Culture & Compliance Chronicles: How Corporate Culture Drives Investment and Performance Outcomes

On this episode of Culture & Compliance Chronicles, Amanda Raad and Nitish Upadhyaya from Ropes & Gray’s Insights Lab, and Richard Bistrong of Front-Line Anti-Bribery, are joined by Stephanie Niven, a portfolio manager at Ninety One, for an engaging conversation on the significance of corporate culture as a source of competitive advantage and its role in driving sustainable investment returns. Stephanie shares her insights on the importance of diversity, equity, and inclusion (DEI) in the investment space, the evolution of ESG expectations, and discusses the framework used by Ninety One to assess (not measure!) and influence corporate culture. The conversation offers a deep dive into the practical aspects of fostering a positive corporate culture and its direct impact on business performance and investment success.

Amanda Raad: Hi, everybody. We are back today with the Culture & Compliance Chronicles brought to you by Ropes & Gray’s Insights Lab. I’m Amanda Raad, the co-founder of R&G Insights Lab and co-chair of Ropes & Gray’s anti-corruption and international risk practice. I am joined today by my colleague and R&G Insights Lab director of behavioral insights, Nitish Upadhyaya.

Nitish Upadhyaya: Hello. We are also joined today by our co-host, Richard Bistrong, chief executive officer of Front-Line Anti-Bribery. It’s really nice to be recording back with you again, Richard.

Richard Bistrong: Likewise, Nitish and Amanda. Nitish, who do we have in store today?

Nitish Upadhyaya: Joining us today is Stephanie Niven, a portfolio manager at Ninety One, an active global investment manager which focuses on making a positive difference in the process of generating returns. I was introduced to Stephanie following a discussion around culture as a source of alpha in the investment space, and we’ve since had some really thought-provoking discussions on everything from diversity on boards to how to prime employee resource groups to drive innovation and connection. Welcome to the show, Stephanie.

Stephanie Niven: Hi, Nitish—thank you for having me. Hello to Richard and Amanda as well.

Nitish Upadhyaya: Let’s do a bit of a rapid-fire round. Give us three things we should know about you.

Stephanie Niven: The first thing to know is that I’m a mom of three—ages four, six, and eight—and that I thought it would be interesting to tell you about a recent homework project I did with my middle child. The brief was to make a shield that represented the family motto or tagline. Now, for someone as creatively challenged as me, that’s quite a task, but it’s even harder, I would say, for a six-year-old. After much family talk, we came up with the idea of a family tagline that’s, “Making the most of every opportunity,” and I think that’s really how we try to live as a family. The second thing is that I love sports. I love swimming. I love water polo. I love triathlon. I love a parkrun. The final thing I’d say is that when something’s meaningful to me, I go all in. My son swims, and I’ve just qualified as an official timekeeper. I care passionately about free thinking, and so, I was a board member of Humanists UK. And I currently represent my company, Ninety One, on the diversity, equity, and inclusion committee for the Investor Leadership Network, and that’s a global platform that brings together asset managers/asset owners to try and drive some change to our industry.

Nitish Upadhyaya: Amazing. What’s one thing you’re curious about?

Stephanie Niven: I’ve always been really curious about how, and in fact, whether it is even possible that people can come together as a team, and as a team drive improved output relative to the individual. I do think there’re a lot of interesting angles and perspectives to consider here—who’s on the team, the terms of engagement of that team, competing and shared motivations. In fact, I suspect there’s no single right answer as to how teams function—it will have to do with the changing circumstances, building enough trust between individuals in how to cooperate and share expertise.

Nitish Upadhyaya: Lastly, before we jump into some of your work that has really intrigued me, tell us the last thing that surprised you.

Stephanie Niven: It’s the extent, or really the persistence, of this backlash against DEI, which I think you’re feeling a lot in the U.S., and we’re increasingly beginning to feel it in European circles as well. Perhaps the reason it’s arisen is because we’ve had this divorce of DEI from investment returns, from performance, from value creation, and I think what we’re going to see is much more focus on the business case. We can’t just focus on, “We should be doing DEI because it looks good.” We’re going to start seeing a lot more of, “What does it drive? How does it improve returns? How does it improve team outcomes?” I think what’s going to be really interesting is how these companies respond, and particularly, this idea of DEI interweaving with culture, interweaving with how companies innovate, and how companies competitively advantage themselves.

