strongly supported the view that focusing on the health and safety of a workforce is good business.

“Engaging in a comprehensive effort to promote wellness, reduce the health risks of a workforce, and mitigate the complications of chronic illness within these populations,” they concluded, “can produce remarkable impacts on health care costs, productivity, and performance.”

Although they acknowledged that correlation is not the same as causation, the researchers concluded that the results consistently and significantly suggested that companies focusing on the health and safety of their workforce are yielding greater value for their investors as well. “Evidence seems to be building that healthier workforces provide a competitive advantage in ways that benefit their investors,” they wrote.

eMindful Chief Medical and Operating Officer, Joel Kahn, MD,  says he is not surprised by the study’s results. eMindful’s own employee programs routinely improve productivity, by 40 to 60 or more minutes per week, as measured using the validated Work Limitations Questionnaire.

“Focusing on employee well-being and resilience, through programs such as mindfulness training, creates these very measurable productivity gains,” he says. “So it’s no surprise that an employer’s stock performance would reflect those gains.”
SOURCE

The Link Between Workforce Health and Safety and the Health of the Bottom Line. Journal of Environmental Medicine, September 2013, Volume 55, Number 9. Raymond Fabius, MD, R. Dixon Thayer, BA, Doris L. Konicki, MHS, Charles M. Yarborough, MD, Kent W. Peterson, MD, Fikry Isaac, MD, Ronald R. Loeppke, MD, MPH, Barry S. Eisenberg, MA, and Marianne Dreger, MA.