The Happy Company Formula

How can a company leader’s moral values translate into employee happiness? What does employee happiness have to do with profits? Study at CUHK Business School shows how selfless CEOs bring unexpectedly positive results to their companies with their eyes focused solely on doing good

By Fang Ying, Senior Writer, China Business Knowledge @ CUHK

Most companies believe that making profits is the end goal of their existence and all strategies should point toward that. This is an unquestioned assumption in modern economy, and it is no exception in China. However, some Chinese companies have gone against the grain and come up with an alternative way of management, which prioritizes employees’ happiness and the public good above profits.

These companies are all small- and medium-sized enterprises in labor-intensive industries founded by idealistic individuals who want to make a difference in society by creating a new way of running business, according to Fu Pingping, an associate professor at the Department of Management of the Chinese University of Hong Kong (CUHK) Business School. Prof. Fu has visited these companies a number of times and studied their best practices.

Earlier this summer, Prof. Fu also organized a study trip to the mainland for CUHK MBA students to visit some of these “happy companies,” which demonstrate unique management styles based on traditional Chinese values and wisdoms. The observations made during the trip further verified Prof. Fu’s earlier research on the effect of leaders’ personal values on their transformational leadership and the difference it makes when the values are oriented toward the happiness of the followers.1

Happy Companies at Work

Prof. Fu cites Good-Ark Electronic Company (固鍀電子公司) and Xin Yu Lou Department Store Group (信譽樓百貨集團) as examples of these “happy companies.” Unlike most other companies, Suzhou-based Good-Ark, the largest semiconductor manufacturer in China, has put profit-making on the side and been aggressively promoting its “employee happiness” practices since 2010. It has developed eight modules, including family care, humanistic education, green practices, health promotion and community outreach, none of which are directly related to business, but seek to improve the lives of the employees and the surrounding communities.

Wu Nianbo, founder and chairman of Good-Ark, has said that the value of a company exists in its employees’ happiness and clients’ satisfaction. He believes that corporations play a key role in the development of the modern society and are responsible for contributing to the well-being of the citizens. In 2011, he even declared the happiness of his employees to be the ultimate goal of his business.

“The company is like a big family—it takes up the responsibility of all aspects of employees’ lives. Employees there enjoy a comprehensive benefits package,” says Prof. Fu. An unusual example is the two-year maternity leave the company offers its female employees.

At the same time, with the goal of building a “sage culture” based on the ideals of Confucianism, Buddhism and Taoism, Good-Ark provides regular and intensive lessons to its staff. These lessons focus on traditional Chinese wisdom, such as how to treat one’s parents and how to behave in a morally acceptable manner. The company hopes its employees will become motivated to take responsibilities for themselves, their workplace as well as their families as a result of learning the traditional philosophies.

“If you understand the traditional Chinese culture, you would appreciate what they are doing,” says Prof. Fu. “The leaders there truly treat their employees as family members. In return, the employees feel happy and treat the company as their own home.”

The Spill-over Effect

The other example, Xin Yu Lou, is a department store chain based in Huanghua, a township in Hebei Province. The company regards employee and customer satisfaction as the key to running a successful business.

As its name suggests, Xin Yu Lou literally means the “House of Good Reputation” in Chinese. It is well known for its trustworthy business practices, its delivery of high-quality products and the shunning of counterfeit products. Since its establishment in 1984, it has allowed its customers a three-month window in which to return goods. This practice is almost unheard of in China even today.

To illustrate how employees’ behavior reflects the corporate philosophy, Prof. Fu cites the example of a female sales guide who has worked at Xin Yu Lou for 14 years. “She said she is very happy because she doesn’t need to worry about anything. The company takes care of all aspects of her life,” Prof. Fu remarks. “When she feels happy, she naturally provides good service to her customers. That definitely helps her to win more clients and profits will follow.”

In fact, according to Prof. Fu, as a result of being genuinely interested in giving customers a positive shopping experience, most of the sales guides have not only attracted repeat customers, but motivated them to bring their families and friends along—sometimes despite having to travel extensively to the stores.

