Culture Roundtable

What Values Foster Success?

07 December 2020

14 min read

Corporate culture is becoming increasingly important in how any organization is run. During the pandemic, businesses that value diversity, inclusion, transparency and flexibility were perhaps better equipped to shift to a remote working environment than peers without these cultural features. We asked four consultants and pension managers around the world to share their thoughts on the ingredients that make an organization’s culture thrive, and why understanding cultural attributes is so important when identifying asset managers.

Q: Organizational culture is a growing area of focus within the investment industry. Why is culture important to your organization?

Deb Clarke, Global Head of Investment Research, Mercer (UK): Strong culture is the bedrock of any organization that wants to be effective and create long-term value. That starts with having a common purpose and then creating a culture from the bottom up, where everyone's working toward that same end. People must have integrity and trust each other.

In a healthy culture, everybody is encouraged to bring different views and actively contribute. Inclusion is the key to creating better outcomes and then coming together to deliver. Perhaps that’s the difference between a good and bad culture. In a bad culture, you may have lots of debate, but you don't actually gel at the end of that and take the journey together. You need that cohesion to ultimately succeed.

Susannah Vickers, Assistant Comptroller for Pensions, Office of the New York City Comptroller, Scott M. Stringer (US): We see organizational culture as being about values and behaviors. Our office values an environment in which people feel safe, happy and productive. Behaviors and standards should foster a culture of transparency, inclusiveness and supportiveness. Diversity is a big part of that. Organizational culture starts at the top. The head of our organization, Comptroller Scott Stringer, has made diversity, inclusion and transparency hallmarks of his career as an elected official for over 25 years. He's been remarkably supportive in mentoring and promoting diverse women in leadership positions.

Julie Cays, Chief Investment Officer, CAAT Pension Plan (Canada): Culture and employee engagement are firmly intertwined and support each other. Highly engaged employees help the organization deliver on organizational goals and boost business performance. Engaged employees are more productive and happier, which translates into positive interactions with each other and our stakeholders. Culture is about the way we treat each other, support each other and what we do when no one is looking. At CAAT, our CEO holds monthly discussions with all our staff, allowing him to hear directly what people are thinking. We also conduct a yearly employee engagement survey to keep a pulse on the culture, and we celebrate our differences through open discussions on topics such as the LGBTQ2+ community and their struggles; Canada’s residential school system (for indigenous peoples); mental health in the workplace; and creating a level playing field for women.

Debby Blakey, Chief Executive Officer, HESTA (Australia): A strong workplace culture is not only important to HESTA as an employer, but also as a long-term responsible investor in high-performing companies, with AU$54 billion in retirement savings under management for our members in health and community services. A corporate culture focused on ensuring that people feel respected, valued and united in a common purpose is key to attracting diverse talent, particularly in leadership, which research shows leads to better governance, productivity and performance—creating long-term value for shareholders.

Q: Which cultural attributes are most important to a firm? And which attributes do you find difficult to implement or assess?

Susannah Vickers: In addition to openness and inclusivity, transparency is extremely important. Firms must create an open forum for conversation. Staff at all levels should feel safe and supported in bringing up various workplace issues. So, for example, this year our agency instituted an office-wide listening session. Because of COVID, it was online, but the whole 700-plus person office was invited to meet with the Comptroller to discuss any issues that were important for individual team members to bring up.

Julie Cays: Our most important attributes are inclusion, diversity, teamwork, impact and integrity. Because we have a strong culture and we really are one team, they are not difficult to implement or assess. What’s difficult right now is assessing the culture remotely; in the past, you could walk around the office and get visual cues as well as verbal and nonverbal cues on culture—how people interact with each other, participate at events, etc. Now, we’re reliant on surveys and touching base virtually.

Debby Blakey: Workplace culture should build people up and put them first, ensuring that every single employee feels respected, included and valued, and that they feel they are working together toward a common goal.

But above all, implementing and maintaining these cultural values and attributes must be a priority for the highest echelons of company leadership. I believe culture is something over which the board in particular should have clear oversight, not just the CEO or executive team. This oversight is essential to help guide companies in making decisions that ensure they foster and maintain an appropriate workplace culture that is necessary for the long-term value creation for shareholders.

Deb Clarke: You need a particular type of leadership and strong role models. Leadership must be authentic and agile. Inclusion is essential. People need to feel they have a voice and they can contribute to the common purpose. You also need safe places for people, to support individuals in their own well-being. It’s not about focusing on hours worked. It's about trusting people to deliver the outcome if you've set clear objectives. In the current environment, some things are more difficult to implement. For example, it’s more challenging to bring in new people, who need to be immersed in the culture.

Q. How will firms that don’t address cultural issues be disadvantaged in the future?

Julie Cays: During times like these, what organizations do in their response to the pandemic and how they treat employees will define their brand for years to come. Those that do not keep their employees and culture at the core of everything they do will be at a disadvantage. Talented individuals can go anywhere to work—for many, the culture is the differentiator.

