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The asset manager’s guide to assessing and evolving culture

By Nimisha Srivastava | December 6, 2018

Many people hear the word culture and shrug – it’s a vague term explained by equally ambiguous words such as “philosophy,’’ ‘’ethos,’’ ‘’values” and “DNA.” As an investment manager focused on the concrete – portfolio returns, peer performance, due diligence, etc. – culture can seem irrelevant to your daily tasks. However, we believe culture can be a critical component to positive returns in the coming years, particularly as downside risks continue to grow in the public markets.

However, we believe culture can be a critical component to positive returns in the coming years, particularly as downside risks continue to grow in the public markets.

How can culture affect investment performance? Good performance is the result of a solid investment strategy, but it’s driven by the people and culture that shape it, as Roger Urwin discusses in his 2015 paper, “The culture of sustainable investment performance.” Without a culture that encourages collaboration between the investment and non-investment sides of a firm, or one that balances talent and team, the upside for strategy success diminishes as complexity or competitive dynamics emerge. This becomes even more critical as an asset manager grows.

So how can culture be measured?

To help asset managers and owners get started, Willis Towers Watson developed a framework for assessing culture that we use within our own due diligence process. We believe that incorporating a successful culture can have positive, long-term impacts for an asset manager. And the opposite is just as true — while we acknowledge that measuring culture can be subjective, we believe there are cultural red flags that can be identified that could negatively impact results over the long term.

Our paper, “Measuring culture in asset managers,” discusses our approach and includes recent case studies, questions to ask and common red flags.

We measure culture across three main areas:

  1. The employee value proposition (how a firm treats, engages and retains its employees).
  2. The client value proposition (how a firm treats and measures success for its clients).
  3. Leadership behavior (having ethical leaders with integrity who carry and evolve the firm’s culture over time.

What should asset managers consider?

We’ve had a variety of experiences with asset managers, and as a result, can offer three tips for assessing culture:

1. Understand what your culture is and what drives it.

When we asked asset managers what drove their cultures, responses ranged from “valuing intellectual integrity above all else” to “we get to use the gym for free.” While there is no “right” answer, culture is about how a firm achieves its mission, not employee perks. We encourage asset managers to spend time thinking about what those cultural values are and how they get transmitted throughout their organization.

2. Have a long-term business plan with goal posts along the way.

We are at a tipping point in asset management. Many first-generation founders are transferring ownership to the next generation, or monetizing stakes via minority or majority stakeholders. Others still are beginning the process of institutionalization, adding business lines or expanding staff, which increases the firm’s complexity. Merger and acquisition activity is increasing as well with established shops growing specialty skills by acquiring external teams.

Having a long-term business plan that includes culture is critical to ensuring these transitions happen smoothly. If asset managers are to successfully navigate the next economic cycle and transition to the next phase, employees must be brought along the journey with transparency, and progress milestones must be measured. Without this attention, firms risk isolating teams or employees not in the CEO’s innermost circle. We believe this can lead to employee turnover, weak integration of new products and a deteriorating culture in the firm.

3. Confront “the brutal truth”.

In the book, Good to Great: Why Some Companies Make the Great Leap…and Others Don’t, Jim Collins suggests that one key attribute of a great company is the ability to confront “the brutal truth”. At its simplest, this means being self-aware and understanding your firm’s weaknesses. Statistics – such as employee turnover, client turnover, the ratio of female-to-male investment professionals – can help objectively monitor progress over time. This top layer is important if a firm values client satisfaction and wants to create a more diverse workplace and engender employee loyalty.

The next layer is less obvious, as it entails getting to the bottom of why employees or clients leave. Are there any commonalities that drive people away? Learning from mistakes is key to creating a firm people want to work for. But without the facts, leaders risk making assumptions and justifying departures without addressing what they could have done differently to retain key staff or clients.

Evolve culture over the long haul

Through our research process, we’ve helped asset managers define (or refine) their culture and identify key risk areas. No firm is perfect, but the willingness to spend time managing and evolving culture will be key to ensuring long-term success in the asset management industry.

The information included in this presentation is intended for general educational purposes only and should not be relied upon without further review with your Willis Towers Watson consultant. The information included in this presentation is not based on the particular investment situation or requirements of any specific trust, plan, fiduciary, plan participant or beneficiary, endowment, or any other fund; any examples or illustrations used in this presentation are hypothetical.

Willis Towers Watson is not a law, accounting or tax firm and this presentation should not be construed as the provision of legal, accounting or tax services or advice. Some of the information included in this presentation might involve the application of law; accordingly, we strongly recommend that audience members consult with their legal counsel and other professional advisors as appropriate to ensure that they are properly advised concerning such matters. Additionally, material developments may occur subsequent to this presentation rendering it incomplete and inaccurate. Willis Towers Watson assumes no obligation to advise you of any such developments or to update the presentation to reflect such developments.

In preparing this material we have relied upon data supplied to us by third parties. While reasonable care has been taken to gauge the reliability of this data, we provide no guarantee as to the accuracy or completeness of this data and Willis Towers Watson and its affiliates and their respective directors, officers and employees accept no responsibility and will not be liable for any errors or misrepresentations in the data made by any third party.

This document may not be reproduced or distributed to any other party, whether in whole or in part, without Willis Towers Watson’s prior written permission, except as may be required by law. In the absence of its express written permission to the contrary, Willis Towers Watson and its affiliates and their respective directors, officers and employees accept no responsibility and will not be liable for any consequences howsoever arising from any use of or reliance on the contents of this document including any opinions expressed herein.

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