Secrets of a Chief People Officer - Assessing Company Health in the Age of Hybrid and Remote Work: A Guide for Equity Investors

The Investment Landscape

It was at the start of 2022 when people working in PE Companies in my network started to reach out to me for guidance on investment evaluation when it comes to looking at companies that operate a remote working environment. Having been on the global leadership team for a remote-first company, they were keen to know my views on what they should be including in their criteria for investment due diligence and how they would know if the company was operating a healthy remote working environment.

These conversations with Private Equity (PE) investors made me think: Firstly, it’s a different landscape for PE companies these days. Many start-ups are keeping costs low by operating in a remote environment, but how can PE companies assess if this is working? Secondly, as the business goes from start-up into scale-up, how can PE companies work with the leadership teams to ensure that the working environment remains healthy as it grows? If the company is a remote-first environment, conversations are bound to come up about whether to move to hybrid working, particularly given some of the advantages for attracting talent who do want a hybrid environment and a sense of community around them. It is the former of the two that this blog will focus on, but it’s worth mentioning the challenge that PE companies must think about once investment has been made. A whole other area, that I blog about at a later date.

As the global economy looks somewhat more positive after the disruptions of 2023, PE investors are cautiously optimistic about re-entering the market. Investment activity slowed significantly last year due to economic uncertainties and fluctuating market conditions. However, 2024 has shown signs of recovery, with investors increasingly focusing on sustainable growth and long-term viability. Companies that have adapted to hybrid and remote work models are of particular interest, as these arrangements can significantly impact productivity, employee satisfaction, and overall company health. But it does make me wonder whether, during the slowdown in investment activity last year, PE companies continued to look at how they should be modifying their investment evaluation? Did they also look at how companies can continue to thrive in a remote and hybrid world as they move from start-up to scale-up mode?

Importance of a Healthy Work Environment

We all know that a healthy work environment is critical for maintaining high levels of productivity and innovation. Companies that manage hybrid or remote work models effectively tend to have happier, more engaged employees, leading to better financial performance. For investors, understanding how a company handles these work models can provide insights into its long-term sustainability and growth potential.

In my view, it is important to look at how the company measures performance. Yes, performance driven by competency is key, but to what extent does individual and team performance include collaboration and communication criteria? What behaviours need to be driven in order to perform in a remote and hybrid working environment; does the company know what these are, do they encourage and assess these? Equally, what collaboration opportunities does the company put regular cadence in place for? Remember as well, you need to do more to encourage social collaboration in a remote environment when those natural opportunities to connect over coffee, lunch, etc., in an office environment just occur.

Key Metrics for Investors

Investors already assess several key metrics to evaluate the health of a company's work environment. But how can investors adapt what they look at to ensure a more comprehensive assessment in a remote/hybrid working environment?

• Employee Engagement and Satisfaction ??: High engagement levels correlate with increased productivity and lower turnover rates. Platforms like Culture Amp and Peakon can provide real-time insights into employee sentiment. However, depending on the size of the company, they may not have these platforms in place and/or have the appropriate skills in-house to manage and run these properly. So PE companies need to think differently about how they assess this. ?If they do have employee satisfaction/engagement surveys in place, scrutinise the questions to make sure that the questions directly ask about collaboration and communication in the environment they operate.
• Retention Rates ??: Low turnover rates indicate a stable and positive work environment. Investors should review these statistics and compare them with industry benchmarks. Companies like Microsoft, which offers flexible work arrangements, have reported lower voluntary turnover rates compared to industry averages. So, be sure to compare apples with apples, and look at companies that offer remote and/or hybrid working as the benchmark.
• Performance Metrics ??: Productivity and performance metrics are crucial. Companies that maintain or improve productivity in a remote or hybrid setup demonstrate strong management and adaptability. Salesforce reported consistent performance by leveraging cloud-based tools to facilitate remote work. I’ve already mentioned above that I believe performance assessment should include competency, collaboration, and the way in which people behave in the way they communicate with others. Not only is the company assessing performance holistically, but is the company doing something with performance assessment for individuals and teams?
• Flexibility and Adaptability??: Companies offering flexible working arrangements and adapting to employees' needs often see better outcomes. But it’s how they operate these that is key. What guidance, policies, processes, systems, cadences do they have in place? What tooling do they have to optimize the flexible working environment, and what support do they provide? For example, there is a lot of commentary out there around employee well-being and how remote working can have a negative impact on mental well-being. This is why it’s important to have those cadences in place for connection, but also, I believe that mental health initiatives support a better remote working environment.

