How Employee Engagement Can Increase Your Company’s Value

Advisors and investors talk about a lot of strategies when it comes to maximizing company valuation before a transaction.

“One thing I have never seen on the list is employee engagement,” says Sean Hutchinson, founder and CEO of Strategic Value Advisors.

He gives the example of a $50 million business with 200 employees. Of that team, there might be a 10 person management team. Those 10 people can institute all the best practices out there, but “if you don’t communicate and engage with employees so they think and act like owners,” how can the company possibly sustain the improvements?

“They can’t,” says Hutchinson. The best programs “will never stick because the culture has not been adequately prepared to actually adopt the behaviors and best practices that go along with value creation.”

Hutchinson theorizes that part of the reason employee engagement isn’t a part of the conversation is because “we don’t like to manage people.” That includes owners, management teams, advisors, and investors. “It’s a painful territory, so we avoid it.”

Hutchinson points to a 2011 Gallup poll that found that 71% of American workers are either “actively disengaged” or “not engaged” in their work.

“Everybody will say people are the heart of the company; people are the best asset. But if people aren’t engaged, if they are disconnected from the mission and purpose of the company, and they don’t understand why their contributions are valuable, you’ve got a huge problem,” says Hutchinson. “I wouldn’t invest in that kind of company.”

An engaged company, on the other hand, is an inherently attractive investment.

“You can tell when ideas are flowing from employees and not just the management team and the owner. People take responsibility for their work, they understand metrics and often propose new ways of measuring performance.”

A team with low turnover, high productivity, and a sense of ownership also makes the success of a business easier to predict. “Businesses where employees are engaged are disciplined businesses, and disciplined businesses are simply worth more.”

Plus, “Employee engagement will make succession planning far easier,” says Hutchinson. “Folks who are engaged usually step up to the next level” — providing multiple choices within the organization for people to fill key management roles.

Stop Planning, Start Pitching

Hutchinson says there are many ways to encourage employees to think and act like owners.

One idea he’s implemented with clients came to him while watching an episode of Shark Tank. While listening a contestant pitch a business idea, he thought — what if we replace the traditional business planning session with a series of pitches?

Business plans are problematic. They often become too cumbersome and difficult to incorporate into the daily routines of the business. Jokes Hutchinson, the typical plan sits on the corner of a conference room table “growing, until finally everyone puts a plant in front of it and tries to forget it.” (He points to the One Page Business Plan as one helpful solution for management teams who find their plans out of sync with reality.)  

In Hutchinson’s model, employees pitch their plans directly to management and investors, shifting away from “passive planning done in the echo chamber of a board room” to an active, exciting process that requires employees to take charge and really wrestle with the value of their ideas alongside key stakeholders.

He says the new idea has made “engagement around planning skyrocket” at companies where it’s been implemented. And the end result is a business plan that is much more tied to concrete goals and the capabilities of the team.

Value Creation as an End Goal

“Some people believe that an owner’s motivation for engaging in value creation is to ultimately sell the company,” says Hutchinson. “For some owners, that may be true.” But he says creating value can have much larger repercussions. An engaged workforce is good for business, it’s good for transaction value, and it’s good for the well-being, happiness, and satisfaction of the employees, the management team, the owner, and the customers alike. “When we create value, we create wealth and opportunity for everyone in the company.”