Corporate Culture Must be Cultivated & Nurtured

A garden needs to tended, otherwise it becomes overgrown, infested with weeds, and even breeding vermin.  What was once an enhancement becomes an eyesore.  Likewise, company culture is an intangible asset that needs to be maintained.  If it is not, it becomes a liability, and that has consequences on more than just revenue. 

Company culture, properly implemented and maintained, leads to higher job satisfaction, greater productivity, and is a nurturing environment for innovation and progress.  It inspires the staff and management to be better, and inculcates a culture of excellence.  A positive company culture is part of the branding, and may be somewhat quantified as goodwill on the balance sheet. 

A toxic company culture develops in time, when management either shows a bad example, or there is neglect in weeding out bad habits that creep in.  For example, cliques develop, favouritism creeps in, and merit is cast aside.  In such a scenario, the company starts to lose talent.  Of greater concern would be instances of sexual harassment, gender and other forms of discrimination, and insular attitudes.  This means losing market competitiveness, and opening the company to negative goodwill and legal action, costing current and future revenue. 

It is part of management to ask ourselves what are the elements of company culture that would open the company up to risk, the risk of legal action, the risk of lawsuits, the risk of loss of talent, the risk of death and injury, and any form of risk that would harm the reputation of the company, and compromise the safety of staff.  We have to recognise that we live in an age of activist consumerism.  Inaction leading to even minor incidents, or allegations, may have outsize consequences for the company.  This requires a proactive, and not reactive, approach.  If we are reactive, the damage has already been done, and it is too late.  This is what is known as cultural vigilance. 

One of the ways to do this is to have a culture of open communication, especially between layers of management, and between management and staff.  This should also be extended to other stakeholders, as well as other types of internal customers such as contractors and vendors.  This is why we have these exercises such as reviews, 360^o feedback, whistleblower polices, and more.  That being said, we must first identify these risks before they develop into a crisis, and address them.  Having these tools without identifying these risks is like having a having cameras in your homes security system, but pointing them in the wrong direction. 

The first is the risk of neglect  of human resources.  This is when there is an inadequate investment in the people we have.  Investment in our employees means ensuring the feel part of the company’s success, and gain from it.  For them to be stakeholders, they must feel that they gain from the success of the company.  This goes beyond compensation, and also includes promotion, career development, personal development, and other forms of intangible benefits. 

When employees feel they have been short-changed, they become disenfranchised.  They are not invested in the success and growth of the business.  This means they are less inclined to innovate, to participate and believe in the mission of the company.  They become cynical, displaying degrees of passive aggressive behaviour, and quality and engagement drops precipitously.  People are ultimately motivated by what is in it for them, and that is an ongoing conversation management needs to constantly have with the rest of the team.  When we want our employees to care about the company, we must care about them, and treat them as a precious resource.  It is cheaper to develop people we already have than to constantly train new ones. 

The second risk is the lack of accountability that creeps in.  From board level, values must be cascaded down, and everyone is held responsible for their own behaviour.  This applies to any form of misconduct, as well as ethical behaviour.  There should be no form of favouritism in hiring, for example, because that undermines morale and destroys standards.  There should be no instances of leniency on account of seniority or connections.  There should be no free pass for any form of bullying or discrimination.  People, regardless of their position, must always be held accountable for their behaviour. 

There are two parts to this.  While whistleblower programmes should be there to protect them, and disciplinary action made known, the employees cannot be cowed by fear.  It stifles engagement, and adds to the stress.  Proscribed behaviours should be explicit, penalties clear, and there should be a proper process of fact find and appeal.  At the same time, Human Resource and Legal Departments should have a relationship with the employees in the form of regular engagements, training, and bonding.  This humanises the concept, and gives room for consultation in any doubt. 

The third risk is the lack of diversity and inclusiveness.  This has many levels of dangers.  For one, we want to avoid the groupthink that develops when everybody shares a similar perspective on many areas.  This creates a disconnect between the company and segments of the market.  Insidiously, there is this sense of the other, which breeds prejudice, bias, and discrimination.  It creates instances of isolation, micro-aggression, and even bullying.  This opens the company up to negative goodwill and legal action. 

