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Middle managers key levers of corporate financial results

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      By Calvert Research and Management

      Washington - Most companies recognize that managing their workforce, or human capital, is critical to success. In the corporate hierarchy, however, the rung of middle management is seldom seen as driving profitability. Recent Serafeim-Calvert research disputes this, showing midlevel managers as key influencers across the organization, adding value to the bottom line.

      In fact, middle managers exert greater influence than CEOs over a company's workforce, employee morale and, by extension, potential profitability.1 Research indicates that companies might better manage their human capital by harnessing the might of midlevel managers.

      Middle management might

      The research study, conducted by Harvard Business School professor George Serafeim in collaboration with Calvert, found a link between employees' reported sense of purpose and corporate profitability and positive risk-adjusted stock returns. For companies that conveyed clear expectations and empowered employees to succeed, midlevel managers — rather than senior employees — drove this link.

      Per the study, "Too much media attention is paid to legendary CEOs and how they drive organizational performance. The rest of the workforce is typically treated as a necessary cost of operations rather than important organizational levers of value creation. In our view, this is misguided."

      We believe the influence of midlevel managers is driven by their position at the juncture between frontline workers and senior executives. Middle management is where high-level aspirational statements by senior executives are implemented in terms of how the organization attracts, retains and develops talent, how it treats its customers and how it interacts with its communities. Middle managers are uniquely positioned to develop and implement strategy. They have relationships both up and down the formal organization, which enables them to translate abstract strategic ideas into action.

      Calvert's views on human capital management

      Human capital management is at the forefront of today's innovation-driven and knowledge-based economies. Although an organization's workforce and intellectual capital remain an intangible asset, this paradigm is shifting.

      Information available to investors on human capital management is evolving, driven by advances in management strategy, better understanding of meaningful metrics and greater corporate disclosure. Investors like Calvert have an important role as advocates to encourage and guide that evolution.

      Importantly, this study shows the importance of human capital and purpose as an environmental, social and governance (ESG) factor — an aspect of corporate culture with measurable bottom-line impact. We believe quantifying the material impact of human capital management holds significant benefits for investors, companies and society.

      Bottom line: The Serafeim-Calvert study provides evidence that a company's management of its workforce, or human capital, may be as critical to success and profitability as its working financial capital. Calvert is helping to develop meaningful metrics around human capital management.