Nitish Upadhyaya: That has laid the groundwork wonderfully for what’s to come, but let’s give the listeners a chance to be introduced to the global sustainable equity fund that you manage, and tell us a bit more about it.

Stephanie Niven: Sure. I’ve been at Ninety One three and a half years now. Ninety One is a global asset manager, and we have two things that I think are really unique about the company. Firstly, we were founded from South African roots, so our heritage is from Johannesburg and from Cape Town. We’re dual listed in Johannesburg and in London, and that difference really permeates how we think about the world today. That’s really, in part, driven the development of the strategy that I run, which is this idea that you can think differently about the future, but in doing so you also need to bring other stakeholders along. In South Africa, we see a lot of the social impacts of energy transition or water scarcity, and all the kind of ramifications of that. That’s led to quite a progressive way of thinking about different stakeholders and really building an authentic, sustainable future. So, that’s one thing.

I think the other thing that really differentiates Ninety One is our CEO, and the CEO founder culture that still is alive in the business today. Ninety One is a business that’s really growing very organically, which is quite different in the asset management space. Our CEO who founded the business in 1991 is still in place today. That culture of him knowing everyone—we have around 1,300 employees and he knows them all pretty much by their name—it really permeates the business with this culture that individuals matter. You understand where you fit in the strategy of the overall business, but you can also be yourself and bring together the differences—and sometimes the divisions—that really makes quite an engaging and exciting place to work. That’s the backdrop to the company.

Two and a half years ago, we launched the Global Sustainability Equity strategy, which is an equity-focused, high-conviction, long-only, actively managed strategy that really looks to find businesses that have three things: they have sustainable drivers in structural growth, they’re competitively advantaged—by which I mean “culturally advantaged”—and they generate sustainable returns. So, that’s what we’re trying to do—we’re trying to generate our clients an investment return that’s predicated on those three things, and hopefully, deliver that return alongside delivering a better, more sustainable future.

Nitish Upadhyaya: Those three steps with the strategy—I think the former and the latter—I suspect people will understand quite quickly, but would you expand a bit upon that middle rung of the strategy, some of which you elaborated as “culturally advantaged?” What does that look like? We’ve had this conversation before around culture as a driver of sustainable alpha. Where does that sit in your world?

Stephanie Niven: Part of my investment philosophy is that we think the stock market doesn’t price very well elements of competitive advantage. What I mean by that is the stock market doesn’t understand very efficiently how different companies can be. Companies can be competitively advantaged on things like scale—where they’re larger, they can use their size to better generate good products, cheaper products, and better returns for customers. One thing that we’ve really done a lot of work on recently is thinking about culture. How do businesses best position their workplace organizational structures to engage to motivate their employees and really drive better growth, better innovation on the back of that? Now, that’s something that’s not often thought about. If you look at the balance sheet of any reporting company, the people aren’t on there. So, the whole element of human capital, how those people feed into making those businesses distinct from one another, different from one another, isn’t captured very well by the market. We think that that creates a real investment opportunity. And being able to look at culture, being able to look at competitive advantages hopefully gives a lot of alpha potential to the strategy that we run.

Nitish Upadhyaya: There’s a lot of complexity, I always find, in culture and for people to even get their hands around what it means. I think you articulated a number of different facets of it, but you use a bit more of a framework to help guide this decision-making, and you’ve steeped yourself in academic research as well as market practice. So, tell us more about how you dive into the world of culture from a practical perspective.

Stephanie Niven: Sure. I’m glad you bring up I’m not an academic in the space—I’m very much an investor, and I’m very much building on that investor’s perspective, trying to look at companies effectively from the outside looking in. I’ve been a global equity investor for 20 years now—or 19 years, I’m rounding up—and over that time, I’ve always looked at companies, and I’ve felt that there’s something that differentiates one company from another that you can’t, as I said, always find in the balance sheet. But there’s something that can give a flavor between two very different companies. One’s generating a lot more growth, a lot more resilience than the other company. Increasingly, I began to think, “I can’t find that clue on the balance sheet, so maybe there’s something beyond the balance sheet. Maybe there’s some non-financial data that is driving this difference.” I think that became stronger as we began to see the global economy move much more towards a knowledge-based economy, much more of a people-based economy. If we rewound back 20-30 years, actually, companies were much more asset-heavy in the traditional balance sheet sense. People have become a lot more part of what makes a business in today’s world. So, I had the sense that there was something beyond the balance sheet.

