The Proof Is in the Profits

April 29, 2013 Thad Peterson

Sometimes, advice can seem a bit too simple to be true. Take the employer-employee relationship. One piece of advice goes something like this: Treat employees extremely well, they will be happy, that will make them more productive, and that will improve your bottom line.

Sounds simple. Maybe even too simple.  In fact, I wouldn’t fault you at all for thinking it was a bit of a naïve fairy tale.

10 years ago, James Dodson wouldn’t have faulted you either. Dodson is the founder of Parnassus Investments. He was recently featured in a Fast Company article entitled, “The Proof Is In The Profits: America’s Happiest Companies Make More Money.”

After conversations with one of the producers of the “Best Places to Work For” list, Dodson decided to take a chance on a new type of portfolio fund–one that focused its investments on companies that were considered to be tremendous workplaces for their employees. And in 2005, the Parnassus Workplace Fund was born. Here’s how the fund explains its investment strategy on its site:

“The Fund invests principally in undervalued equity securities of large-capitalization companies with outstanding workplaces. Companies with good workplaces usually are able to recruit and retain better employees, and perform at a higher level than competitors in terms of innovation, productivity, customer loyalty and profitability.”

In other words, it’s an entire investment strategy predicated on that quaint, simple, naïve, fairy-tale notion that treating employees well ultimately fills the company’s coffers with gold.

So how’s that approach to investing working out in the mean, cold, hard-nosed world of investing? Ridiculously well, as the track record would have it. During the past 5 years – which have been a bruising stretch in in the stock market – the fund is up 10.81% versus 3.97% for the S&P Index (about 270% better returns).  And over the life of the fund, it’s outperformed the S&P every year.

In the end, simple is good and simple works. Of course, simple isn’t the same as easy. Treating employees well can sometimes take a concentrated and committed effort, but if the Parnassus Workplace Fund is any indication, it’s the kind of hard work that pays off.

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