Smart Growth: the Case for Measuring Brain Capital

February 18, 2021
Anika Sinha

Anika Sinha is a pre-medical human biology student at Stanford University.

,
Rashi Ojha

Rashi Ojha is an MD candidate at David Geffen School of Medicine at UCLA.

,
Erin Smith

,
William Hynes, DPhil

Dr Hynes is head of the OECD New Approaches to Economic Challenges Unit.

,
Cara Altimus, PhD

Dr Altimus is a neuroscientist and senior director at the Milken Institute Center for Strategic Philanthropy.

,
Sandra Bond Chapman, PhD

,
Ian Robertson, PhD

Dr Robertson is a T. Boone Pickens Distinguished Scientist at the Center for BrainHealth, a co- director at Global Brain Health Institute, professor emeritus at Trinity College Dublin, and founding director of its Institute of Neuroscience.

,
Husseini K. Manji, MD

,
Rym Ayadi, PhD

Dr Ayadi is president of the Euro-Mediterranean Economists Association.

,
Harris Eyre, MD, PhD

Brain health disorders cost the global economy more than $3 trillion per year in lost productivity. What can we do about it?

Since the 1980s, shareholder-value ideology (boosting profits above all other considerations) has led to a pattern of corporate behavior with troubling consequences. It has created employment instability, undermined productivity and innovation, exacerbated income inequality, and compromised the environment. The erosion of middle-class jobs has created enormous mental stress and uncertainty. Structural changes in employment help account for this, including the fissuring of the workplace, the end of the norm of a career with one company, and offshoring of employment to low-wage nations (driven by globalization and technological change).

Corporations have implemented these practices purely for financial gain, pursuing strategies to maximize returns to shareholders and high-level executives. This has encouraged an excessive focus on short-term returns and a decline in long-term investment. It has not sufficiently taken into account the human cost of such strategies. As an alternative, there are a number of efforts to advance stakeholder capitalism. Stakeholder capitalism would ensure that the broader interests of workers, local communities, and society are represented on corporate boards. The stakeholder value model thus builds a multi-bottom line approach, which goes beyond shareholder value creation to include a broader array of economic and societal values.

The Economic Burden of Brain Health Disorders

Brain health encompasses emotional, behavioral, and cognitive health across the lifespan. In this context, compromised brain health greatly increases the risk of disorders (for example, depression, anxiety, substance misuse, dementias, neurodevelopmental disorders, and neurocognitive disorders).1 In total, brain health disorders cost the global economy more than $3 trillion per year in lost productivity.2

In particular, mental health has been a growing concern among workers as the pandemic has worn on. According to data from the Society for Human Resource Management (SHRM), roughly 41% of employees feel burnt out, drained, or exhausted from their work.3 In addition, nearly 1 in 4 employees report frequently feeling down, depressed, or hopeless—yet more than 1 in 3 employees reported having done nothing to cope with these feelings.3 Having a significant proportion of the workforce reporting such symptoms is particularly concerning, as depression is associated with acute changes in cognitive capacity that can persist as residual symptoms after pharmacological treatment.4 These changes in cognitive capacity can have a detrimental impact on problem solving, memory recall, and motivation.4 Given the implications of these effects on workforce productivity and overall well-being, mental health should be among companies most pressing concerns.

Looking beyond mood and psychiatric illness, companies should also consider the implications of dementia and Alzheimer disease. According to a study conducted in Spain, the costs related to loss of labor productivity due to informal caregiving for people with dementia amounted to $5370 per individual per year.5 These informal caregivers experienced partial absenteeism and burdens that disabled them from maximizing productivity. Furthermore, research shows that 23% of individuals who will eventually be diagnosed with Alzheimer disease show accelerated cognitive decline around 5 years before an official diagnosis.6 This accelerated cognitive decline can be clinically referred to as mild cognitive impairment, but it is critical to note that the deterioration in brain health is progressive. Prior to mild cognitive impairment, individuals likely experience a period of undiagnosed mild cognitive decline 6 to 7 years prior, though they may be able to remain in the workforce during this time. 

