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Renowned management consultant Peter Drucker famously said, “Culture eats strategy for breakfast.” His statement underscores the fundamental importance of culture within an organization. While strategy provides direction, a strong culture is the foundation that supports and sustains an organization’s success. Culture influences every aspect of an organization and defines the purpose and values that guide the actions of employees.
In the investment industry, a positive culture is even more critical than in other industries because investors entrust their assets with professionals on the promise that they will make sound financial decisions on the investors’ behalf. Ethical and prudent decision-making is not only a legal requirement for those managing money, but also a moral imperative. Successful investing involves looking forward, and a positive culture contributes to the long‐term sustainability of an organization.
Recognizing how critical it can be, Innovest has developed a comprehensive questionnaire to enhance our evaluation of an organization’s culture. This is now included in our due diligence process and ongoing monitorization of investment strategies used by our clients. We assert that due diligence should transcend traditional qualitative and quantitative metrics to include an assessment of an organization’s culture. This involves addressing key cultural questions, such as:
- How would you describe your company culture? What does your organization do to develop and maintain your culture?
- Please describe your hiring practices. What is done to attract and retain talent?
- How are firm-wide decisions made at your organization? What is your firm’s hierarchical philosophy?
- What is your annual employee turnover? What is the key reason(s) behind their departures? Please include any senior leadership changes that have occurred in the last three years.
- What are the core values of your organization?
- How would your employees describe their work environment? What is done by your firm to measure this?
- What non-profit entities does your organization support? What percentage of your company’s bottom line goes to support charities?
- What is your net promoter score?
- Does your organization have formal mentoring and leadership development programs?
- How do you measure employee engagement and satisfaction? Describe how your organization is committed to its employees.
In the responses to these questions we seek evidence of a culture that emphasizes service to others, integrity, and the guidance of clear values in employee decision-making. We believe a positive culture embodies servant leadership, community engagement, excellent benefits, and an environment conducive to employee growth. It is crucial that the organization provides specifics on how they foster such a culture.
An organization committed to its employees embraces best practices that prioritize well-being, growth, and engagement. This commitment is evident through a positive work environment, professional development investment, open communication channels, regular performance evaluations, and recognition of achievements. Competitive compensation, comprehensive benefits, and inclusive policies underscore the organization’s concern for employees’ welfare. Mentorship opportunities and an inclusive environment ensure that everyone feels valued and supported. Conversely, a poor response to our questions from an investment organization would lack clarity and detail regarding the company’s cultural definition and its adherence to ethical standards and best practices, which promotes a self-serving and negative work environment.
Formal assessment of organizational culture provides valuable insight into the inner workings and character of the firms managing our clients’ assets. This comprehensive understanding is a crucial component of our due diligence process, informing our decision-making. We regard culture as a cornerstone of success, and our evaluation of the cultural practices of the firms we invest with is designed to help provide long-term success for our clients.
Peter Mustian, MBA, is a principal, COO at Innovest providing institutional consulting services to committees and boards of various types of retirement plans, nonprofit clients, and wealthy families. He is a member of the Capital Markets Research Group, responsible for asset allocation studies and portfolio construction. He is also part of Innovest’s Investment Committee, which makes decisions on investment related research and due diligence. He is a member of Innovest’s Retirement Plan Practice Group, who identifies best practices and implements process improvements to maximize efficiencies for our retirement plan clients. In addition, Peter leads Innovest’s Mentoring Committee, responsible for the ongoing professional development of Innovest’s team members. He is responsible for coordinating the work of Innovest’s Client Service Team that includes managing due diligence, performance reporting, portfolio accounting, trading, and special client projects.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.