TopAuthor Series: Dan Ariely on Company Culture, Remote Work, and the Value of Investing in Human Capital

11/16/2022 7 min read
Dan Ariely is the James B. Duke Professor of Psychology and Behavioral Economics at Duke University and a founding member of the Center for Advanced Hindsight, where he studies behavioral economics. Ariely has written three New York Times bestsellers: Predictably Irrational, The Upside of Irrationality, and The (Honest) Truth About Dishonesty.

In this inaugural edition of the TopAuthor interview series, sits down with Dan Ariely, the James B. Duke Professor of Psychology and Behavioral Economics at Duke University and author of three New York Times bestsellers: Predictably Irrational, The Upside of Irrationality, and The (Honest) Truth about Dishonesty. In his books and popular TED talks, Ariely examines behavioral economics, human emotion, morality, motivation, self-control, and the surprisingly irrational choices we make—in our personal lives and at work. This interview has been edited for length and clarity.

What bad types of decisions do you see employers making amid this complex labor market?

I think they make lots of bad decisions for multiple reasons. For example, bureaucracy—two bad things are happening with bureaucracy as a result of the pandemic. One is that people don't know each other anymore. I work at Duke. A few years ago, if I wanted to resolve something with HR I would go to the HR person’s office. We would chat about it, and I would meet them in the coffee shop around the corner.

But of course, now we don't meet each other. I don't even know who still works there, and everything became handled through forms. Forms are wonderful [in situations] where everything is exactly standard... but [they] don’t cover all situations. There's nobody to talk to anymore, and forms don't fit the flexibility of what we need.

Another thing business leaders get wrong is human capital. Many CEOs say, "The quality of my people is the best thing I have." And then they do not behave this way. When a company buys a warehouse, it's an “investment.” When a company invests in people, it's a “cost.”

Let's think about this from a financial perspective and how we treat it. In the last six years, I've been looking at the relationship between how companies treat their employees, how employees feel about the company, and the resulting stock market performance of that company. The good news is that ethical behavior and treating employees well has a clear and substantial contribution to the financial return of the company.

A chart proves the value of investing in human capital, with the Fortune 100 Best Companies to Work For having yielded a combined stock return of 1,709% since 1998.

Think about a company like a machine. And the question is how efficient is that machine? It's all about human capital. Do people like each other? Do they work together? Do they care about their job? Do they want to try harder? Do they look for things to improve? It's all about how the machine is working.

You talk about factors that determine a company’s culture, but often changing existing culture can be difficult. As the pandemic eases, how can leaders influence necessary shifts as they reinvent company practices and policies?

In general, we have a slippery slope for things that get worse, but we don't have a slippery uphill for things to get better. When we want improvement, what we need is to have big changes, and that means that people have to commit to change in a day. When culture changes, what's needed is a day of atonement, a confession. Here are the scenes of the past, here are the things that we are going to do differently, and here is a fresh start.

One of the things that has to happen is that companies have to be clear that it's not just one-sided and it's not just pretend. It's very easy for a new CEO to say, “Hey, from now on, we have a culture of trust and communication, and we’ll consider the opinions of everybody.” But unless companies change deep things from within, employees will not see this as authentic change.

When a company says, “We’re going to trust people, we’re going to start fresh,” but don’t change how they work internally, it feels like a hollow promise. And those hollow promises do more damage than good because they make it clear that the company is not sincere.

There has been a sea change in working models in the last few years, with some companies demanding a full return to work, some allowing fully remote work, and others adopting hybrid work. How do employees at your lab work?

We have three teams in my lab at the Center for Advanced Hindsight: One deals with financial decision-making for low-income individuals, one deals with health, and one with questions about government in general. We have a team day where everybody from the same team has to be in the office on that day for group work and brainstorming.

We also have one lab day each week when all three teams have to show up. That day is supposed to encourage informal interaction, so we also have lunch and a happy hour.

Then we have another day when people are not allowed to come to the office, a day where people just have time to think and do deep work with no meetings. If you ask, “What should we fix in the workplace?” I don't think it's just working from home versus working from the office. I think we have too many meetings. I think people are behind on lots of things. When people are behind, they do not do the best job. I think people don’t have time to read. People don't have time to think.

And then we ask people to choose one other day that another team is in, in order to create a bit more interaction between people. There’s really old research by the late Tom Allen from MIT that shows that informal gathering places are centrally important for communication. It used to be the photocopier and the coffee machine where you understand the people around you and who knows what. And those things became the building block for understanding the knowledge structure in the organization.

That’s four days mapped out. What does the fifth look like?

The final day is flexible. Lots of people choose to work from home, but not everybody. I would never run a lab where I would say “come whenever you want” because coordination is important. It will not work as well to have people come whenever they want because the point about going to the office is to interact with the other people at work. A much better approach is to pick a day and say to everybody, “On this day, no meetings. Don’t email each other all the time. Don’t spend time on Slack.” If on that day half the people write emails to you, and half of the people do not, the day would not work as a deep work day. All of those things are built on the principle of coordination—that we have to galvanize people to do things together.

A graphic of a scale depicts human capital as more valuable than money beneath an Ariely quote about human capital as an investment versus cost.

As you have observed other companies’ return-to-work models, have you noticed generational dynamics at play with regard to management and employees' differing desires for flexible policies?

We don’t have enough data in that regard. You see generational differences, but I think it's wrong to attribute them to generations. Here's an example: I think there’s something incredibly stabilizing about having a 30-year mortgage. [But] there’s a generation out there that has virtually no chance of buying a house and committing to it: They are mortgage free, they live with roommates, and this has an impact on romantic relationships, attachment, and on their long-term planning. I don’t know if you want to call it generational or not, because it’s not about the year you were born. It’s just the economic environment in the year that you were born. I think that if you took a whole generation, for example, Gen Z, and you gave them a 30-year mortgage, you would see lots of things change and they would quickly look like an older generation.

COVID-19 was a major disruptor of the workforce. What do you see as the next disruptor in the future of work?

I don't know what outside threat would come next, but I think the next inside threat would be inequality. The ability to work from home exposes economic inequality in society and within companies. Think about a big bank, and think about the tellers compared to people much higher above them.

What does it feel like to come to work, and what are the chances that people will act in the best possible interest of the organization? It's not going to be like COVID-19 where there's a day, a week, or a month in which [the disruption] starts.

I think it's a real threat, the number of people in a company that don't get a living wage. What you see in situations of economic inequality is people who stop caring, and you also see negative things like sabotage and anger. I think we are on the verge of quite crazy inequality, and I don't know to what extent people will tolerate and be happy with this inequality.

Aside from inequality, what is the most pressing issue in negotiating a new social contract between employers and employees that will work over the coming 10 years?

I think the perception is that work is a zero-sum game, and it's not. Organizations are feeling as if management is fighting with the employees, but the truth is that each company is supposed to work together, competing and fighting other companies. That's the real competition. You want everybody aligned to the goals of the organization. If people feel mistreated, they're just not going to do that. I also want companies to start caring, measuring, and reporting on their human capital.

Imagine if quarterly reports had a section on human capital. The moment you look at people as a cost, it's the wrong perspective. If you start thinking about, "What is my human capital quality score?"—now we get going.

Toptal Senior Editor and Senior Staffing Correspondent Susan Yarad conducted this interview.

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Dan Ariely is the James B. Duke Professor of Psychology and Behavioral Economics at Duke University and a founding member of the Center for Advanced Hindsight, where he studies behavioral economics. Ariely has written three New York Times bestsellers: Predictably Irrational, The Upside of Irrationality, and The (Honest) Truth About Dishonesty.