Tuesday, July 24th, 2018
through the glass door

When investigating and analyzing investment organizations, one of the hardest things to assess is “culture.”  In the workshops that I lead on due diligence and manager selection (here’s the next one:tjb research | Make sure to look at the rest of the site for related resources and services for allocators and asset managers.), we spend a fair amount of time on culture, how to analyze it, what makes for a “good” culture, etc.

I start not with definitions from the investment world, but with general principles about culture from those who study it.  As I like to say, “Investment people are people and investment organizations are organizations.”  Certainly there are aspects of those organizations that are different from ones in other fields, but when you bring people together in groups, the same kinds of issues and behaviors appear over and over.  A grounding in the basic concepts helps in the assessment of the sustainability of an organization, and changes the nature of the investigatory process, especially the conduct of interviews.

We all have bits and pieces that contribute to our estimation of culture.  Employee turnover, the ownership structure of a firm, its public reputation, and many other things enter into our thinking.  But mostly, we base our judgments on what we hear.

Often, the cultural impressions are implanted by the managers themselves.  In my last posting on this topic, I wrote that “no one is going to volunteer the opinion that their culture leaves something to be desired, even if it is, in fact, dysfunctional.”the research puzzle | That essay looked at one simple way to map two elements of culture.  So, an analyst needs to take that narrative apart rather than accepting it as a given.the research puzzle | Here’s a piece about “cracking the narrative.”

We also are swayed by the interpretations of others, including current and former clients, ex-employees, and other references.  The degree to which we trust their individual views depends on the nature of our relationships, but usually an overall picture emerges from that web of inputs.  What’s often overlooked is that those you talk to might not have done any independent sleuthing or thinking at all; the picture that’s painted may appear consistent and complimentary because of repeated and effective conveyance of the narrative by the manager.

Given the need to dig up the real story, there is an attraction to online information and scuttlebutt.  For instance, consider Glassdoor, which defines its mission this way:  “To help people everywhere find jobs and companies they love.”Glassdoor | This is the firm’s “about us” page.  Does it offer, so to speak, a glass door through which can we first peer and then walk to discover a company’s culture?  Or are any benefits it might offer offset by companies gaming results or disgruntled employees using it as a place to take out petty grievances?

As with everything else in due diligence, you’re trying to look at how the pieces fit, what makes sense and what doesn’t, and plan your next iteration of tactics and questions to get at the truth.  Recently, I looked at the information on Glassdoor for three investment organizations, none of them so large that there were lots of entries by current or former employees.  Did the smattering of information that was there offer any value?

The first two were firms that I had done in-depth evaluations of in the past.  The Glassdoor picture of one was about as I would have expected; my analysis of it as a strong organization was reflected in the reviews.  The other surprised me.  There were some comments that were more negative than I would have thought and there was a consistency to them.  As I considered the information, I could see that there was an angle of inquiry I could have pursued more completely.  Looking at the site in advance would have helped.

The third organization had a lone, very negative review from a former employee.  During my visit to the firm, I was able to understand the reasons why and dismiss the input.  In general, it seems like Glassdoor is always a good check, but what you read should be taken with a grain of salt.  Are there other places we can get information?

The title of a blog posting from Cameron Sepah offers a clue, “Your Company Culture is Who You Hire, Fire, and Promote.”Medium | Note that this is the first of three parts.  At the bottom of each is the link to the next one.  Of course, “people” has appeared on frameworks for manager analysis from day one, but how can we sharpen our evaluations?  (Another topic at the workshops.)

Where do we draw the line in our diagnosis of the people involved?  How deep should we be willing to go and what personal behaviors or characteristics, past or present, are germane to our evaluation of someone (and thereby, their organization)?

A pollTwitter | Here is the thread. on Twitter posted by @ROIChristie asked the question, “Should info about someone’s personal life that is obtained during due diligence be able to impact an investment decision?”  84% of the respondents answered in the affirmative.  But she is concerned that “we now have the ability to find info on colleagues & biz partners that borders on creepy.”  How do we know when we have gone too far or not far enough?

These kinds of questions have always been important, but the emergence of new ways to pry makes them even more so.  One of the principles I stress is that you should have some stated beliefs and preferences (about these kinds of things and many other points of analysis), or your approach to them will be malleable.

What will your views be swayed by?  Mostly performance, but also personal relationships and social pressure.  What matters and what doesn’t?  Under what circumstances?

We are being offered new levels and types of transparency.  (Ironically enough, the “dark web” may turn out to be the place to find it.)  We should want to use the available tools to get at culture — that elusive concept — but there are questions of privacy and propriety involved.  And effectiveness too.  If you are part of a due diligence and allocation process, you should be debating the issues.