What have we learnt about effective culture at investment organisations?
We published TAI research on the culture of investment organisations back in 2015. This research was well-received and has been widely referenced. We have updated our research in 2019 (slide deck here). We have incorporated fresh thinking on what makes culture ‘effective’ – that is how culture can help investment teams to deliver better performance and create more value. In this post we offer three high level thoughts on how culture, as a topic within the investment industry, has evolved over time; and three new ideas as to how culture can play a bigger and better part in our industry going forward.
Conversations about investment industry culture are starting to come to life.
Culture conversations were not absent before, but they were often rather shallow. In the last few years there has been a much increased appreciation of the importance of culture to the effective practice of investment organisations. The growth in understanding of inclusion and diversity has been the most significant factor in this.
In addition, investment organisations have had to work hard to differentiate themselves under head-wind conditions and culture has received somewhat belated recognition as a critical source of competitive advantage. Culture discussions have, as a result, grown in clarity and impact more recently. Ideally they should also have grown in authenticity, but the results on this point are definitely more mixed. However, as we discuss under ‘purpose’ below, we have some optimism on this.
Previous thinking on culture often had the resigned idea that it was ‘fixed’, new thinking is seeing it as ‘movable’ and an opportunity for good design.
Investment organisations have either been largely comfortable with their culture or resigned to living with it, thinking that not much about it could be changed. We now see culture more widely referenced in strategy discussions. So the current narrative is more about what does present culture allow to happen in an organisation’s business strategy, or what does that argue for as an appropriate target culture if an alternative strategy is preferred.
Connecting the dots from culture to strategy, to beliefs and values, and to vision and mission, has become a critical leadership challenge and opportunity. The art and science of management has developed a long way in the last few years and we now have much greater understanding of how to assess culture and how to adapt it, even in high velocity conditions.
The rise of more purposeful investment firms is of huge significance.
This point is addressed to asset management firms not asset owners. Let’s face it, purpose was not a big part of the vision and culture of the asset management firm in the past. Indeed the trends we have seen for some time have been to strengthen the focus on business results with professionalism often giving ground to achieve this. To survive and thrive, purpose in the investment industry is now playing a bigger role. There are two compelling reasons why this makes sense.
First, employees are increasingly drawn to organisations that are purposeful and show social responsibility. This applies to all worker generations but particularly to millennials.
Then, organisations that are purposeful can benefit from more traction with and trust from their clients.
The purpose of industry organisations can be expansive and highly motivating. The positioning of investment organisations as universal owners gives them a unique opportunity to produce inspiring societal and planetary impacts (see The 4-3-2-1 PIN code). Also think of firms combining a diverse array of talents, in teams, to achieve multiples more than could be accomplished singly, and enabling the best of our values to come to work. This can be dazzling stuff.
Culture set by design, providing opportunities for adaption and innovation.
Let’s turn to some fresh ideas for the future.
With industry realities around over-capacity hitting home, organisations must get their sources of differentiation more effectively sized, shaped and socialised. Most cultural signatures I come across read too similarly. There are great opportunities for culture to take on a new ‘edginess’. There are a number of candidates for this, but I promote three ideas here.
First, diversity and inclusion is a great opportunity – most organisations are significantly underweight this cultural attribute but with deliberate leadership action they could be re-positioned.
Second, I think there are big opportunities in the culture of innovation, particularly in process innovation.
Third, there is great potential in an increased culture of transparency and feedback. This last cluster of attributes can take an organisation to much higher performance in learning from experience and development of trust both in inward-facing and outward-facing contexts.
There is a particular role for culture at asset owner organisations
The focus on culture has to date been on asset management organisations. But asset owners have their significant cultural challenges and opportunities as their internal capabilities and team sizes grow. They should see culture as a critical vehicle to meeting their missions. This particularly applies to the bigger and longer term funds. These are suited to cultures that draw strength from being very purpose-driven. The adoption of universal owner thinking is likely to be a key part of their future vision and strategy in this respect.
Leadership’s role in cultural effectiveness
Leadership can build cultural effectiveness in three critical states of mind-set and competency: having the leadership awareness to recognise the influences of cultures and sub-cultures embedded throughout the organisation; having the sense of what direction of travel is desirable for culture –that could be in defending culture from dilution or addressing the need for culture to change; having the leadership agility to influence the culture outcomes through formal and informal channels.
We often talk of culture as a secret sauce and that is apt. We often miss the secret that culture is the reflection and creation of leaders past and present. The technical parts of the investment challenge have been substantially shaped over several decades, the human parts have further to travel. The challenge is for leaders to step up, be empathetic, be clear on values and show the courage and determination necessary to achieve important things for society’s greater good.