What Happy Companies Know: How the New Science of Happiness Can Change Your Company for the Better

We'll start by checking exactly what the authors mean by "happy companies." Then we'll find out about the workings of the brain that are so central to the rest of the book. We'll take a quick look at the behavior found in unhappy people and business cultures, and discover how this kind of unhappy culture led to the Enron and WorldCom scandals. And we'll find out why taking on your competitors is unlikely to lead to real success.

Moving on, the second part of this podcast will cover the five traits that the authors believe are found in all happy companies. We'll look at how implementing these doesn't cost the organization money but actually improves profits, and why Martin Luther King inspired millions by saying "I have a dream" – not "I have a problem."

So what is a happy company? The good news is that it isn't an organization packed with smiling people who want to be your best friend. No. Happy companies still face challenges and conflict. But a happy company "sees reality through a positive lens and a positive mindset." Its leaders make a positive choice to focus on opportunities, not obstacles. This kind of happiness causes the company's success, and is different from the kind of happiness that results from success.

The next thing we need to understand before we can really get to grips with what these happy companies know, is how the brain works. The authors argue that, roughly speaking, the brain can be divided into three parts. The first of these deals with personal survival and is motivated by basic emotions such as fear or sexual urges. The second part deals with social survival, such as bonding with another person or group. And the third is what the authors call the "executive brain," which handles areas like logic, morality, inspiration, creativity, and awe.

This third part of the brain is only really found in humans, but the fact that it's the bit that marks us out from animals doesn't mean it's the only part of the brain we have. In fact, the executive brain can only function if the other two parts don't need to function. Put simply, if the first part of your brain – the personal survival part – is activated because you're afraid, you physically can't engage the executive brain and be logical, inspired, or creative. Being in survival mode limits your ability to thrive.

What's more, the two emotion-related parts of the brain – that's the personal survival and the social survival parts – are bigger than the executive brain so it's hard for us to be exclusively logical.

What all this means is that if our personal safety is threatened by a business situation, we don't naturally respond with our executive brains. Often, emotions will take over. This explains why so many companies dive straight into a price war when a competitor drops its prices: the company's sales were threatened, and with it everyone's jobs, so the first company attacks back, and its executives feel satisfied with their aggressive response. But if they stopped long enough to engage their executive brains, they'd remember that there are rarely any winners from a price war – apart from the customers.

It might be much better for the company if it improved part of the product offering and competed on its own terms – which it can control – instead of those of the competitor. We'll look at this idea of seeking opportunities rather than dealing with problems in more detail later, but you won't be surprised to hear that happy companies focus more on finding creative solutions rather than eradicating problems.

It sounds extreme to say that our personal safety can be threatened in business, and obviously executives aren't literally put before a firing squad if they don't make the quarter's sales target. But they are still afraid – afraid of losing their job, and as a result, afraid of losing their home or their spouse, of losing the status that goes with their job, or simply afraid of being seen as a failure according to the goals the company has set them. Fear was the emotion that drove executives in companies like Enron and WorldCom to start constructing the frauds that eventually brought down these giants. And fear is often catching too, so it becomes easy to drag others in to fear-driven behavior. After all – you might think – if he's going to lose his job because sales are down, so might I!

Having said this, most unhappy organizations don't breed fraudsters. But they often suffer from high absenteeism and high staff turnover. People stay away from work or move on because they don't find what they're doing motivating. They're stressed, they don't know what's going on, and they don't feel appreciated by the people they work with. This tends to happen most in top-down structures where decisions are handed down from on high and the people who do the real work don't get any say. And the more levels there are to this hierarchy, the worse it gets. In this kind of situation, money is only motivating for a short time.

The bad news is that organizations can become unhappy very easily, and managers certainly don't need to do much to let it happen. On the other hand, happy companies are made, not born, and the positive culture that underpins them has to be created very deliberately by the management.

The authors believe that all happy companies have several features in common, and they express this as an acronym that sounds like the word happy, but is actually spelled H-A-P-I-E. It's not worth trying to remember the words behind the acronym as there are actually several for each letter – and strangely, they don't all start with the letter in question. This suggests it's a bit forced, but the five concepts it represents are powerful all the same. We'll now look at each one in turn.

First up is the letter H, which stands for humble leadership. Humble leaders know they have traits that have contributed to their organization's success, but they also know they have other traits that may have limited this success, and they're prepared to admit it. Humble leaders are those who are willing to share their power. They hire people with complementary strengths to their own, so they can entrust them with power. As a result, their subordinates learn and develop. More importantly, humble leaders carry the can when things go wrong, which frees their staff from the fear of being blamed and lets them use their executive brains to start being creative.

Effective leaders in happy companies also ensure that the organization has a vision, and that every last person in that organization knows what the vision is and how their job contributes to that vision. This is such a key motivating force for employees. Humble leaders know that the vision doesn't have to be their own. Someone else may be better at being the visionary than them, but their responsibility is to make sure that there is a vision, and that it's communicated and turned into a strategic plan.

The second trait of happy companies is that their staff have high emotional intelligence or are adaptive, which is where we get the A from in H-A-P-I-E. The concept of emotional intelligence has been around for well over ten years now. It's now seen as a useful add-on to the familiar IQ measure of intellectual ability. The authors define emotional intelligence as "the active management of your thoughts and feelings to bring out the best of your own abilities and to create positive interactions with other people."

