Some Reflections on the Immutable Role of Investment Firm Culture
In the realm of social mores, there can be no doubt that the term “culture wars” evokes divisiveness and rancor. In the investment management industry these days, another type of culture war is playing out, one that has a much more positive connotation and hopefully much more to contribute to the well-being of both investors and the profession.
Now, lest you mistake my meaning in using the terms “culture” and “wars” in this context, permit me a quick overview:
Although the phrase was not explicitly called out in the program or keynoted from the podium at last week’s 65th CFA Institute Annual Conference in Chicago, a version of “culture wars” was very much in the air. I heard “culture” in at least three dimensions at the conference: a culture of trust, a culture of simplicity, and a culture of, well, organizational culture. In turn, these cultures are at “war” with much of what has ailed the industry recently. The culture of trust is at war with the loss of faith in financial institutions and professionals. The culture of simplicity is at war with the mind-numbing complexity of prevalent financial theory, models, and intricate institutional strategies. And the culture of an ethical organizational culture is at war with financial institutions whose “win at all costs” approach enervates both clients and employees.
Early in the conference, James Montier of GMO UK Ltd. issued a clear marker for a culture of simplicity, and both he and later speakers revisited that theme regularly. Montier pointedly urged finance theorists to “stop sacrificing reality on the altar of elegance” and to use “more common sense and less mathematics.” Noting that what he termed “physics envy” was not a new thing for finance theorists, he cited the famed Benjamin Graham’s cautionary 1958 writing about the dangers of substituting mathematical complexity and theory in place of real-world experience. Because of what he sees as over-reliance on exceedingly complex models untested by experience and common sense, Montier warned practitioners to “treat all financial innovation with skepticism.”
Extending the culture of simplicity into other dimensions, and providing two of the best quotes of the conference, were Mellody Hobson of Ariel Investments and Michelle Seitz of William Blair & Company. Hobson, in extolling the virtue of simplicity in a firm’s strategy and core philosophy, noted: “It’s easier to boil eggs than make a soufflé” on a consistent basis. And Seitz, speaking of the necessity for leaders to allow themselves and their teams time for thought and reflection, observed succinctly: “Clarity comes in simplicity.”
Every organization, investment firms included, has a culture. But, as Kim Redding of Brookfield Asset Management noted, “The only question is whether it’s planned or unplanned.” Redding and fellow speaker Jim Ware of Focus Consulting went on to define culture as “the firm’s differentiating beliefs, values, and behaviors.” Michelle Seitz offered her own take on culture, calling it “a reflection of a firm’s values, its character structure,” and she tellingly argued that a firm’s culture is shaped less by big forces and more by “the million little decisions.” Strong cultures are the result of everyone in the firm living the core values, and a key job of leadership, said Seitz, is to get clarity on the what and why of those values.
Redding added that another leadership responsibility is to deal quickly with those who clearly can’t or won’t fit in with the firm’s culture. Hobson also spoke to the “paramount” importance of a firm’s culture, saying that the recent financial crisis actually reinforced the culture of her firm and reaffirmed its core values and convictions. She described the central role of her firm’s “culture committee” in defining, preserving, and transmitting corporate culture and expectations. Redding and Ware closed the case with another of the conference’s most memorable quotes: “Being smart and hard-working gives a firm very little advantage — few firms are dumb and lazy.”
What matters is intentional culture, fully shared, driven by immutable core values, and reinforced by clear and consistent compensation. As noted at the outset of the conference by John Rogers, CFA, president and CEO of CFA Institute, all investment professionals have a role to play in shaping their firm’s culture. Rogers urged members to “focus on financial activities that enable economic and social progress, rather than on finance as an end unto itself.” He also unveiled a 50-item Integrity List of tangible actions, inspired by ideas from CFA charterholders and members, and challenged financial professionals to commit to implementing at least one item from the list in their own daily business. “The time has come,” Rogers said, “for every one of us to step up, and take personal responsibility for restoring trust.”
Albert Einstein’s famous observation that “nothing will end war unless the people themselves refuse to go to war” would seem to apply equally to the notion of culture wars. But in the investment management industry, which continues to grapple with a culture war of its own, the battle for trust, simplicity, and ethical organizational culture is well worth fighting for.