This diversity begins at board level.  There must be an effort to ensure that diverse demographics are represented at the decision-making level, from management to product design to marketing.  This helps us to engage a wider segment of the market.  It also increases the talent pool from which we hire.  The last thing we want is to lose talent because the environment was hostile to a different culture, gender, nationality, or religion. 

Finally, there is the risk of disconnect between the sated values of the company and the example of leadership.  Ethical lapses by top management include sexual misconduct, insider trading, fraud, bribery, and other forms of commercial crimes.  The first is brought about by a sense that the rules do not apply, and the rest is due to an environment that rewards profits over values.  They do not arise in a vacuum.  Incidences like this affect morale.  They also affect the bottomline long after the offender is ousted. 

Ethical standards and values must always be explicit, and constantly reinforced, from the highest level down.  At the same time, we need to address the pressure to perform.  This means exercising some form of patience at a strategic level.  Companies are guilty of unrealistic deadlines, overly-optimistic projections, and outright fabrication of forecasts to justify management decisions.  There is too much emphasis on giving value back to shareholders at the expense of other stakeholders such as employees.  Remuneration packages are performance based, skewing towards financial performance.  This encourages risky behaviour, and short-term profits over long-term gain.  All of this undermines the company culture. 

To address these risks, there are steps that have to be taken.  The first, and most obvious, is to secure the explicit and legally enforceable commitment of all employees, from the board level down.  The board must be seen to embrace and advance these values.  These values have to be named and expounded upon.  It should be part of Compliance. 

Corporate culture is not something that should be allowed to develop in time.  It must be planned, cultivated, and nurtured.  This begins with documentation that defines it, and programmes to cultivate it.  Company culture is something too important to be left to any one department of the company.  It is a multi-departmental effort involving groups as diverse as Human Resource, Legal, Compliance and Corporate Communications.  It should be headed by someone who reports directly to the board.  External stakeholders must also be engaged as part of the process, from staff unions, to the vendors, because they influence and are influenced by corporate culture. 

There should be a reward and proscription programme, with clearly defined standards of ethical behaviour, and explicit consequences for misconduct all the way to termination and legal action.  There has to be a known carrot and stick approach to this.  This should be part of the education campaign to nurture company culture.  None of this is left to chance. 

Company culture should be the foundation of the company’s market position, strategic development, and planning process.  It cannot be distinct from the core processes of the business, but its defining trait.  This means it is evaluated as part of KPI, and is measureable in terms of outcome.  Company culture done right insures the company against negative goodwill and scandal, develops talent and promotes growth.  Ultimately, our customers want to buy into our story.  It is our responsibility to give them one they can subscribe to.

Three Habits as a Foundation of Success

Growing a company or a team requires more than just ability and enthusiasm.  It requires a change of mindset, and a commitment to an overarching plan.  Without that level of commitment, a company or team cannot succeed and gain market share, or traction, depending.  Those commitments are built on small habits we need to acquire, individually, and as a team.  We begin with three habits to inculcate. 

The first habit we must acquire is the habit of effective communication.  Many examples of misunderstanding arise out of what is often left unsaid, which allows people to fill in the blanks with their ideas and notions, often borne out of a flawed perspective due to that lack of information.  Effective communication is borne out of two parts: what is said, and what is heard.  When we speak, in the context of leadership, the intent is to instruct, to inform, or to advise.  In all conditions, it should be explicit, clearly understood, with no ambiguity in salient points.  There is a lot of emphasis on this, because it is something overt and obvious.  The focus is on the self, and that is something very much within our control.  When we communicate, we wear the mask of the speaker persona, and we try and channel the people we represent, the team, so that they are invested. 

The second part of communication is listening.  Active listening is a lot harder than speaking, since the focus is on the other, and not the self.  When we learn to listen intently, we learn to communicate better.  Active listening is not merely about what is said, but how it is said, and what is left unsaid.  It is about understanding, also, how different members of the team, stakeholders and internal and external customers receive what is being said, and how they react to it.  People bring to any communication their unconscious baggage, and that must be factored into how we communicate with them. 