Notably, issues of mental health and cognitive health are often considered separately, although they are inextricably linked. Brain Capital provides a mechanism to consider these in a more integrated way. 

Introducing Brain Capital

Brain Capital is a novel form of capital that puts a premium on brain health and brain skills.7 Brain skills are critical in a digitized economy and include self-control, emotional intelligence, creativity, compassion, altruism, systems thinking, collective intelligence, and cognitive flexibility. Brain health must be optimized to support the necessary brain skills to thrive.

We refer to a digitized economy that places a premium on cerebral rather than manual skills as a Brain Economy. Brain Capital is clearly critical in an already digitized economy, especially as automation replaces traditional jobs that relied on manual skill.8 In a Brain Economy, innovation is a tangible and increasingly pivotal measure of employee productivity, and innovation is channeled through employee thoughts, ideas, and creativity.

Innovative Approaches to Promoting Brain Capital in the Workplace

Several approaches can promote Brain Capital in the workplace. These range from multiorganization workplace initiatives (Table 1), to novel accounting frameworks, to social impact investing, to venture capital investing, to novel indices for tracking and measuring issues over time.

One example is emotional flexibility training for private sector knowledge workers. In 1 pilot study conducted to explore the effects of such a program, emotional flexibility advancement was found to be a highly effective treatment in clinical settings for depression, anxiety, and chronic pain.15 This approach—which had not previously been empirically explored with private sector, high-paced, high-demanding, and highly educated knowledge workers—demonstrated broad improvements in self-efficacy for those in the treatment group versus the control group. These results suggest that emotional flexibility boosts both well-being and performance.

Novel Accounting Frameworks

Human capital can be a company’s greatest asset; it can make or break the business strategy and is a key differentiator. A company’s intangible assets, including human capital and culture, are now estimated to comprise on average 52% of a company’s market value.16 To date, given the intangible nature of strong corporate culture, stakeholder leadership, and employee well-being, companies have struggled to quantify the contribution of their human capital assets. But the principles of the Human Capital Accounting Framework, recently published by the World Economic Forum and Willis Towers Watson, could help firms measure Brain Capital effectively.17 A Human Capital Accounting Framework couldenable a company to monitor and assess the return on its investments in its employees in the same way that it measures returns on financial and intellectual capital.

The Global Reporting Initiative (GRI), in partnership with the Robert Wood Johnson Foundation, has developed health metrics that include social impact in current sustainability indexes.18 Encouraged by the added measure of certainty and transparency surrounding their activities, investors large and small would allocate more capital to financing positive initiatives, and entrepreneurs would devise business models whose ambition and growth potential match investor and market demand. Continued refinement of these taxation and accounting practices that prioritize Brain Capital may support improved workplace and societal well-being.

Employee Assistance Programs

Venture capital companies have recently made record-breaking investments in mental health, with $637 million invested in more than 60 different mental health companies, almost 23 times the investment observed in 2013.19 Lyra Health was just valued at more than $1 billion, making it the first unicorn in mental health.20 The company, which provides mental health benefits for large employers, offers an array of in-person and remote behavioral therapy that helps remove access barriers to high-quality mental health care. The demand for teletherapy services is soaring, particularly as employers look to support workers during the COVID-19 pandemic. The company has added more than 800,000 new members since the start of the pandemic.

Novel Indices for Tracking and Investing in Brain Capital

Brain Capital Index. The central components of Brain Capital need to be formalized and developed into an investment plan. Since one cannot manage what one does not measure, developing a Brain Capital Index (BCI) to track the progress of this approach is critical.7

Such an index could help track the Brain Capital impacts of companies and governments. The index could also track the value of investments in this area. If such an index were investable—as is the case for mutual funds or exchange-traded fund—it would encourage investment in the entire space by opening it to the passive investor. Index-tracking funds have recently passed the $10 trillion mark of assets under management globally, surpassing assets under active management for the first time. Attracting even a small fraction of global passive investment using a BCI would transform the Brain Economy as a whole. Consequently, creating a well-defined and easily computed index is a key part of investing in a Brain Economy.

