The belief that the corporate culture of an asset management organisation affects its performance is gaining ground. Some investment consultants make reference to corporate culture as a factor driving manager selection. This may be marketing, but it could spark debate. 

The concept raises two questions. First, the appropriate definition of ‘culture’. The expression is loosely associated with the way a company treats its employees. But this can be hard to gauge. There are companies that offer generous parental leave and promote a good work-life balance through other policies. These are seen as a proxy for culture but they can hardly be used to encapsulate a company’s overall culture. 

A belated but welcome debate

Other elements, such as the management’s vision and an emphasis on teamwork, could be equally if not more important, they are much harder to measure. 

Second, how would an asset management company with a ‘good’ culture offer better results? The assumption is that the presence of cultural values, such as open-mindedness and teamwork, results in better investment decisions. 

Another mechanism could be as follows: companies that allow their employees a good work-life balance contribute to keeping stress level low, which in turns helps to avoid mistakes or reckless decisions.   

The complexity of the debate cannot be overstated. Take transparency, for instance. That may be a good proxy for culture. Companies that are reluctant to provide information beyond the regulatory requirements are unlikely to impress investors. But is it a rule that shady companies do not deliver results and put investors’ assets at risk? 

Such a claim has to be demonstrated rather than asserted. But the fact that corporate culture has become a subject of debate in the institutional investment sector is striking. It is odd that such considerations did not matter in the past. It is more likely, instead, that smart investors have always attached significance to these matters rather than just the investment record.  

The overarching problem, of course, is that culture by definition is subjective and changeable. The danger when someone judges a company’s culture is that they apply a specific filter, and ‘downgrade’ a company that otherwise upholds reasonable values.  

The debate should continue, bearing two things in mind. There should be no question that a firm that treats its employees badly, puts them under undue pressure to deliver results and refuses to engage with stakeholders in debate is a potentially bad partner. But to focus narrowly on what ‘good’ culture means would be wrong. 

Carlo Svaluto Moreolo,
Senior Staff Writer, carlo.svaluto@ipe.com