The second habit is continuous learning.  The world is changing, and that change is coming at an increasing rate.  It is important to appraised of current events, technological developments in related fields, business trends, market movements, and cultural evolution.  It is also important to have some form of grounding in general knowledge, business knowledge, industry-specific knowledge, as well as develop an appreciation of the arts, literature, history, and the natural sciences.  When we stop learning, when we cease to have that sense of wonder, when we forget to see the world in a new light, we ossify and stagnate.  It is insight that helps us develop our business strategies, see opportunities where others may miss, and find ways to disrupt the industry we are in.  Continuous learning is also found in regular training and sharing sessions, to inculcate that sense of curiosity and thirst of knowledge.  This is a value that must be demonstrated by leadership at every level, and be part of company or team culture.  Continuous learning is a value that drives innovation, growth, and research and development. 

The third habit is to develop systems.  Systems thinking organises the processes of what we do so that decisions are quick, dissemination of information efficient, and gathering of data is thorough.  Systems thinking is a trait that must be cultivated, documented, and implemented, so that the unavailability of some people does not jam the processes of the system.  Things still get done, people understand their contingencies, and morale is maintained even in trying times because there is always some form of direction.  Systems done correctly empower people, allow tracking of people and resources, and locate inefficiencies that can be addressed. 

These three habits are the foundations of building a successful company, organisation, or team.  We need to communicate, we need to learn, and we need to implement what we know and understand in a subscribable, replicable system, so that processes and quality is maintained, and eventually improve.

Capital Markets Prioritise Near-Term Gains over Long-Term Profits

Growing wealth is never a near term prospect.  It requires planning over an extended investment horizon.  Part of that planning requires consideration for untoward challenges such as economic downturns.  Recently, that included the lockdown brought about by a global pandemic.  Most people lack wealth, many people lack savings, and some even lack income.  As such financial planning for the long-term needs to look at the problem from an income perspective, then savings, and then we can talk about wealth challenges. 

These challenges at a policy level lead to income disparity.  The wealthier a person is, the greater the opportunities he is exposed to, the greater his financial education.  Over generations, with their networking, this leads to the entrenched income disparity of many communities.  When that income disparity is too large, it becomes a threat to the cohesion of the community because sections of it become disenfranchised.  When they are disenfranchised, they no longer feel that they are stakeholders in the growth and prosperity of the community.  This economic instability becomes political instability. 

Addressing income disparity on a societal scale is driven by policymakers.  However, it is still the responsibility of the individual to get financial advise for himself, and his family.  For his household, the fundamental function of this financial advise is to find efficient ways of deriving savings from income, and turning that income into wealth to be grown, and managed.  The extended investment horizon required for the individual and for household is measured in decades.  The contention here is that the investment horizon of securities and assets in which these savings are invested in is measured in shorter periods of time, in the form of years, months, or even weeks.  This needs to be considered in the financial planning process, when savings are turned into security. 

What this means in real terms is that the savings invested, while the intent is for many years, decades, are often in assets and securities that have an investment horizon of five years or so, an intermediate investment horizon.  This means they are actually bearing a higher risk than they would actually be able to undertake.  The capital markets are not actually structured to meet those long-term investment horizons because fund managers need to be compensated now, not then.  That means these very fund managers would prioritise a shorter term horizon over the longer term one to take profit share.  That means keeping those assets in these funds, extended until they meet that time objective, actually puts them at a disadvantage, and there  is significant opportunity cost.  Investment decisions made for the long term disadvantage those made for the shorter term, and vice versa.  Fund managers are taking their cut now, which means a lesser gain for the longer term.  This is the result of mismatched priorities. 

This problem is the same for companies as well.  Like individuals and household, companies have long term and short term needs, and allocate capital accordingly to meet those needs according to projections.  However, since capital markets still prioritise the near term over the long term, they lose much more, in real terms, because of that opportunity cost.  Companies, unlike individuals and household, also need to project for political risk and currency exposure, exacerbating the problem.  Companies investing over the longer term normally have an investment horizon of seven to ten years, not decades, like households.  However, the market’s dollar weighted average for standard asset classes, equities, properties, and futures, is, at most, five years.  It is a lot shorter for money market.  The only longer term ones are debt instruments, but they do not keep up with inflation over that investment period, since that is not what they are meant for. 