The BCI could be associated with a range of potential components. Health-related metrics could include incidence and prevalence metrics, access to care, and relapse rates. In particular, access to mental health care for child and youth populations is of paramount importance, so coverage for families and employees should be prioritized. As of September 9, 2020, the National Council for Behavioral Health stated on its website that the demand for mental healthcare is at an all-time high; however, the ratio of professionals to patients is incredibly low, suggesting it should be tracked. To improve access, more efforts toward training and incentivizing providers need to be made. A BCI could also track purpose at work, as it has been shown to have a range of brain health benefits, including reducing the likelihood of dementia and stroke.21

Thrive XM Index. Created in partnership between Thrive Global, SAP SuccessFactors, Qualtrics, and Fortune, the Thrive XM Index aims to assess and quantify individual experiences to gauge how employee well-being is directly connected to business outcomes. According to the Thrive Global website, the Index will combine employee-reported experience information, HR-reported performance insights, and business performance data, allowing companies to receive a comprehensive view of the way experience metrics (X-data™) and HR metrics (O-data™) can collectively serve as leading indicators for business performance.

Refining the Return on Investment Analysis

An emphasis on returns on investment (ROI) is critical for tracking and investing in Brain Capital. According to a recent report by Deloitte Canada, a pioneering research initiative determined that positive ROI for workplace mental health initiatives are within reach for Canadian businesses.22 Companies with mental health programs in place for 1 year had a median annual ROI of $1.62 for every dollar invested, and the median annual ROI more than doubled for companies with programs in place for 3 or more years, valued at $2.18 for every dollar spent.22 Components of the research included determining and tracking key performance indicators, assessing the effectiveness of interventions with employees, and regularly calculating ROI. Though often overlooked, these elements are essential to demonstrating the financial and nonfinancial benefits of mental health programs. Robust performance measurement enables organizations to “achieve desired program impact, improve adoption rates, and enhance decision-making.”22 Deloitte’s work helps build a framework for determining the ROI of workplace mental health initiatives. However, for optimal, far-reaching impact, the framework must be expanded to include a wider span of issues that Brain Capital encapsulates, such as brain skill issues and aging brain health conditions.

Recommendations for Building Brain Capital at Work

To propel this field forward in the coming years, clear recommendations are required for all stakeholders. These stakeholders include human resource managers, employee benefit managers, social impact investors, and beyond. Recommendations are outlined in Table 2.

Conclusion

Brain and mind issues must play a central role in measuring the sustainability and societal impact of investment in a workforce. A Brain Capital perspective needs to be integrated into existing frameworks, programs, and investment models to prevent or mitigate the profound effects and economic toll brain health disorders have on the workplace and society.

Anika Sinha is a pre-medical human biology student at Stanford University. Rashi Ojha is an MD candidate at David Geffen School of Medicine at UCLA. Erin Smith is an associate with the PRODEO Institute and Thiel Fellow at Stanford University. Dr Hynes is head of the OECD New Approaches to Economic Challenges Unit and Senior Advisor to the OECD Secretary General. Dr Altimus is a neuroscientist and senior director at the Milken Institute Center for Strategic Philanthropy. Dr Chapman is the founding director of the Center for Brain Health at UT Dallas. Dr Robertson is a T. Boone Pickens Distinguished Scientist at the Center for BrainHealth, a co- director at Global Brain Health Institute, professor emeritus at Trinity College Dublin, and founding director of its Institute of Neuroscience. Dr Manji is the global head of Science for Minds at Johnson & Johnson. Dr Ayadi is president of the Euro-Mediterranean Economists Association. Dr Eyre is a co-founder of the PRODEO Institute, adjunct associate professor with the Institute for Mental and Physical Health and Clinical Trials (IMPACT) at Deakin University, and an instructor with the Global Brain Health Institute.

References

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