Deb Clarke: Without a strong culture, people won’t be proud to work for you. And that becomes an issue because then you obviously can't attract and retain the right talent. If you don't have a good culture, it can create dysfunction. People want to work for a firm where there's a strong culture, a clear purpose. In some asset managers—perhaps when it's a founder-led firm—there may be a dominant person at the top. It can be challenging then to build a strong culture around that type of a leadership. In any organization, you only need one person with the wrong approach to create a very toxic environment.

Susannah Vickers: We’ve seen, time and again, examples of firms that are doing a bad job of this, and toxic cultures that come back to bite them. There's lots of empirical evidence that shows how diverse firms do better. Firms hurt themselves when they don't value their employees or if, for example, they limit themselves to a small talent pool that lacks diversity. As decision-makers and pension fund trustees, we understand the limitations of groupthink and we try to hold fund firms accountable. So, when they come to us with pitch books and one of the first pages is the smiling pictures of all the team members that will be working on our account, they'll face questions if they all look like they’re from similar backgrounds.

At the Bureau of Asset Management (BAM), we oversee over US$200 billion in aggregated assets—a large pool of capital for the five New York City pension funds—and our office looks as diverse as our city. Sometimes it's hard to recruit diverse candidates to certain high-level positions, but it's possible. You must put in the work and have that goal in hiring—to find people who bring different things to the table because it will strengthen your organization and, ultimately, make you more successful.

Debby Blakey: The consequences can be severe for companies that fail to address culture issues. At worst, it can result in sudden and devastating reputational damage, which is what we saw recently with the AMP sexual harassment fallout. More and more, we’re seeing issues with poor culture making their way into the public eye. Societal expectations have shifted, and consumers, investors, employees and other stakeholders are increasingly less tolerant of such incidents. Stakeholders are more willing to “vote with their feet” and boycott companies—even by quitting their jobs—if they feel these organizations are not aligned with their values, and social media has only amplified this effect. Ultimately, failing to address issues of poor culture is likely to result in long-term loss of company value and poorer performance.

Q: What has the COVID-19 experience taught you about the importance of culture?

Susannah Vickers: COVID is a challenge for everybody. We've been working remotely since March, and people miss the interaction and the support that they have in the office, but we've continued to be pretty high functioning. I think that says something about the positive, supportive environment we had before COVID, which helped make the transition to an online environment relatively seamless. I've hired someone during COVID that I never met in person. I have a very collaborative team, and she’s been able to integrate herself pretty seamlessly into my team even though she's never been to the office.

Debby Blakey: Face-to-face connection is a huge source of energy and inspiration for so many of us at HESTA. Missing this camaraderie, interaction and connection can take its toll the longer we need to work from home. It’s why we have worked very hard to continue creating a sense of belonging and engagement during this difficult period, by putting our people—members and employees—first, committing to strong leadership and ensuring that we are a team united. We have designed and delivered a number of programs to keep our culture strong, one being a focus on maintaining a growth mindset to help us adjust to and, most importantly, succeed with this new way of working and delivering for our members.

We are proud that our employee engagement score has been sustained at the highest decile throughout this period because of the high levels of trust and transparency we have worked so hard to implement and the work we have put in to keep our employees feeling engaged, included and resilient.

Deb Clarke: It’s important to see how companies have treated their employees during this time. But I also think it is interesting to observe how people have adapted to the changes they have had to make; working from home and being more flexible has reinforced the importance of trust between managers and their teams. One thing we've done is to talk to different people within the asset managers we are assessing. So not just the portfolio managers, but also human resources or diversity and inclusion personnel, to get a feel for how firms have been treating their staff. For example, are people being forced to come back to the office? At Mercer, nobody will be forced to come back to the office before they feel comfortable.

We’ve also realized through this period the importance of people managers. Other people might call them line managers. People managers have supported their teams by being there to listen, for catch-ups, feedback, cups of tea, whatever it may be. I think often, good fund managers have been promoted to be heads of the team. And frankly, that's not necessarily the best use of their skills because a good people manager is not necessarily someone who's a good fund manager.

Julie Cays: As we transitioned to remote work, we found that our culture is more powerful today than before. We’ve implemented various activities, like happy hour and trivia nights, so we can have a bit of fun together by trying to replicate the fun we would normally have in person. What we learned is how much our employees value the things that we do together, and so the challenge for us was how do we continue to do the things that strengthen our culture during COVID.

Q: What has been the greatest challenge you have faced in assessing the culture of the organizations you invest with?

Debby Blakey: Workplace culture can be a challenge for investors to assess from the outside. This information is not readily available in public documents and—as we learned from Australia’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry—there can often be a disconnect between what a company says and does.

The culture of companies we are invested or looking to invest in forms a key part of our investment decision-making process, as we believe this is integral to superior company performance and long-term value for shareholders. It’s why we look at gender equality and diversity as an indicator of fairness, as we see this as a proxy for broader inclusion, employee engagement and a strong corporate culture. Ensuring there are more women at the top can be an indication an organization has taken steps to create a more inclusive culture. In addition, having more women at all levels of an organization can help break down negative culture.

