Spring EO 2018 Meeting Report: Culture Shift
“Leadership requires the courage to make decisions that will benefit the next generation.” – Alan Autry
(click here for a print version) Every leader makes several transitions in their life, and every organization, if it is successful, experiences a succession of leaders. As tempting as it is to focus entirely on getting the next deal, the next capital raise, or the next quarter, the challenge before every organization is to think long term. Transition, succession, and change is not an exit, but a foundation. It’s not about you, the leader, but your organization, your clients and your constituents. Are you courageous enough to make the decisions that will benefit the entire community of your company?
In February, leaders from across NAREIM gathered at Torrey Pines in La Jolla, California to reﬂect on leadership, culture and how to improve personal leadership approaches. Below are a few of the insights shared.
What drives strategy?
The culture of a company may be the single most important element of a company’s success, and yet it is often the area to receive the least amount of day-to-day attention. But what is culture and how should a leader work to build it? Michael Curran of Curran Advisors offered his definition of culture in contrast to strategy: “Strategy offers a formal logic for company’s goals and orients people around them. Culture expresses goals through values and beliefs and guides activity through shared assumptions. It’s your company’s DNA.”
Research suggests that employee retention, customer satisfaction, and the potential for business growth is all linked to effective culture. It’s easy to find examples of great corporate cultures get-ting the best from their employees. However, a negative culture’s ability to impair performance is even more apparent. One estimate from the American Psychological Association suggest that a high stress culture creates 50% more in health care costs – adding up to as much as $500 billion and 500 million cumulative work hours lost.
Understanding how to lead a positive culture presents numerous challenges. Tom Paterson, Co-Head of Operations at Lionstone Investment shared his story on what they did to help define and improve theirs. “You have to humbly look at what the company wants to be, what it is, and where it aspires to go. Our founders wanted Lionstone to be an inter-generational company. So our first move was to establish a common language surrounding our core goals, philosophy, value and principles.” Paterson was very clear that the language and definitions can’t simply be a version of “I’ll know it when I see it.” Instead, everyone has to understand precisely what is meant and, “you have to put it in writing, because in the absence of clear, written definitions the culture will simply become the personalities of whoever the leaders are.”
Paterson emphasized the need for inclusion to better understand the actual culture. “We surveyed the entire company. Do these principles really apply to employees? Does it directly apply to their success? Does this philosophy accurately describe us? After that, we encouraged further feedback from every level in the company. Operating principles don’t necessary need to be “imposed” but rather engaged in order to achieve a successful culture.”
President Jane Page of Lionstone stressed how leaders have to focus on this, not only as it pertains to current financial success but also as a tool to create a positive future. “We had amazing next generation talent and leaders that weren’t seeing the ability to grow and be mentored into new opportunities. When a new culture began with a succession plan for mentoring people into new roles, talent retention immediately improved. And the journey continues. In further questioning our culture, we’re thinking about the next five years for the firm in a new way. You’re always going to have a culture. It’s our job as leaders is to establish that culture.”
How does a change in culture make for better business?
“Humility is the starting point for creativity, so how do you use that to combat the obstacles to growth?” Where is the underestimated value from younger people or lower level employees in your business? Does giving opportunity to junior talent open opportunity or risk? Jeff Newman, the CFO of IDS Real Estate Group along with Robert Saunders, President of Kaufman Jacobs and Kevin Rivest, Senior Vice President of Bentall Kennedy lead a discussion to discover how to unlock the potential for growth by challenging traditional cultural structure.
Newman expressed his views on cross-pollination and exploration within the organizational structure that might make better use of all perspectives and skill levels, “To be as competitive as we can, we need to harness all of our resources. People in formal leadership positions don’t necessarily have the answers. So, how do you harness the efforts of the entire team so that you get the best thinking applied in the most efficient way?”
In fostering a culture of openness, Newman described a concept he favored as a credit to Ryan Lowe, formerly of Hines, as “intellectual insubordination,” where ream members regardless of formal position are given a voice to challenge authority, express their creativity and make contributions towards a common goal. As Saunders shared, “Our culture is very collegial, which encourages a great deal of independent thought and collaboration. The downside is that it can be-come everyone squawking. Making sure that the best ideas rise to the top remains a challenge.”
Real collaboration requires everyone to have a working understanding of everyone else’s job – specialization often gets in the way. And yet, many rising leaders are reluctant to take on functions outside of their comfort zone – acquisitions people don’t always want to do asset management. According to Rivest, “It’s easy to spell out a career path to someone when they’re young, but how do you grow and groom more well-rounded people? It’s difficult to articulate the importance and the career advantage of cross-functionality to someone clawing their way up the “corporate ladder”. It’s better to view career growth as more of an exploration than a straight climb. The clearer that is, the more sharing you’ll get at that upper level.”
Newman pointed out. “Everybody’s time represents opportunity. So the questions is, are you building relationships? Are you developing new skills? Did you bring your sense of humor? The obstacles to productivity tend to disappear when people aren’t worried about getting credit, but rather are fired up to work as a team, focused on a common mission.”
How can investment managers meet evolving investor expectations?
One operational challenge every investment manager wrestles with is delivering the most accurate, most timely and most coherent data picture of their portfolio to their investors. Investment management accounting staffs are often stretched to their limits. At the same time, asset managers spend significant time organizing and reconciling reports from multiple parties into different spreadsheets, often to satisfy special data requests above and beyond the polished quarterly report.
Additionally, large, complex investment platforms coupled with more diverse institutional investors have increased demands on managers. Craig Blanchard, Managing Director of Makena Capital Management, noted the immense focus on data security. “Whether it’s data integrity, communications or cyber security, our clients are very sensitive about information getting out. And our boards are becoming increasingly sophisticated and asking better questions. It’s up to GPs to stay abreast of technology innovations.”
Mr. Blanchard identified technological advances that he feels must be embraced and understood for managers to achieve future success. “Software aimed at making real estate more productive, financial disinter-mediation, and perhaps most significantly the ability of companies to both bend the cost curve and change the demand for construction. For example, if I were in the development business, I’d spend time understanding these technologies. The people using them now are going to be shown as ahead of the demand and investors will follow.”
According to Brandon Sedloff, Managing Director of Juniper Square, “When it comes to embracing technology, it’s not a matter of if, but when. Many GPs we talk to have the will to change their approach—and provide more timely and comprehensive information to their investors—but they don’t realize they also have a way. Whether through Juniper Square or another platform, the technology exists to solve these problems today. Unfortunately, it often takes a mistake—such as sending the wrong investor document or making a costly spreadsheet calculation error—to finally commit to a new technology. The most successful GPs will think holistically about the areas of their operations that aren’t working well and use those insights to prioritize their technology implementations.”
All of this is to suggest that technology-enabled transparency may not be optional. Many firms still may feel reluctant to share information generally, but Blanchard pointed out that “There’s always sensitivity to what you want to put out into the world, but having that information on hand for your board is an important issue facing LPs today, and it will face GPs shortly. It’s time to get ahead of it because it’s coming now.”The world of investment management is changing – people, strategy, markets, and investor expectations are changing. Are you making the right decisions today for an environment of transformation?← A&D 2018 Meeting Report: How to Identify Value in Times of Change? 2018 Global Women in Alternative Investment Survey →