Evaluating Company Policies and Practices

So, let’s dive into a bit more around those policies and practices that will help support a remote/hybrid working environment. Investors should scrutinize company policies related to hybrid and remote work:

• Communication Practices ??: Effective communication is vital in remote settings. Companies that have robust communication platforms and clear, transparent communication practices tend to perform better. Slack and Zoom, for example, have become essential tools for companies like HubSpot, facilitating seamless communication among remote teams. It was both that I used in a remote-first company, but as a side point, I’m not going to lie, implementing Slack initially was tougher than I thought. People didn’t quite get used to the channels, for example, but within 3 to 6 months, it quickly became a tool of choice. But you must stick to the implementation and demonstrate how teams can make the most of it. But, when you look at communication practices, it isn’t just about the tooling. The cadences that individuals, teams, and the company have in place are also critical to a healthy environment. Yes, I do include looking at team meetings, but I also encourage a review of how those social connections are developed and strengthened. Relationships are a fundamental part of team performance, in my view, so how does the company environment build these?
• Technology and Infrastructure ??: Access to the right technology and tools is crucial. Companies investing in secure, efficient remote working tools demonstrate a commitment to maintaining productivity. IBM claimed that their investment in cloud infrastructure and cybersecurity measures has enabled a smooth transition to hybrid work. How easy it is for people to collaborate using technology, for people to access and share knowledge, and importantly to foster innovation. My personal experience has included the use of tools such as Miro and Mural. Both tools are a great way to run ‘whiteboard’ style meetings and encourage innovation through design thinking methods. Having tools that clearly show version control and work well when two or more people are collaborating in the same document at the same time are essential. From a personal point of view on the latter, Google is still the best online collaboration for docs/sheets/slides that I’ve used.
• Support Systems ??: Mental health and well-being programs are more important than ever. Investors should assess whether companies have comprehensive support systems for their remote workforce. For instance, LinkedIn’s extensive mental health and wellness programs have been instrumental in supporting their employees during remote work. These don’t need to be overly expensive either. When you look into costs vs. productivity lost due to sickness, there is a case for this. However, companies can often be ‘ticking the box’ by signing up with a well-being provider but not actually gaining much from it. I’ve seen companies that offer well-being solutions as part of their benefits, but when you scratch the surface, they just aren’t being used. It’s a waste of money, and this is largely because the company doesn’t engage with the provider’s account manager or give access to communicate with their employees, to make the most of the solution.

Conclusion

The investment landscape is evolving, and so must the criteria used to evaluate potential opportunities. Companies that effectively manage hybrid and remote work environments are likely to enjoy higher employee satisfaction, better retention rates, and sustained productivity. For equity investors, understanding these dynamics is crucial for making informed decisions. By focusing on comprehensive assessments of work environment health, investors can identify companies that are not only resilient but also positioned for future growth in a rapidly changing world. Investors must also remember that as companies scale, different challenges arise from a remote and hybrid work environment. It’s critical to ensure that investors ensure the skills to effectively manage and support leaders in making decisions on the remote and hybrid work environment are there. It’s highly likely that the CEO and leaders who have done this well in the start-up space may struggle to adapt the working environment as the company rapidly scales with the investment.

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Note: I’m by no means in the investment business, aside from some personal interests, and so this article and commentary are my own views.