They recommend that you look for it when you're hiring people, but they also emphasize that it can be developed in existing employees who are low in emotional intelligence. Ensuring that managers don't micro-manage is fundamental to allowing emotional intelligence to develop. If employees get used to the fact that their boss will jump in randomly and overturn their decisions, making them redo work, they will develop what the authors call "learned helplessness" – when people wait for their boss to make a decision rather than taking the initiative themselves. Worse, staff treated this way can start seeing themselves as victims, with the right to blame other people for problems. You can see how a leader who was truly humble wouldn't let this situation occur.

The next letter in the H-A-P-I-E acronym that describes five traits all happy companies show is P, which stands for "Profit, for all who contribute to the company's success." In other words, people! People are not just important to an organization, they are the organization. They are the assets that actually generate profits, and they are what differentiates one company from another. If they're off sick with stress because they have spent too much time being afraid of reprimand, they're not differentiating their company from the next one. If they're too focused on dealing with problems they're made to feel responsible for, they won't be creative and come up with ideas to move their company ahead. But they will do these things if they're treated well, so investing in employees actually makes financial sense.

Happy companies listen to their people. They regularly survey their satisfaction, but also ask them about their bosses' management style. Bosses in happy companies invest time in coaching their staff, and all of this may be measured with a balanced scorecard – a set of non-financial, as well as financial, measures that's an effective way of driving new cultures and strategies. Read the article about balanced scorecards on MindTools.com if you want more information on how they do this.

The authors suggest that if companies really want to be happy, they should measure "return on people" just as they measure return on investment in the financial accounts. Return on people calculations should include the financial profit per employee, and also their satisfaction, training expenditure, health costs, and staff turnover.

The I of H-A-P-I-E is for invigorated stakeholders. What the authors are getting at here is a form of corporate humility akin to the leadership humility we talked about earlier. Here's an example: Don't treat your suppliers like the source of your problem and demand that they reduce their prices so you can cut your costs. Instead, be creative. Ask them how you could use their products more efficiently. It's not easy to get away from an "us versus them" culture when "they" really are outsiders, but if you can start to do this, the potential benefits may be considerable.

Finally, the E of H-A-P-I-E stands for engaged citizenship, and this is a much more unusual proposition than the first four traits. Many organizations give money to charity, or even allow their staff to take paid leave to do charitable work, but the authors say that happy companies treat this as an integral part of their business, and not just a secondary responsibility that comes from being profitable. It makes good business sense to do this, they say. It gives the company a soul, making it an employer of choice as well as a supplier of choice to those with the same values. It provides good PR. Plus, as good works tend to be positive experiences, staff develop a more positive mindset as a result of getting involved. And so on. Ultimately, say the authors, happy companies know that if their organization was suddenly wound up for some reason, it would be missed by its community as much as by its employees.

If all of this seems like a tall order, the good news is that many happy companies only show three of these traits, so everything doesn't have to be perfect before you start feeling the benefits. But, to reiterate, they won't just appear. Even in a greenfield startup, managers need to take positive steps to make them happen.

We mentioned back at the beginning of this podcast that Martin Luther King inspired millions with his words "I have a dream." Those were brilliant words from a man in a situation where it would have been easy to say "I have a problem." What he was doing was communicating a vision that he had, which would motivate other people to take up all sorts of roles in the struggle against racism. He was also focusing on an opportunity rather than the problem, which is something that unhappy companies don't do. This is a theme that runs through the various elements of the H-A-P-I-E acronym. There's more to be gained from pursuing an opportunity than from solving a problem. This doesn't mean that problems shouldn't be solved, but it means that the best problems to solve are the ones that will allow you to grasp an opportunity in doing so.

In one of the many real-life examples in this book, the authors relate how Sam Walton of Wal-Mart took time to listen to the truck drivers at his distribution depot. They told him they wanted more showers in their locker rooms, so Sam delivered. He solved a problem for them, and as a result, he gained their respect. Because of that respect, he was able to find out a lot from them about how he could create distribution efficiency savings. Once you've understood this approach, you'll see why it makes sense to put your best people on to being creative.

Actively celebrating what is good about a person, a project, or an organization is another key theme that runs through all aspects of happy companies. Again, this has a hard-wired medical basis, so it definitely applies, whatever your situation. The authors recommend that you go out of your way to engage in what they call "appreciative enquiry" with employees, using positive questions that remind people what they like about their organization and what inspires them about their work, or "catching people doing things right."

"What Happy Companies Know" is a long book that goes into a huge amount of background and discussion we haven't been able to cover here. It's also packed with examples from Wal-Mart, Toyota, British Airways, and many other less well-known organizations. So it certainly isn't a quick read. But we believe that its starting point in the medical basis for our behavior – both DEstructive and CONstructive – make it one of this year's most important new books, both for leaders who want to implement its model for corporate happiness, and for employees who need to recognize how they can use affirmative behavior with their colleagues to build success.

That's the end of this episode of Book Insights.

"What Happy Companies Know" by Dan Baker, Cathy Greenberg, and Collins Hemingway is published by Prentice Hall, an imprint of Pearson Education. Click here to buy the book from Amazon.