After over 20 webinars over the last four years Linchpin mounted our first ever in-person round table in the delightful River Room at King’s College, London. The subject was ‘Alpha that endures – the Role of Feedback, Failure, and Fear': we wanted to explore what makes an effective culture in an asset manager and how important that is to generate long-term alpha.
The session was co-hosted by Aoifinn Devitt and William Bourne and our panellists were:
Mitesh Sheth, CIO for Multi-Asset, Newton Investment Management
Paul Richards, Founder at Better Decisions
Deirdre Cooper, Head of Sustainable Equity, Ninety One Asset Management
The importance of Psychological Safety
We started off by exploring the topic of Psychological Safety, a subject that is more familiar within other areas than in the context of asset management. It was described as interpersonal risk, or the ability for all members of a team to be vulnerable and admit one is wrong or does not know. In a famous Google case study, it came out as the most important of five factors in predicting successful outcomes, in effect, the glue which makes teamwork work. As one panellist said, even smart people sometimes look in the wrong places.
We then turned to how this might work in practice. The panel was clear that company websites are the wrong place to start. Strong cultures are about how we interact as people, and not what we say. It was described as ‘what happens when nobody is watching’ or ‘the smell of the place’. We all know what a weak culture looks like – the Post Office Horizon enquiry going on at the moment offers a fascinating ‘fly on the wall’s eye’ view of one. It will vary from company to company, and not all cultures will suit all people. Recognition of team members’ contribution is an important element, because the knowledge that they are respected allows them to be vulnerable.
It starts with leadership by example
We discussed whether ‘active’ managers have an edge in the understanding of strong cultures over quantitative or passive strategies which do not require teamwork and debate in the same way. Strong leadership is essential, but it must also be authentic: the point was made that the younger generation are quick to pick up when leaders do not act as they speak.
But effective leadership of people is hard. How to deal with the confident alpha male who has an instant answer to everything versus the more thoughtful and reserved person who wants to consider it for 24 hours first? One technique mentioned was to ask the least knowledgeable person to speak first.
We asked about the importance of training and feedback in culture. The panel was clear that feedback should be personal rather than using online metrics and processes. Training can help but is not essential. We also discussed the importance for leaders to receive genuine upward feedback – a mark of true psychological safety. But there are many examples where leaders hear what people think they want to hear – even in industries where the concept is more familiar than asset management. The suggestion was made that it is more helpful for leaders to ask subordinates for help in improving their own interpersonal skills rather than ask for feedback.
It is not the same as being nice to each other
We need to be clear that an effective culture is not always the same as being polite and nice to each other. It is vital for everyone to be able to say what they really think, and the ‘cancel’ culture is a real threat to this. A team which has worked together for many years can be more robust in conversation because they each have respect for each other. Psychological safety is not always obvious from the tenor of the conversation – what sounds harsh to the outsider may actually be more rewarding. But it is important for all to show some grace when listening and focus on what the speaker wants to get across rather than their precise words.
There are many ways cultures can go wrong: a focus on market metrics; over-confidence; lack of authenticity among the leaders; the wrong incentivisation; a ‘star’ culture; and the leaders becoming hostages to the portfolio managers who have historically brought in significant assets. Working From Home also poses a challenge, especially for younger cohorts. On the other hand, a new CEO can turn things around quickly by making it clear what behaviour he wants to encourage or discourage: employees will soon follow.
Does a strong culture translate into sustainable alpha?
There was a challenge from the audience whether there is any evidence that culture translates into sustainable alpha. The panel agreed that it was hard to find conclusive evidence, perhaps because alpha itself was so hard for a manager to deliver when retail fees are so high. One panellist divided alpha into portfolio alpha (the ability to select outperforming stocks) and organisational alpha (the culture).
We moved on to the question of sustaining alpha. What happens if long-standing managers get tired, or hubristic? Do investors end up paying the price? We could all name examples of the latter. But the panel thought that it was possible for culture to evolve and to survive when leaders moved on. There were several anecdotes from the audience to demonstrate how far we have come and how much more time we spend on softer subjects such as culture. The question leaders need to ask themselves is where do you want your organisation to be when you have moved on?
We looked at the role of devil’s advocates, there to encourage diversity of thinking. Cognitive diversity is important in discouraging comfortable groupthink, but disagreement can be difficult. The panel suggested focusing on what is agreed and what is important and not getting distracted into byways. Sometimes (especially senior) managers feel they have to make a point in a discussion when silence would be more helpful.
More on diversity and inclusion
We ended up returning to the importance of diversity and the difficulty of recruiting to create a genuinely diverse team. Applicants at interviews tend to say what they think their interviewer wants to hear, when it would be more helpful if they were honest about what they are and aren’t good at. One panellist recommended team risk profiling, so that the gaps can be filled.
The discussion was most enjoyable, mainly because our audience asked so many high calibre questions. We found it easy to agree on the advantages of an effective culture and of psychological safety within that. However, we noted that there is still a lack of hard evidence to demonstrate that it results in better outcomes for investors.
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