Since I’ve come to Ninety One—I’m part of the Sustainable Equity Team here—we’ve done a lot of thinking around this idea that there’s something beyond the balance sheet. What we thought it was is culture. As you said, it’s very difficult to define culture. If I ask the four of us on this if we could define culture, I think we would all have different answers, and all of our listeners again would have very different answers. So, we said, “If we want to use culture, if we want to build a framework with which we can assess culture and think about culture as part of our investment process, we needed to do some work to understand the evidence, to understand the definition, and build ourselves this framework.” That’s really where we started, and that’s where we have spent a lot of time thinking, talking to academics, and building out effectively an investor’s guide to assessing culture in companies that we invest in.

Richard Bistrong: Stephanie, thank you so much for that. I don’t know that we’ll solve the definition of culture today; however, you did use this word “structures.” I’m curious, have you seen any organizational structural best practices that have driven a positive impact on culture? For example, can you incentivize positive culture? In your Culture as a driver of sustainable alpha paper, which we’re going to put in the show notes, you talk about recognition as one of your features of a strong culture. So, I’m interested to know, and for our listeners, what are some of the structural best practices that you’ve seen?

Stephanie Niven: Richard, you just helped me out there by hinting at how we understand and define culture. You’re exactly right that I didn’t actually get onto defining culture, but let me give you a bit of a map on culture. I think there’re two extremes in thinking about culture. At one extreme, we have behaviors—how people interact, how people behave in the office. On the other extreme, we have values—how people think, their ethics, how they feel about things in an office. Neither of those things can I assess from the outside looking in as an investor, but in the middle is something called “organizational structures/workplace practices,” and that is the definition of culture that I use. So, I understand culture as the workplace practices within a business, and conveniently, using that definition of culture, I can then look into companies, and I can build. And that’s what we did—we built our framework around those structures.

There are structures in businesses that I see as having strong and appropriate culture—clues that these things are going on—and I would loosely group them in four areas. The first area would be ownership mindset—structures that give employees this idea that they can be entrepreneurial, they feel part of the business, and what they do matters. The second thing would be recognition—that’s not just how people are paid, but also understanding when they’ve done great work. Me sitting next to someone and saying, “Great job. Really appreciated that.” That softer kind of element that really can drive motivation a lot higher. Not everyone’s motivated solely by money—there are different things that motivate us as humans. The third area would be workplace structures that promote trust. Those are things that are really communication devices—town halls, efficient communication of strategy, but understanding where the business is going that plays back into that idea that you matter to the business as an employee. The final bit is support—the kind of benefits, the training, the more traditional bits perhaps of how one might think about culture in a business, but the bits that effectively enable someone to be their best self at work. There’s lots of different people in businesses—we need to not just treat them the same. Sometimes, we need to bring in these elements of equity and think about who needs more help, how we can best level up playing fields, and really just trying to understand our employees as individuals and how we can motivate them because motivated employees drive innovation and drive growth.

Nitish Upadhyaya: That is a wonderful laying out of so many different facets of culture. How do you go about weighting them, or how does that fit into your thought process?

Stephanie Niven: The idea of “weighting” automatically leads us into this area that we talk about a lot, which is measurement of culture. My view—and this is the view that my team shares, and Ninety One as a whole—is that you can’t measure culture; however, you can assess it. We do not believe that you can say, “X, Y, Z company has a culture of four out of five”—that doesn’t really capture the fullness of culture, the difference of culture. But if you build a framework that you can use as an investor, that you can use as your lens to effectively do your fundamental analysis on businesses, then you can bring in this qualitative combined with quantitative assessment of culture. So, what we really do is look for companies that are good across these four principles that I laid out. We look for companies that broadly have a strong holding in ownership, strong in recognition, strong in trust, and strong in support. Then, what we would do is say, “That’s a universal lens, so we expect all companies that employ people—which are pretty much all companies—to be strong across those four principles.” But we introduce another lens, and that’s to say, “Actually, we can build on that universal lens and build out a contingent perspective.” What that does is it says, “What is the business model of this company? What industry is it competing in? How important is it to innovate, relative to perhaps providing high quality service, relative to perhaps being very skilled in cost and risk?” So, those are three different ways of thinking about business models.

