We want to be and remain the highest performing institutional investor in the world. That is a very long term outcome. What we want to focus on is: which are the enablers and attributes that need to be in place to make us stand a good chance?
Asset owner participant
Key takeaways:
- Complexity has increased by 50-100% in recent years, propelling organisations towards ‘peak busy’. Leaders are realising that the ‘soft stuff’ – culture and human capital – is making or breaking their businesses
- Culture is an integral ingredient in the secret sauce of an organisation. But preserving a strong culture takes ongoing work
- Pension schemes appreciate the importance of diversity, and great strides have been made in terms of gender diversity, but there is still plenty of work to do
- Compensation matters – but it is only one component of why people want to work for an organisation, and it shouldn’t be the deciding factor.
Have organisations reached peak busy? With the world around us more and more interconnected, complexity has increased. In fact, the Thinking Ahead Institute estimates that complexity has increased by 50-100% in the last seven years. This presents organisations with a number of challenges.
Right now, leaders are struggling to find time for anything beyond business as usual. This means that forward-looking projects are falling by the wayside, leaving companies grappling with the same issues, in areas like sustainability and governance, that we observed in 2017. Put simply: organisations are struggling to find the resources to change, even though they know they need to.
In this environment, leaders are taking a step back and thinking about what fundamentally makes companies successful. They are looking with renewed interest at the building blocks of any great business: human capital.
At WTW’s recent Thinking Ahead Institute event, conversations within the audience of senior global pension fund leaders kept returning to what, in the past, might have been seen as ‘the soft stuff’ – but is increasingly now being recognised as hard, competitive advantage. Talent, culture, diversity and governance are what make up organisational alpha: the secret sauce of any organisation.
How organisations can identify that alpha is a focus for the Thinking Ahead Institute. Marisa Hall, Head of the Institute explained: “We spend a lot of our time doing work on culture and governance with boards. It is probably the single most unique competitive edge that an organisation has.”
Culture
It’s notoriously difficult to define, but a big part of an organisation’s alpha lies in its culture.
Culture is probably the single most unique competitive edge that an organisation has. We talk about business strategy and strategy: that can be mimicked. Culture is so unique that it definitely has to be part of the secret sauce; it contributes to the organisational alpha.
Marisa Hall, Head of the Thinking Ahead Institute
Establishing a strong culture is a delicate process. It will decay if it is neglected, added Hall. During the pandemic, organisations had to rely on the culture they had built in the past to motivate their workforce. As businesses continue to navigate the new normal of hybrid working, it must remain a vital focus.
This remains particularly true in the context of global pension funds establishing presence in different countries. Research by the Thinking Ahead Institute shows a sharp increase in peers with offices overseas; they must maintain their focus on creating and celebrating their unique culture.
Maintaining alignment between the board and the executive is also important. “Make sure the culture is the same and there is efficient delegation of responsibility and trust. You can’t get stuff done if you don’t have that trust between the board and the executive,” advised Hall.
Diversity
A poll of 34 pension scheme decision-makers at the recent Thinking Ahead Institute event in London showed that 70 percent felt that DEI hadn’t gone nearly far enough.
Diverse boards make better decisions and are more reflective of the pension scheme memberships they represent. Accordingly, pension funds are embracing diversity and making further improvements a priority.
Gender is most commonly measured, research from the Thinking Ahead Institute shows. Funds are closer to achieving this at the board level than in their senior leadership and investment teams. However, it’s important to celebrate progress and the many initiatives that are happening in the name of gender parity.
There is still plenty of work to do to achieve greater diversity. For example, organisations know there’s much to do to foster neurodiverse talent, and to bring in people who are disadvantaged socioeconomically. Funds should also ensure that diversity is part of their due diligence when appointing external managers.
Pay should be a hygiene factor
A poll of 32 pension scheme decision-makers at the recent Thinking Ahead Institute event in London shows that only 15 percent believe that the war for talent came down to simply paying employees better.
While pay is important, it shouldn’t be the deciding factor, the audience at the Thinking Ahead Institute’s event overwhelmingly agreed. One asset owner leader said: “I don’t think people are motivated by their compensation, or at least not the sort of people we want to hire … We want people to think long term and make portfolio decisions. Nobody gets rewarded on their portfolio, we only get rewarded on the whole fund’s performance. This alignment means everyone in our organisation is working with one purpose.”
Of course, pay matters, especially in a competitive industry where the war for talent is still playing out and the cost of living crisis looms large in people’s lives. As another senior scheme figure said: “Money does matter, there is a quantum. In the UK, we have a competitive talent market – we have a large consultancy and banking industry. We have a ton of benchmarking data, and we want to be competitive.”
Once an individual joins us, that’s when you’re really selling the Employee Value Proposition, the purpose, interesting work, less commercial pressure. We find those factors more of a retention tool, but you need the money to attract talent in the first place.”
A broader purpose
Purpose is an important ingredient in the secret sauce of successful organisations. We are witnessing a broadening of purpose. Organisations are going beyond pure financial objectives and embracing a wider definition of purpose, which encompasses a broader mix of employee experience, shareholder value, and social and environmental considerations. We’ll explore the implications of this shift in the third and final article in the series.
This is the second of three articles compiled from insights from the Thinking Ahead Institute events, Exchange+: TAI & Future Fund Global Asset Owner Peer Study symposium and summit on beliefs and best practices.