Friday Highlight  

The importance of strong culture in investment organisations

Simply claiming to be inclusive and future-focused does not necessarily mean that this is reflected on the ground.

An examination of culture must also make a consideration for context. There is no blueprint for how a culture ‘should’ be.

Making it a part of any decision-making process means striking a balance between being able to compare firms while being flexible enough to account for nuances between different teams.

Examining how a company delivers value to employees and clients, as well as how the overarching leadership provides guidance and oversight of culture, is a good starting point.

If management leads with integrity and fairness, while balancing hiring the best talent with incorporating diversity, then it hints at a positive underlying culture.

If an individual portfolio manager owns shares in their own strategies and owns or has strong influence over the asset management business, it is generally a good sign.

It means their interests can be aligned with the clients, and that’s one of the tests we apply before selecting them to invest the Trust’s assets.

Clearly, there will be many examples of weak culture that suggest limited prospects for a firm.

Issues such as a lack of development opportunities for junior staff can be a big red flag when looking into a business.

If staff do not appear to be engaged or connected with the firm’s mission, or if there is ‘groupthink’ and little diversity in thought, this can also raise concerns.

Other red flags might include closely-held ownership, or a firm that places little value on levels of client satisfaction.

Is it worth the time?

Making ‘culture’ an integral part of the investment process is, admittedly, time consuming.

It is also a heavily subjective consideration to make given the differences between businesses and management styles.

Often, the trend towards short-termism can stop investors from viewing culture as an important indicator; sometimes this is due to the length of time it can take for a positive culture to translate into tangible financial returns.

Yet we believe culture can provide a clear and sustainable edge when it comes to investing.

It may be time-consuming and difficult - to say the least - but just because something is hard to measure it does not mean it is not worth the effort, particularly in the pivotal area of company culture.

Craig Baker is global chief investment officer at Willis Towers Watson and chairman of the Alliance Trust investment committee