Pax World believes that constructive labor management relations are an indicator of sound management and a sustainable business model. The body of academic research on human resources management and labor relations, while not homogenous, does indicate a positive correlation between inclusive labor practices and financial performance. Research on labor and performance covers a range of issues. Employee stock ownership has been positively correlated to financial performance.1 A 2004 study of labor relations in the airline industry concluded that factors such as union representation, workplace culture and conflict resolution in negotiations are positively correlated with profitability in the airline industry.2 A 2004 study of research into human resource management (HRM) practices identified a positive correlation between active HRM and organizational performance.3 A 2006 study of research into high performance workplace practices (HPWP) and organizational performance found a positive correlation between the two.4
Consistent with these trends in the academic research, Pax believes that companies with positive labor relations and human resource management programs are likely to be better managed companies and better long-term investments. Labor management is a particularly important issue in the global business context, where the opportunities and challenges can be complex and vary significantly by region. To include these considerations in its analysis, Pax evaluates, among other factors, companies’ labor management relations policies, programs, performance and public disclosure.
Pax favors companies with positive labor relations and seeks to invest in companies that have sound policies, effective programs and public disclosure on labor management issues. Pax looks for labor policies including support of the right of workers to bargain collectively with management, non-retaliation against whistleblowers and the adoption of supplier labor standards that are consistent with international standards like the International Labor Organization (ILO) principles. Pax seeks companies with programs that address work-life balance issues, promote employee ownership, create incentives for positive labor practices in the supply chain and provide labor consultation mechanisms or support labor standard performance monitoring. As in other environmental, social and governance (ESG) issue areas, public disclosure is an important piece of human resources management.
Pax seeks to invest in forward thinking companies with sustainable business models. While no company is perfect, identifying those that are leaders in labor management in their industries is a critical component of our investment process.
The issues highlighted above are illustrative and do not necessarily reflect the full range of labor relations issues Pax World may consider in analyzing a particular security for investment.