We engage extensively with our holdings on gender equality and have recently written to Australia’s 200 largest listed companies, outlining our expectations that they work toward achieving gender balance—40% women, 40% men and 20% any gender—at board and executive leadership, which have traditionally had limited representation of women. We also recently launched 40:40 Vision, an investor-led initiative that aims to see women fill at least 40% of ASX200 executive roles by 2030. It’s backed so far by those representing over AU$4 trillion of assets under management or advice. Gender equality is something our members care about—80% of our 870,000-plus members are women, and they expect equality in the companies in which they are invested.

Deb Clarke: It takes a long time to get a strong feel for an organization’s culture. You need to have multiple meetings and meet different people—including people who've left. Sometimes you have to take the answers you get around an organization’s culture with a pinch of salt. You have to be balanced in your assessment, and we want to try and observe people in different environments, in their natural setting. One thing I like to do when I meet a senior portfolio manager with their team members is to see whether the PM dominates the conversation or involves others in the discussion. If people look like they’re afraid of saying the wrong thing—that is not a good culture. You want an environment whereby if the analyst says something and it's not quite right, that's fine.

Susannah Vickers: Assessing an organization’s culture is always difficult because it takes work. It's most effective with face-to-face interaction and a deep dive when you're doing due diligence with an organization for a possible new investment, or maintaining and monitoring an established investment. We have a requirement for in-person reviews of investment managers. That’s of course been moved to a virtual space during the pandemic. But understanding culture is a vital part of diligence that can't be ignored in favor of more objective metrics. You need to get a feeling of what it's like in these different offices.

Julie Cays: It’s a real challenge to gauge the “feel in the room” with an investment team when you’re conducting meetings virtually. Getting a sense of whether individuals in teams are open to challenges and diversity of thought is always difficult, but even more so in this environment.

Q: In a post-COVID world, do you believe culture will be a greater driver of the success of organizations?

Deb Clarke: Absolutely. After this crisis, many organizations will need to think about what's their shared vision, their purpose and their leadership style. At Mercer, we have a female CEO and there is a female CEO for the UK as well. Both are incredibly empathetic. The key message for our whole business is built around economics and empathy; it has to be both, and empathy is a much bigger driver than it was historically. So one advantage of COVID, which has been role modeled by our CEO, is that we can get a more diverse group of people on Zoom calls and deliver better solutions. I wouldn't want to lose that. The ability to have more diversity, new styles of leadership, as well as an adaptive workforce with the ability to work from home is clearly going to be something that will come out of this. And although we've all been at home, I actually feel that our connectivity has been higher. That's really hard to maintain, but I think it will be very important in the future.

Julie Cays: Most organizations have learned that remote work is possible; as a result, there will be expectations of more flexible work arrangements. With that flexibility culture will be even more important—for example, we feel our culture in walking in the halls and people smiling, and talking to each other, helping each other, grabbing coffee. Remote work makes that difficult, and so organizations need to build mechanisms to engage employees, collaborate and ideate in a way that in the past has been done in person.

Susannah Vickers: We've learned through COVID how important culture is. If organizations weren't supportive and flexible, they might not have been as successful as other organizations that were. So COVID might have been a bit of a test for the internal cultures and the way of doing business at different groups. If employees don't feel safe or supported, they're going to move on to someplace else. Hopefully, a silver lining of COVID could be an additional focus on culture and the importance of all the things that we've been talking about—support, inclusion and transparency—so everybody feels a part of the success of the organization.

Debby Blakey: We are already seeing evidence that organizations with positive and diverse workplace cultures have better corporate governance, make better decisions, and deliver better performance and long-term value for shareholders—and this means organizations are more likely to continue being strong performers during the more difficult times.

Already we have seen numerous examples of innovation happening at unprecedented speeds in the healthcare sector, which wouldn’t have been possible without a strong and collaborative culture focused on finding a solution to a pressing, real-world problem. This is particularly exciting for us as an institutional investor as we look for new opportunities arising from changing market conditions that have potential to deliver strong, long-term returns, while also creating jobs and growth in the health and community sectors where our members work and contributing to long-term economic resilience.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

This is a marketing communication. This information is provided by AllianceBernstein Limited, 60 London Wall, London, EC2M 5SJ. Registered in England, No. 2551144. AllianceBernstein Limited is authorised and regulated in the UK by the Financial Conduct Authority (FCA - Reference Number 147956). It is provided for informational purposes only and does not constitute investment advice or an invitation to purchase any security or other investment. The views and opinions expressed are based on our internal forecasts and should not be relied upon as an indication of future market performance. The value of investments in any of the Funds can go down as well as up and investors may not get back the full amount invested. Past performance does not guarantee future results. This information is directed at Professional Clients only and is not intended for public use.