This near term focus of the capital markets leads to cyclical bubbles and periodic crashes.  They are tolerated because those who control the most capital use it to seize market share during these periods, fuelling further cyclical instability until there is a major crash, requiring market intervention.  There needs to be a paradigm shift in how we see the markets, and policy should be shaped to balance it out.  In a properly regulated market, asset managers and asset owners also invest to meet the long term investment horizon of clients, from households to major pension funds, to family trusts.  Companies are encouraged to invest in their future, in infrastructure and product development, as opposed to prioritising stock options and shareholder needs.  This drives the economy and grows GDP.  That is not happening now. 

In many markets, from the US to Singapore, we need to close that wealth gap.  We need to push for the sort of activist investment that shrinks that gap in investment allocation.  What we have now is often massively inadequate, and forces companies and trusts to shorten their own investment horizon for short-term gain at the expense of long-term growth.  This goes against their own interests and the subverts market stability.  That investment horizon gap must be aggressively addressed at every level, from policy to the individual. 

For policy makers, that means more regulation in some areas to curb speculation and over-aggressive investment strategies, more dialogue with stakeholders, and a mix of a carrot and stick approach to encourage a positive movement in the market.  For companies, they should pursue their long-term goals for strategic growth, and they should build toward these long-term goals through day-to-day activities.  

Fund and investment managers need to be cognisant that there is a market for long-term investment horizons, and they can take advantage of it.  This is especially important when we consider the increased disruption risks of long-term trends such as climate change, changing demographics such as ageing populations, and technology advances.  While we are in the fourth industrial revolution, we should also be prepared for the quantum age, which is upon us.  Funds and asset management companies need restructure their compensation to incentivise seeking long-term gains over short-term profits, as a means of balance. 

For individuals and households, they need a better class of financial advisors, to provide them with the sort of financial education they need to understand their needs better, and match it to what is available on the markets, or at least adjust their strategy over time, if a longer investment horizon is not available.  There needs to be more attention paid towards how we structure plans for retirement over an extended investment horizon, and mitigate risk such as critical illness, and medical inflation.  That greater financial intelligence needs to be cultivated over time.  Financial literacy is a process, not just for individuals and households, but also for financial advisors.

Insurer Participating Fund Expenses Need More Transparency

The issue we have is that investment-linked plan participating fund ratios are not directly comparable across insurers because they differ on what they use to calculate their total expense rations.  What one insurer may consider in the calculation may not be what another insurer does.  However, these are all expenses they have in common, such as marketing, management fees, taxes, and other costs, which have varying degrees of relation.  Some insurers release an aggregated amount from all their funds, so we may not have an accurate picture of the performance of individual funds.  This needs to be standardised and addressed, so there is more transparency.

It is Not a Matter of Growth or Value Stocks

The notion that stocks are either growth or value is a false dichotomy, used to market to retail investors.  It is the direction of the board, the market strategy, and product or service placement that tends to dictate that, and it is measures of both.  A better gauge of the long-term profitability of a stock is in the values of the company.  ESG is not merely a byword.  Companies that subscribe to ESG values are better at mitigating risk, especially in the areas of corporate governance.

Covid19 Claims Explode

Insurers in the UK were never prepared for claims arising from an entire nation’s economy being shut down for several months at a time.  This is a scenario that is being played out in many other nations.  Once they pay out those claims, we might see insolvency from smaller insurers, rising costs for reinsurance, and increased premiums for future coverage.  In the UK, insurers did themselves no favour by refusing payouts, and were taken to court.  Not only have they lost those court cases, but they will likely face resistance to increase in premiums.  This was handled badly, and is a lesson on how not to do it.

Mentoring: Fastest Growing Business in the World

Mentorship is a relationship between two people where the more experienced, the more knowledgeable individuals pass along what they have learned to their proteges or mentees.  In general, the mentor is always the more senior. 

Mentorship done right is a short cut to success.  As such, especially in business, senior management, founders, and leaders look for mentors to guide them, and more importantly, connect them to the mentors’ networks for further success.  Mentorship is a growing need.  As more people recognise the need for good mentors, this creates demand.