Aetna (AET) CEO Mark Bertolini made a case for why CEOs need to think more long-term rather than focusing on short-term profits.
“Profit is an outcome of a well-run business based on sound business fundamentals and a well-educated and happy workforce,” Bertolini said at the Yahoo Finance All Markets Summit on Wednesday. “You don’t manage a bottom line. Anybody who manages a bottom line is making a big mistake. That’s why a lot of companies aren’t around for a long time.”
Bertolini contends that CEOs who invest in their employees and customers can increase the lifetime value of those people and that subsequently grows revenue and generates earnings that get reinvested back into the business.
“A well-run business with solid business fundamentals creates an economic flywheel that allows us to reinvest in our business, grow our company, and people say, ‘Hey, you know what, they’re going to be around for a while. They’re going to grow.'”
Aetna rewards its employees monetarily for sleeping, helps them pay off student loan debt, offers tuition assistance, encourages them to partake in yoga-mindfulness and pet therapy, and pays a minimum base wage that’s significantly higher than the federal minimum wage.
In all, the company spends about $50 million to $60 million per year on these programs. Bertolini has found that it’s helped the company by reducing health care costs, creating more productive and engaged employees, which results in higher customer retention rates.
The program started back in 2007 when Bertolini, who practices yoga-mindfulness for pain management after surviving a spinal cord injury, approached his team about doing yoga and mindfulness. He was able to get the Chief Medical Officer to sign off on the initiative on the condition that they conduct a study on the impact of mind-body stress reduction.
During the study, about 700 participants were asked to keep a journal. In those journals, Aetna learned that quality of life is a major source of stress. For example, some employees were worried about having to pay bills or not having enough money to cover their bills. Some were on food stamps or had children on Medicaid.
What they soon learned is that the employees with the highest levels of stress had around $2,500 more per year of health care costs. After implementing the program, the company saw a $3,000 reduction in health care costs and an additional 69 minutes in productivity. Soon after, the other programs were implemented, and without denting the bottomline, according to Bertolini.
He noted that Aetna’s stock price has tripled since then.
Long-term is “the best way to go,” but corporate America is going to require some help from the government, particularly on taxes, according to Bertolini.
“We need some help with the government in the way they think about it,” Bertolini said. “We now have a long-term capital gains tax that happens on day 366. I think that’s wrong. We should have a long-term capital gains tax that goes from 100% in the first year down to 20% or 0% over eight years. So then I’m incented to keep the company invested for eight years.”
One way to do this is to think about depreciating investments in people just like how machines are depreciated over time.
“Right now, we treat machines better than we do people in our businesses,” he said, adding, “That should be eliminated. We should either allow for depreciation in employee investment or don’t allow for depreciation in technology and machine investment.”
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.