· 2 min read · News

Investor interest in culture on the rise


HR is thrust into the spotlight as the investment community looks for information around culture to help make valuations.

Investors are increasingly taking cultural factors into account when making company assessments and valuations, but defining culture remains a challenge, according to research seen exclusively by HR magazine.

The Culture Counts report, by culture consultancy Walking the Talk and investment consultancy Stamford Associates, found 94% of investors who responded to the research said culture plays an important part in their investment decisions. Only 6% said it played no part, and 66% said they could recall at least one case where culture had affected a company’s valuation, positively or negatively.

However, the research raises questions over the definition and measurement of culture. While 60% of investors said they were familiar with the definition of culture, a diverse range of definitions emerged. Some confused engagement and culture.

Walking the Talk European regional director Amanda Fajak said the research has “pointed out a real dilemma”. “Culture is important and should be taken into account when valuing companies, but [the definition] is nebulous, so analysts are perhaps not talking about it,” she said.

The research found that more sophisticated investors with an interest in culture were using a more triangulated approach to build a fuller picture, rather than relying on potentially biased sources like speaking to senior leaders. Respondents who rated culture as important used 5.9 sources to assess it, compared to 4.4 sources among those who considered it less important.

Fajak said bias remained an issue: “A lot of the sources investors are using are quite biased and what leaders say has a disproportionate impact – but the more sophisticated investors are stress-testing that.”

Former National Grid director of investor relations (IR) John Dawson told HR magazine culture was “a very difficult thing to assess” when relying on data provided by an organisation. He said that he had noticed some investors spending more time and resource on third party research.

“They are talking to former employees, using testimonials rather than data,” he said. “It’s a pragmatic approach. It is expensive but it yields results. More responsible investors are trying to triangulate testimonies.”

The report advises HR directors to “strive for consistency at all levels” and focus on culture and behaviours beyond leadership. Fajak said she believed the findings of the research “give HR more of a voice at the table”.

“Culture is starting to impact on organisational value, so HR [can build a case] for measuring it,” she added. “It’s no longer acceptable for a CEO to say they don’t know about the culture and behaviours in their organisation. Imagine if they said that about profits.” 

Both Fajak and Dawson called for HR and IR to work more closely together. “HR and IR have never needed to be great bedfellows, but this is an opportunity,” said Fajak. “If you have a great culture, how do you make sure the market knows about it in an authentic way?”

Commenting on the report, Legal and General (L&G) group HR director Elaine MacLean told HR magazine the findings were “no surprise”. L&G is an investor and MacLean said that she was aware from conversations with her corporate governance team that culture is explored when making investment decisions.

“From an HR perspective I think this is great news,” she added. “The challenge is how we get analytics that show that culture does make a difference, particularly when the impact tends to be over the longer term rather than the short term. We have translated culture into values and behaviours to make ita less nebulous concept.”