In a business, like the media perhaps where we need a lot of innovation, we actually want a lot of ownership mindset in those sorts of businesses. We want people breaking rules. We want them pushing on established norms. We want them coming up with really game-changing ideas, products, services, and ways of seeing the world. However, if we are looking more perhaps at a mining company, one that I would say is a cost-risk business, we don’t want much innovation. We don’t want much tampering with the mining side. We don’t want people trying out ideas of which bit of the pit to blow up. So, that’s a business where there’s less emphasis on something like ownership mindset, but there might be more focus on recognition (people doing a great job) or more focus on perhaps trust (people understanding that it’s very important that they follow the rules to reduce the risk), but they are still a super important part of that business. When I circle back to answer your question of how do we weight things, the answer is, predictably, that it depends, and it depends on the business model, and it depends on the setup of that company.

Amanda Raad: I love hearing about all that, Stephanie. One of the things that I always ask is, “How open and transparent are you with the companies that you’re working with?” You just laid out so clearly all the different areas that can be helpful when you’re thinking about the analysis. Do you communicate back where in that journey a company may be so that over time, they can participate in trying to move along the journey that you’re hoping that they will continue to move along over that trajectory, and how do you do that?

Stephanie Niven: As a sustainable investor, part of my theory of change, or part of my idea of how we move towards a more sustainable future is very much to engage with companies, to talk to companies about what we’re finding, what we’re seeing, and where we think there are levers for them to effectively drive growth or really encourage capital allocation and talent allocation into different areas. We definitely share our culture findings with companies because we believe that, in doing so, we can encourage, nurture, and perhaps nudge corporate culture in a stronger, more appropriate direction. We always explain that it’s something important to us. We explain why it can be part of a competitive advantage. Effectively, we have very open and transparent conversations with companies.

As investors, we can’t talk to everyone—we have to be careful about non-public information—but where we can speak to employees, we will talk across the range. If we’re talking to the CEO of a company and they say, “That’s a culture question. That’s not one for me,” and direct us down the hallway to someone in HR—what an interesting signal that can be in itself. We have 13 different questions that we’ve built out from our framework, and we tend to drive conversation around those questions. Now, it’s not to say that those 13 questions are a questionnaire because they are not. We do not send it out and say, “Please tick the boxes.” We are saying, “We want to have open conversations around these ideas.” We have a very strong organizational development team here at Ninety One—we built those 13 questions with input from that team, and that’s been really useful for building those questions in quite an open way. So, instead of saying to a company, “What is your training policy?” I will say something much more like, “In which way do you orientate your benefits package to best motivate your employees?” I’m looking for a company to say, “Actually, we’re doing something that our employees want, that our employees are motivated for”—effectively shaping themselves around employee need, rather than just saying, “Here’s our package. Off you go.”

Amanda Raad: Have you seen, to the extent you can comment on this, any change over time? Has it gotten easier to have those discussions around culture, in particular, or kind of the same?

Stephanie Niven: I think broadly, it’s improving. I think there’s a lot more interest in these ideas. I think, as I stated earlier, we are moving increasingly toward this knowledge economy where people are important, and I think management teams are beginning to hear that. It’s easier when you build up a longer-term relationship with management as well. We typically are long-term investors, so we talk to our management teams frequently—we talk to them over a period of years. One thing we sometimes do is we will write letters to the board as well, where we will share evidence and really say, “This is why it matters.” A couple of years ago, we did something where we looked at parental leave, for example, and how there’s quite a lot of evidence that suggests that parental leave is positive for motivating staff—not just staff that are parents, but also staff who aren’t parents. That’s quite an interesting study, thinking about the evidence there. When you can present it in evident terms and when you can make a business case and really give that link of more motivated staff typically are more innovative, and that’s what we need to really drive growth in our global economy, I think that really begins to get management’s attention.