A Far Cry from CSR

On the surface, what these companies are doing may sound similar to Corporate Social Responsibility (CSR) practices in the West. But Prof. Fu points out that their concept of “doing good” is quite different from Western companies’ CSR practices. Companies that adopt CSR strategies attempt to drive profits from doing good. “However,” remarks Prof. Fu, “companies like Good-Ark and Xin Yu Lou are doing good without a profit motive. Profit-making is just a by-product.” This is what differentiates “happy management” from the Western-style of CSR, according to her.

“The idea of doing good without thinking about profits seems impractical and even odd to some. But caring for others, particularly the employees, can truly motivate and inspire them. In return, the employees will work for you with a great sense of loyalty and commitment,” says Prof. Fu.

The relationship between employees’ satisfaction and companies’ financial performance has in fact been shown in a lot of research and real life examples. The logic is straightforward: Basically, people perform better when they are happier, and better performance lead to greater profits.

Prof. Fu uses data of Good-Ark and Xin Yu Lou to back up her claim. At Good-Ark, thanks to the implementation of happy company practices, the turnover rate declined dramatically from 20 percent in 2006 to less than 7 percent in 2013. Its market value in 2013 soared by 42 percent over that of 2012, and its gross profit increased by nearly 20 percent in the first six months of 2013 over the same period in 2012.

Unlike the aggressiveexpansiontaken on byitscompetitors, Xin Yu Lou prefers to keep things slow and maintain its “customers first” practice. Nevertheless, focusing on its existing market, the townships in Hebei and Shandong Provinces, Xin Yu Lou had opened 21 branch stores by the end of 2013.

CEO’s Personal Values Matter

Even though “happy companies” like Good-Ark and Xin Yu Lou are in the minority, they have already attracted a lot of attention. It would not be surprising if other companies duplicate their models. However, they would only be successful if they are led by truly altruistic leaders, emphasized Prof. Fu.

“These companies are all led by CEOs with self-transcendent values, which is a decisive factor in the successful application of the best practices that we’ve seen,” says Prof. Fu, who has studied in depth the subject of leaders’ personal values over a period of 15 years.

Some of these findings have been outlined in a research paper titled “Pursuit of Whose Happiness? Executive Leaders’ Transformational Behaviors and Personal Values.” This study involved face-to-face interviews with Chinese CEOs, senior managers and middle managers from 42 companies, taking almost six years to complete. It reveals that leaders’ values and behavior have a direct effect on their followers and are the most critical factors that influence followers’ commitment level. The findings show that CEOs who exhibit a high level of self-transcendent values—those who regard the advancement of the well-being of others as their leadership purpose—and actually “walk the talk,” are most likely to see positive commitments and a higher level of retention among their employees.

On the other hand, those CEOs who tend to pursue their own happiness and self enhancement via their leadership positions and powers—are less likely to see the positive outcomes mentioned above. Moreover, those who purport to embrace self-transcendent values but who don’t actually “walk the talk” are the ones most likely to experience the worst outcomes.

To leverage the positive effect of leadership, CEOs should hold values and play the roles that are consistent with prevalent social expectations, concludes the research paper. “Employees will definitely follow those leaders who hold values that are oriented toward the common good,” says Prof. Fu. “Good-Ark is a very good example. CEOs’ personal values do make a difference.”

Identifying Personal Values

In light of her research findings, Prof. Fu suggests leaders who would like to fully develop their employees’ true potential and run their businesses in a sustainable way should identify their personal values first.

“By definition, leadership is to inspire people to work for a common goal. If you are a leader, you must have the values that other people can share,” she says. “You have to have the values that are publicly accepted. That’s the minimum criterion. People can only be committed when you are committed.”

Leaders, she adds, should understand why they are in business and in their positions. If they really want followers to contribute to their enterprises, they should embrace self-transcendent values and adjust the way they run their business accordingly, concludes Prof. Fu.