By Jenny Segal, founder and CEO of Speaking With Images
Trump’s tariffs have sent capital markets spiralling. But – unlike other black swan events – the years of economic and diplomatic carnage that we now face are entirely self-inflicted, a defensive response to unprecedented unpredictability from a leader of the Western world.
What we are witnessing is a massive impact on investment returns caused by a threatening, chaotic culture.
And it is not just the culture of the political landscape that impacts investment returns. The ability of fund managers to deliver great performance is tied to the culture of the environment in which they work: everything from how they are incentivised, to whether they work as a team, to whether they can challenge others and be challenged themselves.
Too often, we have seen the unhealthy impact of the star investment manager culture, where what the top performer says, goes. In an ego-driven culture, risks go unreported and unchecked, and over the years it has cost the investment industry and its clients dear in lost money and damaged reputations, from Crispin Odey’s sexual harassment to Neil Woodford’s unmanaged liquidity risks.
Culture is a strategic advantage
But carrots are always more effective than sticks. While the costs and risks of poor culture are tangible, manifesting in higher turnover, diverted management time, costly law suits and reputational damage, there is an under-recognised strategic advantage for businesses who get culture right. A great culture directly impacts bottom line results.
There is plenty of evidence, academic and anecdotal, demonstrating that employees value a better culture more than higher pay, so creating cultures people actually want to work in means you don’t have to pay over-the-odds to keep them.
And it doesn’t end there: employees who are happy, motivated and feel aligned to the purpose of their business will work harder too, taking fewer sick days and being less inclined to leave.
Research from GPTW demonstrates that the top 100 workplaces generate twice the revenue per employee of comparative firms, with employees exhibiting 70% more willingness to give extra at work.
Perhaps, not surprisingly, these productivity benefits translate into superior long-term share price performance, with the shares of the 100 best companies to work for outperforming the Russell 1000 by 3.36% from the period 1998 to 2023.
From the point of view of the investment industry, there are two huge advantages to understanding what makes a great workplace culture. First, you can nurture one in your own organisation, which will not only improve your bottom line, but it will boost your funds’ ratings and saleability as culture is increasingly recognised as a core tenet of investment success by clients, investment consultants and rating agencies.
And if you can identify great culture in your investee companies, you have opened up another avenue to generate outperformance in your investment portfolios.
Getting culture right
The arguments for getting culture right are compelling, and we all know intuitively what a great culture feels like and how energising it is to work in one. What motivates a group of financial services professionals is team, purpose and fairness.
These are recurring themes and tie into the hallmarks of great culture: integrity, transparency, honesty and openness, where people are nurtured and recognised for their individual contribution.
But these are the outcomes. To implement and identify one, we need to identify its constituent pillars.
The starting point of a strong workplace culture is to be clear on the business’s authentic purpose. This is so much more than the carefully manicured, three bullet points of mission statement on a company’s website.
It needs to reflect the way that the executive team live and breathe in their working day, how they interact with their employees, customers and suppliers. One way to test this is to write down what you think your culture is and then to mindfully note whether you are living by it; if you are not, it is not your culture.
You need to either change your words to match your behaviours, or change your behaviours to match your words. Employees are not stupid; they will buy into an authentic purpose, not into the marketing spin.
‘Blueprint for Better Business’ has set a great example, identifying two aspects to purpose: treating people with respect and dignity as a someone and not a something, and envisaging a meaningful contribution to society as well as profit.
Great cultures are fair, inclusive, and they encourage diversity of thought and expression. Despite the current DEI backlash, there is no getting away from the fact that appointing individuals who plug skills and strengths gaps increases the range of ideas and hence the resilience of a business.
Without this, businesses stagnate, finding it difficult to address new markets and keep up-to-speed with the changing demands of their customer base. Encouraging diversity and, crucially, allowing that diversity to express itself without fear of reprise, is the bedrock of creativity and innovation.
This requires high levels of psychological safety, the superpower of saying the unsayable, that trope we all know to be true and discuss freely at the coffee machine, until the boss rocks up and we all go quiet; the very person who could address the problem is the one we hide it from.
In an investment management context, the consequences of poor psychological safety directly impact portfolio construction. Juniors will not challenge the ideas of their seniors, with unacknowledged blind spots and hubris culminating in poor stock picks and lack of discipline around buy and sell decisions.
Getting this right requires low ego, empathy and quiet self-confidence, allowing individuals to engage in a robust debate without ill feeling.
Workplace culture can no longer be regarded as the soft metric, nice-to-have, sitting in isolation within the HR department. It is an under-leveraged risk factor that can impact investment outcomes at scale.
By fostering healthy, inclusive, and open cultures, investment firms can strengthen both their own decision-making and the long-term performance of the funds that they manage. Culture has broken free from its confines as a mere HR concern; it is core to fiduciary responsibility and business success.