Propmodo Daily

By Franco Faraudo · Jan. 25, 2024

Greetings!

”New Study Shows What a Terrible Idea It Is To Bring Employees Back to the Office.” How many headlines have you read like that? It seems like every week there is another study that comes out that takes aim at exposing how companies should not return to the office. But when a recent study came out saying that Fortune 500 companies that brought employees back to the office performed worse than ones that stayed remote, we had to do a little digging.

Also, this week, Propmodo Technology is covering innovations in HVAC. We look at some research about the effectiveness of heat pumps in extreme weather and examine how new carbon reduction policy is asking much more from HVAC building control software.

Now let's dig in!

Another Flawed Return-to-Office Study

There has always been a gap between academia and the business world. Try as they might, researchers often fail to understand certain phenomena, and economists fail to make accurate predictions. Something as complicated and unobservable as the business landscape can be hard, if not impossible, to boil down into an equation. But that is what business school Ph.D. candidates are asked to do, and that is why we get studies like the one that came out recently from the Katz Graduate School of Business at the University of Pittsburgh titled Return to Office Mandates.

The study has great intentions. It tracks the performance of Fortune 500 companies to see if the ones with return-to-office mandates perform better than those that don’t. But the methodology is not exactly robust. None of the data collected was first-hand. Instead, it was collected through “manual news searches on Google and Factiva.“ Obviously, the 500 biggest public companies are not a great representation of the entire office-using population, but the sample size gets even worse when you learn that only 137 have actually announced they are returning to the office, and 43 were excluded altogether. The others get categorized based on “the percentage of employees working from home for each firm on Indeed.com.

I noticed that some of the source material being cited by the report wasn’t coming from other studies. In fact, some of the citations were to opinion pieces published online, including one from Business Insider India, titled Return-to-office orders look like a way for elite, work-obsessed CEOs to grab power back from employees.

The main issue I have with this study concerns how it measures company performance. It blends together two metrics to get an idea for long and short-term performance: Return on Assets and Tobin’s Q. Return on assets is a firm’s net income divided by its total assets. That has been used as a metric for traditional manufacturing companies but is not seen as a great proxy for performance for research-heavy and/or asset-light companies that are common these days. Tobin’s Q, named after economist James Tobin, is the market value of a firm’s assets divided by their replacement value. Again this metric is not highly correlated with successful modern businesses and has been somewhat discredited as “not a good proxy for firm value, either in theory or in practice.”

Since the last few years have been hard, particularly for certain office-heavy industries like real estate and tech, those companies could be struggling for reasons that have nothing to do with the work-from-home policy. A better metric would have been market share since that is the best way to see how companies are performing against their competitors and factor in the possibility that an industry has shrunk as a whole.

The study does have a lot of interesting insights. Since they track things like CEO gender, pay, and political affiliation, it gives some interesting data on which are more likely to give return-to-work mandates (male, high-paid, Republican). It also uses employee satisfaction data from Glassdoor to give an understanding of how return-to-work mandates affect morale (they hurt it).

This study should not be interpreted as evidence that companies bringing employees back to the office "perform better" than those that do not. Unfortunately, that is exactly what happened in a Washington Post article that was published yesterday. For all I know, it might be true that returning to the office is not better for a company, but from what I have seen, I would rather leave that decision to business leaders rather than academic researchers.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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