Why You Should Pay Close Attention to Company Hiring Practices When Investing

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Most savvy investors know the importance of doing your due diligence before you invest in any company. Long before you part with your hard-earned money, you should understand a company’s profitability, target audience, biggest competitors, and trajectory for future growth. To accomplish this, proactive investors look up a number of important metrics and facts about the company they’re considering, including its past revenue, its past stock prices, its price to earnings (PE) ratio, and the profiles of its competitors.

But have you considered looking at companies’ hiring practices as well?

Elements of Hiring Practices to Consider

There are several elements of company hiring practices worth considering while investigating potential investment options.

For example:

  • Background checks. Does this company conduct background checks on its employees before hiring them? While many past felons go on to have very meaningful and productive careers, there are certain industries that are more sensitive to criminal backgrounds. And these days, it’s incredibly easy to do a mugshots search and lookup conviction history – so there’s no excuse for a company to skip this step.
  • Nepotism and cronyism. There’s nothing wrong with running a family business where multiple family members are involved. But there’s definitely something wrong with hiring a person just because they’re related to you or because you owe them a favor. Companies that practice nepotism and cronyism usually end up corrupt, inefficient, or both.
  • Diversity and inclusion. Companies that practice diversity and inclusion in their hiring practices tend to be 70 percent more likely to capture new markets – and that’s just one of the benefits of diverse hiring. Does this company have employees from a diversity of different backgrounds? Or are they all pretty much interchangeable?
  • Talent recruiting and reputation. Are there lots of people clamoring to work for this organization? Or does the company struggle to attract new people to the business? If a business mistreats its employees or if it doesn’t have a good reputation, it’s going to show.
  • Compensation and benefits packages. How much does this company pay its employees? What kind of benefits packages does it offer? Companies that pay competitively tend to value their employees more – and tend to have more productive, thriving work environments, despite the higher cost of operations.
  • Employee retention. As a combination of these factors and others, companies may benefit from higher employee retention. In turn, higher employee retention leads to reduced costs and greater continuity for the organization.

Why Is Hiring So Important?

Why is hiring so important for an investor to consider?

  • Workforce and execution. Good hiring and management practices lead to a happier, more productive workforce. When a business is filled with employees who are actively engaged, and who actually care about the success of the organization, it’s much more likely to be successful.
  • Longevity and continuity. It’s also important for an organization to have employees who have been with the business since the beginning – or at least for a long time. This leads to greater continuity and consistency, especially over the long term.
  • Diligence and attention to detail. How much time and attention is a business willing to take when hiring employees? This attention to detail may spill over into other aspects of the business. For example, a business that cuts corners when hiring likely cuts corners in other areas as well.
  • Brand reputation and future. Companies with great hiring practices, and those that treat their employees well, tend to benefit from a stronger brand reputation, setting them up for more appeal with customers and more long-term success.

Investigating Hiring Practices

How are you supposed to research hiring practices of companies?

  • Company recruiting materials. You can start by reviewing the recruiting materials in circulation for this company. How does this company try to reach new talent? What is the hiring process like? You may even consider going through the application process yourself, to see firsthand how it works.
  • Annual reports and statements. Most companies mention hiring and recruiting in their annual reports and in public company statements. Try to get a feel for employee turnover, productivity, employee satisfaction, and other factors.
  • Employee reviews. It’s often better to learn about a company’s hiring practices from employees themselves. Look up employee reviews for this organization and see what they have to say about it. Are they happy with their overall experience? Are there common grievances among employees who work here?

A company having a sketchy or questionable hiring practice probably isn’t enough to justify not investing in them. But in combination with other factors, it could represent a breaking point. Make sure you include hiring in your list of factors to research when investigating a company you want to invest in. You might be surprised at what you find.