Mind over matter: why business leaders should study psychology

Business Impact: Mind over matter: why business leaders should study psychology
Business Impact: Mind over matter: why business leaders should study psychology

Becoming a manager with impact is the dream of many young students of management but, as providers of business education seek to support these aspirations, we can sometimes forget to teach them that being a manager also means being able to cope with stress. This is all the truer in today’s turbulent and uncertain world.

Communication with, and responsibility towards, stakeholders, employees and the public, together with day-to-day business tasks, development of strategies and the coaching of key people, can bring a great deal of inner satisfaction and self‑esteem. However, it is a demanding lifestyle much of the time and the ensuing pressures felt by leaders can lead to poor physical and mental health.

This is a reality of contemporary business and it is therefore becoming increasingly important to ensure that the next generation of leaders are suitably prepared. As well as ever-changing market conditions and contexts, students need to be ready for the psychologically challenging situations they will have to face in their future careers. This entails developing strong, integrated, self-reflective, self‑confident and psychologically skilled people with deep psychological literacy.

Yet many argue that the emerging generations of professionals currently have poor levels of resilience and stress management. Sceptics also say that younger managers tend to turn to sabbaticals too frequently as they seek to prevent potential burnout, refusing deeper responsibility by opting to stop working when they feel like it as opposed to when situations allow.

The need for a change in approach

That’s why management education must be enriched with psychological education and training. This will provide emerging leaders with good levels of immunity to fragility and against any vulnerability to stress and the complex requirements of their roles.

From my European perspective, the need to make changes in our approach to management education is even more acute because of recent research. A series of reports and projects on mental health in the region have demonstrated a significant increase of ‘psychosocial’ risks [that is, risks associated with one’s psychological development in, and interaction with, a social environment] in the workplace over the past 15 years, such as the 2014 European Risk Observatory report, Calculating the cost of work-related stress and psychosocial risks.

These reports have confirmed that impaired mental health or poor levels of coping with stress among managers and their key people can significantly influence team performance, results, income and KPIs. They also point to the existence of an alarming number of people who suffer from work-related mental health issues which impact the business and economy of companies and states negatively.

It is worth noting here that it is common to find that indirect costs to businesses, such as loss of productivity, absenteeism, presenteeism, social benefit payments, early retirement, reorganisation of teams, slowdown of work productivity, staff turnover and so on are much higher than any direct costs. In fact, the effects and consequences of mental health problems among our employees translate largely into indirect costs. There may be some direct costs that can be divided into medical and non‑medical costs in relation to treatment, medications and therapy, for example. However, it is crucial to point out that the indirect costs described above will always account for a larger sum of money than the direct costs.

When the psychosocial risks that are present in today’s workplaces (see boxout) cause mental health problems, they often result in poor performance or in employees taking sick leave from work. However, they can also influence our personal lives and the people close to us. As the aforementioned European Risk Observatory report observes: “There is evidence that workplace stress is related to a decline in the quality of relationships with spouses, children and other family members.” It is clear, therefore, that psychosocial risks and their associated effects on health affect organisations and societies, as well as individuals.

In financial terms, individuals with mental health concerns are likely to have higher insurance costs and lower income. At the organisational level, we lose productivity, effectiveness and performance. At the societal level, meanwhile, health problems lead to a reduction of economic productivity and GDP.

The cost of stress-induced illnesses

Work-related stress was found to be a major concern for close to 80 per cent of organisations in the EU, according to 2015 figures from the European Agency for Safety and Health at Work, yet fewer than 30 per cent already had procedures in place for dealing with workplace stress.

To illustrate the severity of stress-related illnesses at work in greater detail, we can consider the estimated financial impact across individual countries and Europe as a whole.

Take Denmark, for example, where the annual cost of sick leave caused by the pressures of work has been calculated at between DKK 1.4 and 1.5 billion (approximately €200 million). In France, in the year 2000, workplace stress was estimated to cost between €1.17 and €1.97 billion a year, while the cost of depression due to high work demands was estimated at between €650 and €752 million. Seven years later, the estimated total cost of the pressures of work in France was set at between €1.9 and €3 billion.

In the Netherlands, the total cost of employee absence in 2005 was estimated to be worth €1.3 billion, of which 40 per cent was attributable to psychosocial health issues. In Spain, a 2002 article written by José Ignacio Pastrana Jiménez estimated that workplace bullying alone was costing the economy €52 million per year.

