Outside-IN

3 traits the best investment cultures all share

History has proven that talent is not enough, and team chemistry is what differentiates investment firms

Nov 13, 2014 @ 3:52 pm

By Michael Roberge

If you don't think culture matters, take a look at the team-first San Francisco Giants, who recently won their third World Series in five years. Sure, the Giants have a few big name players, but their run of championships is defined by a roster of players who are solid contributors but certainly not household names outside the Bay Area. This has driven a consistent, complementary culture of team-first players, an impressive and refreshing achievement in an era of big-name player movement in most professional sports.

Team chemistry in the corporate environment is no different. A CEO will tell you that culture – the values, behaviors and beliefs that pervade the entire organization – is what differentiates a company today.

A strong culture matters — particularly for an investment firm, where people and judgment are your greatest assets. In fact, research done by Focus Consulting Group showed improved decision-making, along with attracting and retaining talent, to be the most tangible benefits of a positive culture.

The best investment cultures are built on collaboration, humility, and mutual respect. There should be no star managers — only teamwork, equality and a healthy exchange of ideas.

Diverse views actually lead to better decisions because multiple perspectives and different analytical approaches often produce better outcomes. In order to benefit from those diverse views, however, you need to build teams thoughtfully and create an environment that supports idea exchange. This team approach is even more important today as businesses become more global and supply chains become more complex. Cultural and gender diversity are a fundamental ingredient for any successful global investment firm. Equally important, but often overlooked, is cognitive diversity, or diversity of thought.

The way you share these different views matters as much, if not more, than the willingness to allow them. "Group-think" is an easy trap to fall into and the only way to defeat it is through constructive debate. By debating together instead of acting alone, you can avoid individual biases, promoting an environment that can help generate better investment ideas.

However, diversity is not good when it comes to cultural values. You cannot debate investment ideas thoughtfully unless everyone is trying to reach the same end goal. Research on team building shows that common cultural values form the bedrock for cognitive diversity, which can lead to differentiated performance.

An investment firm's beliefs and philosophies should be ingrained in its behavior. If you believe a longer-term investment horizon is the key to consistent success, your culture must support it. You must reward long-term outperformance, tolerate short-term underperformance and adhere to an investment process and team orientation that supports these objectives. And this needs to come from the very top of the organization with appropriate frameworks in place, such as an incentive structure aligned with a longer-term view.

Increasing globalization and complexity has made collaboration and teamwork absolutely essential, not just around the globe but also across capital structures. Equity and fixed-income analysts working together, sharing perspectives and debating a company's capital structure can provide a more powerful perspective on a company's intrinsic value.

Some of the most underachieving teams are those that were built around a collection of talented stars – with little regard for chemistry. History has proven that talent is not enough. If you want a collaborative culture to work, it needs to be part of the very fabric of the firm.

Hiring and retaining people aligned with the firm's goals and approach is the foundation of any successful investment management firm. You must consistently align incentives with your investment and business objectives and keep performance measures transparent and create a culture of meritocracy. Firms own their culture and it's up to the entire organization to keep it alive.

Michael Roberge is president and chief investment officer of MFS Investment Management

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