by Tim Glowa, M.B.A., IBDC.D, GCB.D, (he/him)
Summary: Boards must prioritize employee engagement as a governance imperative, holding leadership accountable for fostering commitment. Engaged employees drive growth, innovation, and resilience while reducing risks, turnover, and costs—aligning workforce dynamics with long-term strategic objectives and shareholder value creation.
Employee engagement isn't just a workforce issue; it's a governance imperative. For boards of directors focused on optimizing strategy and driving long-term growth, understanding and prioritizing employee engagement is essential. Studies show that engaged employees can significantly enhance productivity, innovation, and profitability—key levers for competitive advantage. For instance, Walmart stores with the highest employee engagement achieve 12-20% higher revenue and profit per square foot, underscoring the tangible ROI of workforce commitment.
This article explores why board oversight of employee engagement matters, provides actionable governance strategies, and highlights the profound business impact of an engaged workforce.
Employee engagement, particularly through robust career development initiatives, is a proven driver of organizational success. As highlighted in this article companies that prioritize employee growth not only enhance workforce satisfaction but also achieve superior business outcomes.
The Role of the Board in Employee Engagement
Boards of directors are tasked with ensuring the organization's strategic vision translates into sustainable growth and shareholder value. Employee engagement is a cornerstone of this equation.
At its core, engagement represents the emotional commitment employees have toward their organization’s goals. Engaged employees are more productive, innovative, and loyal, directly impacting performance metrics critical to board oversight. From reducing turnover and operational risks to enhancing customer satisfaction, engagement creates measurable benefits across the organization.
To realize these benefits, boards must hold leadership accountable for fostering engagement, ensuring that management implements and sustains initiatives to create a committed workforce. By embedding employee engagement into governance priorities and aligning it with strategy, culture, and resource allocation, boards can ensure operational execution supports long-term objectives.
Boards have a unique role in fostering this engagement, as their decisions on strategy, culture, and resource allocation directly shape workforce dynamics. By integrating employee engagement into governance priorities, boards can drive alignment between operational execution and long-term objectives.
Why Boards Should Prioritize Employee Engagement
1. Competitive Advantage and Growth
Companies with engaged employees outperform their peers by wide margins. Gallup research shows that organizations with high engagement levels achieve 21% higher profitability, while their disengaged counterparts lose an estimated $7 trillion annually in global productivity. For the board, this represents a critical opportunity to secure a competitive edge.
Consider Walmart: stores with the highest employee engagement generate up to 20% more revenue and profit per square foot. This demonstrates how engagement translates directly into financial outcomes—a key concern for governance and fiduciary responsibility.
2. Risk Mitigation
Low engagement increases turnover, operational inefficiencies, and safety incidents, exposing organizations to unnecessary risks. Disengaged employees are 2x more likely to leave, creating financial and operational strain through recruitment, training, and knowledge loss. Furthermore, poor engagement can erode customer satisfaction, tarnish brand reputation, and lead to compliance failures.
Replacing an employee can cost 50% to 200% of their salary, making turnover a significant expense. For a company with a median salary of $75,000, reducing annual employee turnover by one percentage point (e.g., from 35% to 34%) can save $375,000 for every 1,000 employees. A 5 point improvement in turnover is worth nearly $2M for every 1000 employees. Use our free cost-of-turnover calculator to explore your potential savings.
From a governance perspective, monitoring these risks and ensuring management addresses engagement issues are fundamental to mitigating organizational vulnerabilities.
3. Workforce Resilience and Innovation
Engaged employees are not only more productive but also more adaptable to change. In fast-evolving industries, where innovation is critical, engagement becomes a differentiator. Companies like Google and Microsoft have demonstrated how a culture of employee autonomy and commitment fuels breakthrough innovation and market leadership.
Boards can ensure resilience by aligning company culture with strategic goals, fostering environments where employees thrive and contribute their best ideas.
Governance Strategies for Enhancing Employee Engagement
1. Integrating Engagement into Board Oversight
Boards must treat employee engagement as a governance priority, embedding it into committee charters and boardroom discussions. Specifically, the board should:
· Review engagement metrics alongside financial performance indicators.
· Require regular updates from management on engagement initiatives and their impact.
· Incorporate workforce engagement into risk assessments and strategic planning processes.
· Monitoring sentiment from employees on sites like glassdoor
2. Establishing Clear Accountability
The board should ensure senior leadership takes ownership of engagement strategies. Key steps include:
· Setting engagement-related KPIs for executives, tied to performance reviews and compensation.
· Requiring management to conduct regular engagement surveys and report findings to the board.
· Auditing the effectiveness of engagement programs as part of broader governance reviews.
3. Championing Culture and Values
The board’s influence on corporate culture cannot be overstated. By modeling values such as transparency, inclusion, and accountability, board members set the tone for the entire organization. Initiatives to consider:
· Developing a “culture dashboard” to monitor alignment between company values and employee sentiment.
· Supporting programs that foster professional development, inclusion, and recognition.
4. Encouraging Employee Voice
Boards can bridge the gap between governance and workforce realities by fostering meaningful employee input. Mechanisms such as employee advisory councils, open forums, or direct board member engagement with staff create valuable feedback loops.
Measuring Engagement: A Governance Imperative
Effective governance requires robust measurement systems. Boards should ensure the organization employs a combination of tools to assess and track engagement over time:
Quantitative Metrics: Absenteeism rates, turnover statistics, and Net Promoter Scores (eNPS) offer hard data on workforce commitment.
Qualitative Feedback: Focus groups, exit interviews, and pulse surveys provide nuanced insights into employee sentiment.
Engagement KPIs: Monitoring the relationship between engagement levels and business performance metrics, such as revenue per employee or customer retention rates, links workforce initiatives to strategic outcomes.
Boards should also benchmark engagement data against industry standards to identify opportunities for improvement and competitive positioning.
Real-World Case Studies: Governance in Action
Walmart
Walmart’s emphasis on employee engagement highlights its potential as a strategic driver. Stores with the highest engagement levels report 12-20% higher revenue and profit per square foot. This success stems from initiatives like open communication, clear career pathways, and performance recognition—areas the board actively monitors to ensure alignment with corporate goals.
Microsoft
Under Satya Nadella’s leadership, Microsoft shifted to a growth mindset culture, prioritizing employee development and inclusive leadership. This cultural transformation, backed by governance support, has driven significant gains in employee satisfaction, collaboration, and market performance.
Salesforce
Salesforce’s board-backed engagement strategy includes transparent communication and robust professional development programs. These efforts have resulted in a 25% boost in customer satisfaction and a 30% increase in employee satisfaction, directly enhancing shareholder value.
Conclusion
For boards of directors, employee engagement represents a powerful lever for driving growth, innovation, and resilience. By integrating engagement into governance priorities, fostering accountability, and measuring its impact, boards can align workforce dynamics with organizational objectives.
The evidence is clear: engaged employees are a competitive advantage. Walmart’s success story, coupled with lessons from Microsoft and Salesforce, illustrates the ROI of prioritizing engagement at the governance level.
Boards must act now to champion employee engagement as a strategic priority, ensuring long-term success and sustainable value creation for all stakeholders.