In Switzerland, researchers calculated the cost of work-related stress to be approximately CHF 4.2 billion (approximately €4.2 billion) annually in 2003 and the equivalent of 1.2 per cent of the country’s GDP. Meanwhile, in the UK, the Sainsbury Centre for Mental Health estimated that the cost of sickness absence due to stress, anxiety and depression amounted to approximately £1.26 billion a year. More recently, Labour Force Survey suggested that the total number of cases relating to work-related stress, depression or anxiety accounted for 39 per cent of all cases of work‑related illnesses.

A recent study conducted by Matrix estimated that the total cost of work-related depression across the EU’s member countries was almost €620 billion per year – a significant increase on the previous estimate. The total represented the sum of employer costs relating to absenteeism and presenteeism (estimated at €272 billion), loss of productivity (€242 billion), healthcare costs (€63 billion) and social welfare in the form of disability benefit payments (€39 billion).

The need to act now

In the context of increasingly alarming data, it seems clear that we need to act now to protect the future of business. In the short term, we need more evidence on the cost-effectiveness of training and other professional interventions that are focused on stress and other psychosocial risks at work. It is also clear that we need to implement workplace interventions, programmes or peer‑support initiatives.

The Calculating the cost of work-related stress and psychosocial risks report concludes that “appropriately planned and implemented workplace interventions focusing on preventing stress, improving [the] psychosocial work environment and promoting mental health are cost-effective.”

However, in the longer term, we need to do more to educate our future leaders in applied psychology. This will better prepare them to implement strategies and make crucial decisions with a healthy level of resilience to psychosocial risks. It will also help leaders to coach others effectively and develop teams with good coping skills and resistance to stress.

In 2019, the European Agency for Safety and Health at Work’s Third European Survey of Enterprises on New and Emerging Risks (ESENER) showed that organisations are still afraid to speak openly about psychosocial issues and lack the professional knowledge and support to handle them. Notably, some 44 per cent of respondents reported a lack of awareness of these issues among management.

In the 21st century, it is particularly disheartening to find that, in 25 out of 33 countries polled by ESENER, the most common reason cited by respondents when asked why it has been difficult to implement organisational policies in this area is the reluctance to speak openly about mental health and psychosocial risks related to work. There is a strong business case for targeting these problems at business school because of the impact our future leaders can have in the organisations they go on to join. 

Benefits of incorporating psychology 

Psychological skills have become as necessary to modern business life as the English language or basic financial literacy. Fast-track courses and short‑term training in related soft skills will slowly be replaced with more rigorous and in-depth knowledge of connections and relationships between psychosocial phenomena, personality, mental health and job performance, productivity and profit.

Previously, the benefits of studying elements of psychology during a business degree were linked largely to giving students a greater understanding of how consumers behave or think and, therefore, how to sell products that serve their needs. However, possessing knowledge and practical skills relating to psychology has benefits that are far wider than this and can help managers and leaders to protect themselves and key people against burnout, depression, presenteeism, absenteeism and other unwanted psychosocial risks that affect business strategies and performance.

In addition, it will facilitate and support organisational change, while protecting against unwanted change relating to performance, strategy, relationships, co-operation and partnerships. It can also help leaders understand themselves better as well as those in their teams, making them better placed to mediate conflicts and provide team members with effective coaching.

Such knowledge can then be used to recognise unfavourable and unwanted behaviour, including potentially unfit individuals for our teams, projects and business goals as well as working environment, organisational culture and reputation. This will allow our future leaders to build organisations with good mental health and, in turn, contribute towards developing and supporting a healthy society.

The challenge of creating management education curricula that will prepare students adequately for the needs of 21st-century managerial roles is defined by a number of factors. These include societal changes, calls for more evidence-based approaches to teaching and changes in our understanding of multiculturalism, as well as a desire for greater inclusion of under-represented groups. However, the acceleration of psychological problems in organisations and the rise in mental health concerns among employees must also be central considerations.

We need innovation in the industry. As part of the trend towards connecting sciences and professionals from different, yet in reality interconnected, fields, there is strong evidence in support of incorporating psychology and its applications to business and management when educating and training tomorrow’s leaders.

This article originally appeared in the print edition (Issue 2 2023) of Business Impact, magazine of the Business Graduates Association (BGA).

Daniel Tuma

Daniel Tuma is the founder of the Made in Czechoslovakia business school based in Prague, Czech Republic. He has 20 years’ experience as a university lecturer and coach for CEOs and managers. 

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