Richard Bistrong: Interestingly, a lot of our listeners today, Stephanie, are coming from ethics and compliance teams. They don’t own trust, they don’t own employee engagement, yet they’re often tasked and responsible for driving it. So, it’s a bit of a conundrum there, having responsibility, but not truly owning it. The good news is, as Amanda was sharing earlier, we weren’t using words like “trust” and “employee engagement” ten years ago. Even though they may be very broadly defined right now, at least they’re in our ethics and compliance vocabularies.

Stephanie Niven: For some companies—not for all though, right?

Richard Bistrong: I stand corrected. If you were sitting down with an ethics and compliance leader, what are some of the things that you might share with them to help their organization drive higher trust and to drive higher employee engagement? As you shared before, the CEO sending something to HR around trust, that’s not a good signal. So, what are some of the good signals and some of the good drivers?

Stephanie Niven: I think the first thing that I’ll highlight here is that it should be employees first. I really think that the most effective companies in driving change or driving motivation engagement really are those companies that start from the employee level and say, “How can we best help employees to be their best self at work?” It’s that sort of mindset of starting from the bottom and looking up. One example of a company that we looked at when we were building out our culture framework was Home Depot—the idea of this inverted pyramid and the idea that the head office served the employees is that kind of mindset. So, you start with that mindset. I think the second point I would make is that it takes time to enact change. There aren’t quick fixes. It’s not an overnight, snap your fingers, and everyone feels great. But it is that commitment that, “We want to make change. This matters to us as a company, and these are the steps we’re making.” The final thing I’d say on that point is you always have to keep changing. One thing I often find with the companies with really strong and appropriate culture is they often think about things like Kaizen, Six Sigma, and Lean. They’re often trying to change things all the time because they always think that things can get better. So, leaning into those ideas that there’s no fixed, static perspective—that actually, the strongest culture changes. It moves with the employees—it brings them in, it includes them, and it continues to iterate. What I think is really interesting is it often iterates from the bottom up, so companies like NextEra or Schneider Electric that have this really strong way in which employees right at the lower entry levels can drive change very quickly from the bottom going up, that’s when you really see that compelling culture come through.

Nitish Upadhyaya: We talk a lot about meeting people where they are and hearing the stories that employees are telling about their work and their practices. It’s so nice to hear you say how, in your experience, that’s driving change, innovation, and success for some of those companies that are taking the time to put in place the mechanisms for hearing what people are saying and responding continuously. In the ethics and compliance space, we have really seen expectations and realities shift, moving more towards that way of thinking about things. What do people actually want to be trained about? What is the biggest risk? Where are they ending up? How could we help them do their day jobs and support them in improving the business? That is fundamentally, I think, the direction of travel, but expectations and realities shift in all of these industries.

Given where you’re at, I think it would be remiss of us not to focus on ESG expectations and realities more generally, going back out to the macro space. How have you seen the discussion move over your time in the space, and where do you think things are going? You touched a little bit on the DEI space as well, so why don’t you help wrap that up for us?

Stephanie Niven: With regards to ESG and sustainable investing, I think we’re on the third way of thinking in this space. The first way of thinking about ESG was very much an exclusions-based approach. “These are bad industries. We shall not own bad industries. Okay, just exclude them.” The second way of thinking about ESG and sustainable investing was much more on this scoring, ranking, measuring kind of notion. So, thinking, “We’ll overweight those businesses that have high scores. We’ll underweight those that have lower scores.” Now, what’s interesting about both of those approaches is that neither is built in any way to really drive returns—those are more ethics-based, more detached from business reality, I would say, and they also don’t lead perhaps to portfolios that are very different to benchmarks. Benchmarks are how active investors compare and monitor their performance.

