The wave of sustainable investing that has rightly swept across asset management in recent years has introduced a plethora of different processes and benchmarks aimed at improving investor decision-making.
There is, however, one often forgotten aspect of sustainability that is equally as powerful a tool when it comes to making a call on an investment, and that is examining company culture.
While ESG (ethical, social and governance) considerations are now an intrinsic part of many investors’ processes, gaining an understanding of the strength of a company’s culture has often been overlooked, despite the deep insight it can offer.
The importance of a strong and well-managed culture is something few in the industry would deny.
It goes hand-in-hand with ESG considerations yet is only now beginning to appear on the radar of investors, whether that be when selecting an asset manager or when deciding to invest in a company’s stock.
Gaining an investment edge
At a recent public forum run by the Thinking Ahead Institute – a non-profit research and innovation member group sponsored by Willis Towers Watson that is dedicated to improving the investment industry for the benefit of the end saver – those attending were asked if they believed they would learn more about an organisation from its strategy, or from its culture.
Around 90 per cent chose culture.
While hard strategy and direction is important, a company’s culture will reveal a lot about how a business is run, about the dedication of employees and about the management style of senior leaders.
However, culture tends not to be consciously measured and managed by investors. It can be hard to quantify or measure as it is associated with ‘soft’ data rather than hard figures, not to mention being difficult to define.
However, it is possible and more companies are seeing the benefit of doing so.
Willis Towers Watson, the investment manager of the Alliance Trust portfolio, defines culture as “the collective influence of shared values and beliefs on the way an organisation thinks and behaves”.
When going through the process of selecting managers to pick stocks to include in the Alliance Trust global equity portfolio, Willis Towers Watson’s process formally incorporates an assessment of culture. We consider it a key element to an asset manager’s success.
However, if not carefully managed a strong culture can weaken over time.
In a world of increasing regulatory scrutiny, a manager’s ethical orientation and integrity can serve as the ultimate safeguard against fraud and reputational damage, implying greater focus on nurturing company culture.
Importantly, it is not something that can be paid lip-service.
Culture is an intangible aspect of an organisation, and actions speak much louder than words in ensuring a positive, dynamic backdrop in a workplace.