Which firms are more likely to allow flexible work arrangementswork ing from home part-time or full-time for their employees? Leadership and governance characteristics do not seem to make much difference. Some firm characteristics do matter notably whether the firm is innovative and/or in a knowledge-intensive field that values human capital. Financial considerations can also play a factor. Companies with a low book-to-market ratio especially seem to be more motivated to encourage different work arrangements.
The COVID-19 pandemic changed the flexible work arrangements mindset and attitudes of both employees and businesses: many employees had become comfortable working from home, and many businesses realized that flexible work arrangements did not necessarily reduce productivity. That said, companies and organizations have responded differently to the end of the pandemic crisis. Some have opted for a return to full-time office work while others allow work-from-home or hybrid work arrangements (a mix of working from home and working from the office).
A post-pandemic Henley Business School and University of Edinburgh Business School study of 366 U.S. companies explores which companies are more likely to allow FWA. Focusing on firm-level factors (i.e., leaving aside industry-specific and other non-firm-level factors), the study examined the correlation between the firms’ financial, leadership, governance, and social-cultural characteristics and their flexible work policies. Social cultural characteristics included company culture but also the culture of the local environment.
The study found that financially, companies with a lower book-to-market (B/M) ratio were more likely to have flexible work policies in place. Among lower book-to-market ratio companies, companies that face financial constraints relied more on digital labor and human capital, and operated in knowledge-based industries were more likely to support flexible work arrangements for their employees.
The researchers suggest that financial constraints may encourage flexible work arrangements as a cost-saving measure. Firms dependent on human capital and operating in knowledge-based industries, on the other hand, are likely to be more open to flexible work in order to retain high-value employees.
The innovativeness of a company’s culture proved to be one of the most powerful indicators of flexible work arrangements. One possible reason, again, is the desire to retain high-value employees, as such employees are vital to maintaining an innovative culture. Beyond retention, flexible work arrangements are likely to encourage innovative work in employees. In addition, FWA is an innovative human resource approach in itself—and therefore, innovative companies are more likely to adopt such an approach.
The study also found that companies that operated in U.S. states with a higher level of social capital (the tendency of people to cooperate to achieve results) and a sense of collective trust were also more likely to accept flexible work arrangements. Previous research had linked the social capital of a local area to leaders who are more altruistic and trusting—characteristics that would encourage leaders to trust employees with flexible work policies, and to strive through FWA to increase employee satisfaction.
Aside from social capital-related traits, the study did not uncover any particular leadership traits or governance characteristics (such as companies in which CEOs dominate their boards) that would push CEOs to either favor or reject FWA.
The study was based on data from the Flex Index, which collects information, mostly from employee surveys and company websites, on flexible work arrangements from a large number of U.S. firms. The researchers used this data to develop a Flex Index Score, based on whether a company required employees to work in the office, or allowed part-time or full-time work from home. As an alternative measure of flexibility, they also created a minimum-days-in-office metric, which they could calculate from the available information.
Other databases also contributed data for the study, including Compustat North America for financial information and Execucomp for CEO characteristics.
Organizations and their leaders strive to find the right balance between productivity, employee satisfaction, and business needs. Flexible work arrangements may offer a way to align all three of these considerations, although, as described in this study, these arrangements seem to be more important to certain types of firms.
Flexible work arrangements seem to offer an option for companies seeking to increase employee retention and reduce costs, two objectives not always easily achieved.
Flexible work arrangements may present an even greater opportunity for companies to strengthen their future prospects, as the strong link between innovation and flexible work arrangements would seem to indicate. It’s true that a lower book-to-market ratio typically indicates a firm that is overvalued. However, the researchers suggest that the higher market value of a company can indicate the company on a growth trajectory with higher profits in the future. This future-oriented perspective on low B/M ratios aligns somewhat with the study’s finding that an innovative culture often features flexible work arrangements. FWA might thus be an option for a company seeking to spark greater innovation, creativity, and growth.
Hu Yi’s profile at Henley Business School
https://www.icmacentre.ac.uk/people/yi-hu
Miriam Marra’s profile at Henley Business School
https://www.icmacentre.ac.uk/people/miriam-marra
Chao Yin’s profile at University of Edinburgh
https://www.business-school.ed.ac.uk/staff/chao-yin
Post Covid-19 World of Work: Firms Characteristics and Adoption of Flexible Work Policies. Yi Hu, Miriam Marra, and Chao Yin. SSRN (January 5, 2024). Available at SSRN: https://ssrn.com/abstract=4684797 or http://dx.doi.org/10.2139/ssrn.4684797
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