What we’ve done in this third way of thinking about ESG and sustainable investing is really starting from, “How can we build portfolios that are really meaningfully different from the benchmark and worthy of active management fees? But also, how can we build them in a way where the alpha potential is actually in the sustainable insight?” I think we’ve moved a long way from where we were 20-25 years ago, into this way of thinking, “Actually, is there a way in which we can bring in sustainable insights, ESG insights, culture insights into how we invest that drives return for investors?” I’m proud of the industry in how we’ve moved away from that focus on metrics, that focus on scoring, that focus on exclusions, and said, “Actually, how can we build this into an alpha-generative process that meets two goals: the alpha return for the clients, and also driving towards a more sustainable future?” Culture is one of the ways in which we do that. So, looking for businesses with great cultures that motivate employees, that build that kind of positive ecosystem of employees as a stakeholder, but also drive that innovation, that drive that growth—those interesting products and services we need to see—to tackle a lot of the sustainable challenges out there in the globe. We’ve gone on quite this long journey, but I’m really hopeful that now we’ve got a grown-up industry that really reflects those kinds of elements of social and business values together in a successful way of investing.

Nitish Upadhyaya: It really does sound like we’re at a bit of a watershed point in this new journey—I think the third stage that you described is interesting. I’m looking forward to seeing over the next couple of years how that discussion matures and how folks like you and Ninety One are leading the charge on something that is actually actionable, tangible, and has a real world impact alongside, as you said, returns for investors. There are so many takeaways as we come to wrap this up, but I’m going to ask Amanda first: What is your biggest takeaway from Stephanie’s wise words?

Amanda Raad: There are so many takeaways, it’s hard to choose, but I think it’s a combination of a few of them that are really sticking with me. One is the freedom to actually focus on the individual experience. I think so often, we get so twisted up on trying to look at the big picture, that we lose the human factor. And so, I love how much you’ve brought that into everything that you’ve talked about. Then, also, just the fact that things do always keep changing. I think we have to lean into that because I think a lot of times, people are afraid to try different things because they commit to there being one way or the only way. So, I think those two things together really resonate with me and make a big impact when you’re thinking about culture and how to actually work with it and make it really work for your advantage. Thank you.

Nitish Upadhyaya: What about you, Richard?

Richard Bistrong: What a wonderful discussion. Stephanie, I think there’re so many great best practices here. I appreciate your sharing that culture is a journey. I think a lot of organizations look at it as, “We want to get great culture as a destination.” It just doesn’t exist. And you’re calling out the employee-first mentality and mindset I think is so critical. Some of my clients use that servant leadership model: “What can I do to support you” not, “Here’s what you need to do to support me.” You’ve called out some wonderful companies there, so I think that it’s not abstract—you’ve helped to really make it real. That employee-first and that journey of culture I think is critical—those are wonderful takeaways. Thank you so much.

Nitish Upadhyaya: For me, the very pithy takeaway is culture as an advantage, and really framing it in that way helps us maybe move away from, “It’s going to cost us this” or, “We’ve got to do this” or the tradeoffs that people often talk about. So, thinking about it in that frame is one I’d love to continue with. Thank you for a really stimulating and enriching conversation. I now have so many more things on my list to talk to you about when we next catch up for coffee. Before we leave you, where can listeners find out more about you and your work?

Stephanie Niven: Ninety One’s website is a great place to start. We have our own podcast series on there as well. We really try and think about different ways to drive a sustainable future and dive into different insights across different stakeholders and pull those fascinating ways in which we can pull leaders and drive change going forward.

Nitish Upadhyaya: Amazing. I know I’ve already checked out a few episodes. A few more are on my list, and I hope listeners will be journeying their way to that podcast as well. Thank you all for tuning in to the latest episode in our Culture & Compliance Chronicles series. For more information about our series and any of the ideas discussed today, take a look at the links in our show notes. You can also subscribe to the series wherever you regularly listen to podcasts, including on Apple and Spotify. Amanda, Richard, and I will be back very soon for our next chapter. If you have topics you’d like us to cover or novel perspectives you want everyone else to hear about, get in touch. Thanks again for listening. Have a wonderful day and stay curious.

Show Notes

Culture as a driver of sustainable alpha (Hamilton, Niven): https://ninetyone.com/-/media/documents/insights/91-culture-as-a-driver-of-sustainable-alpha-en.pdf