Culture is one of those topics that is hard to pin down. Many of us were brought up to treat it as synonymous with great art and music. But in the corporate context it means a mixture of attitudes, whether it’s teamwork, hierarchy or other key considerations.
Corporate cultures also interact with national cultures. In the Netherlands it is quite common for the boss to take a tram to work; in the US he might prefer to arrive by helicopter, as did Brian Gilbertson, a well-known Joburg mining boss in the 1980s. Whenever he arrived someone would mutter “the ego has landed”.
It has been able to build a unique business, a hybrid of research and fund management. It believes in the process of collaboration and in diverse opinions — similarities don’t mean groupthink.
I was prompted to look at culture by a recent paper from Research Affiliates. This makes a change from their usual missives on factor-based investing, more popularly known as smart beta. Research Affiliates, based in Newport Beach, California, is synonymous with its CEO, Rob Arnott. He is the face of the fundamental index or Rafi, by far the best-known smart beta index. It measures companies on their economic footprint, not their market capitalisation.
Arnott is easing himself into the nonexecutive chair, though it is hard for us who know him to see him as a hands-off boardroom lizard.
It is a good thing Research Affiliates has not brought in an Arnott clone to succeed him. The incoming CEO is Katrina Sherrerd, an insider but entirely different. She has red hair and no beard, she has a PhD and Arnott doesn’t, though his work has been far more original and groundbreaking than most doctors of philosophy.
Sherrerd is a professional manager rather than a quantitative investment manager. But they are both steeped in a culture, which means they have more similarities than differences. Research Affiliates adopted a collective leadership approach, which will reduce the key man risk of Arnott stepping down. Not that he won’t remain hands-on as a portfolio manager.
Research Affiliates partners share a deep love of learning, which I can confirm from my own discussions. They believe in the role of evidence in evaluating alternatives. It is small by American standards, certainly tiny compared with its giant neighbour Pimco, the largest specialist fixed-income shop on the American continent. It has been able to build a unique business, a hybrid of research and fund management. It believes in the process of collaboration and in diverse opinions — similarities don’t mean groupthink. Sherrerd says the three pillars of the business are mission, culture and people.
Its mission statement is to be the pre-eminent source of insights and products to transform the global investment community for the benefit of investors. This is an attainable goal in view of the calibre of skills at the shop, especially if you assume that smart beta products will transform the investment landscape. But it is also inspirational and, if you will forgive the American boosterism, unites employees in pursuing a shared forward-looking vision, corporate strategy and what it calls the portfolio of tactical decisions. Research Affiliates combines a mission and a vision in one.
The description of culture is more subtle, especially by American standards. Sherrerd says the aim is to create a sustainable culture that lives and breathes the core values and helps employees grow and develop, which benefits clients, partners and the firm itself. It avoids anti-values such as blaming, making excuses, believing yourself to be always right, withholding information, lacking trust in others or declining to take initiative. It does not believe in a dog-eat-dog zero-sum world. Most companies around the world will claim to do the same, but Research Affiliates has a particularly flat structure with a culture more like a professional firm than a typical top-down financial or industrial company.
The business aims to recruit people with strong skills and a range of views. But to make optimal decisions it must allow dissent and candour — much easier said than done, and hard to prove as it almost always takes place behind closed doors with no clients anywhere near the discussions.
New recruits have to go through the awkwardly-named culture committee, which aims to solicit information on how compatible candidates will be to the Research Affiliates' value system, though this doesn’t mean they subsequently won’t adopt anti-values such as withholding information or going into blame mode. The firm tolerates mistakes, provided team members learn from the experience.
Sherrerd is adamant that minority views add value as they stimulate divergent attention and thought and contribute to the detection of novel solutions and decisions. One of the firm’s catchphrases is “listen to learn, not listen only to respond”. It has not been easy to develop a collaborative, team-orientated approach, she says, which can be awkward in a group that often prefers to be led. Many prefer to stay in their comfort zones. But there is a thin line between robust debate and “analysis paralysis” — at some point the team has to be trusted based on the evidence that has been presented.
Sherrerd says it is essential that discussion is not dominated by a few strong personalities, such as Arnott. Ideally, the firm aims for equality of contribution, so when the decision is finally made the whole team can buy in. And much like jury deliberations, these collaborations often lead to a solution quite different to the preferences of top management — the team meeting is anything but a rubber stamp of the boss's views.
Job satisfaction matters, and the participants in the Fortune 100 best companies to work for had an average 3.7% per year better return than the rest of the S&P 500 over the 26 years to 2009.
• Cranston is a Financial Mail associate editor.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.