The purposeful investment professional: why we all matter in shaping the future of the investment industry

In our thought piece, Creating system value, we argued that organisations are inextricably linked to the wider society and environment in which they exist. In short, if businesses are to flourish they need to ensure the good health of the wider ecosystem. But organisations have no separate existence (except in a legal sense) – they consist of individuals, just like us, who are responsible for setting missions and objectives, driving culture and behaviours, and generally making decisions on how much our businesses contribute (or not) to various stakeholders in society and to the planet as a whole. To borrow generously from POSIWID[1], if we want to drive change in our organisations, and hence the industry, we need to change what we, as individuals do. We need to examine our own motivations and behaviours and how they collectively combine to drive our firms’ and the industry’s objectives.

The purposeful self

Intrinsic and extrinsic motivations

Deci and Ryan’s self-determination theory, points to the fact that we are all influenced by both intrinsic and extrinsic motivations. The former (intrinsic) describes something that is inherently interesting or rewarding while the latter (extrinsic) leads to some separable positive outcome such as high pay or avoidance of punishment.

Table 1: Intrinsic vs extrinsic motivations

While much debated, several bodies of research question the effectiveness of extrinsic motivations on producing positive long-term results. Princeton academics, Bénabou and Tirole, note: “in well-known contributions, Etzioni (1971) argues that workers find control of their behaviour via incentives ‘alienating’ and ‘dehumanising’, and Deci and Ryan (1985) devote a chapter of their book to a criticism of the use of performance-contingent rewards in the work setting. And, without condemning contingent compensation, Baron and Kreps (1999) conclude that: there is no doubt that the benefits of [piece-rate systems or pay-for-performance incentive devices] can be considerably compromised when the systems undermine workers’ intrinsic motivation”[2]. In short, being driven by self is a vital ingredient in achieving positive long-term results. 

Purpose-driven motivations

At our March 2018 Sydney roundtable event, the top three responses to the question “what motivates you to perform in your current role?” were: (i) interesting and enjoyable work, (ii) helping clients and (iii) helping to do something meaningful with societal purpose. Interestingly, the lowest ranked categories were ‘pay’ and ‘helping my organisation to achieve its financial goals’. Second, attendees were asked to choose between which of two options they valued more: 94% of attendees chose “my organisation produces more societal wealth and well-being” compared to only 6% choosing “my organisation produces more profits”. These results are interesting and suggest that intrinsic motivations that are linked to a positive purpose (such as improving societal wealth and helping clients) are highly valued.

Having purpose-driven motivation is important. State Street Centre for Applied Research’s and the CFA Institute’s 2016 study, Discovering phi: motivation as a hidden variable of performance, argues that individuals that have a mindset to deliver performance that is driven by purpose and embedded by habits and incentives (‘phi’) contribute to better organisation performance, client satisfaction and are better engaged. These results suggest that connecting the mission, values and culture of an organisation with an individual’s sense of purpose is vital (we discuss this further in the next section).

The purposeful self  ->  the purposeful organisation

Institutional investment is a team game. Through teams strategic investment decisions are made, value is added to portfolios (or destroyed) and a progressive (or regressive) culture is built. In our paper, “How to choose: a primer on decision-making in institutional investing”, we note that collective judgement can be superior to that of any individual within a group subject to three conditions applying: diversity, independence and an effective means of aggregating views[3].

There is a reflexive relationship between individual purpose-driven motivations and the motivations of a collective team – individual purpose is validated by a strong team culture and a strong team culture is built through the aggregation of individual purposes that drive to a common objective. Effective aggregation requires a careful awareness of social dynamics – perceptiveness by leadership and group members are key. In short, investment professionals need to be not just be T-shaped and technically capable but also emotionally so.

The purposeful self -> the purposeful organisation -> the purposeful industry
We need a coalition

At the Thinking Ahead Institute, we believe in the power of thought leadership to create positive investment industry change for the benefit of the end saver. We strive to achieve this change through a dynamic and collaborative research agenda and through bringing together forward-thinking investment professionals across the globe to discuss solutions that promote (i) better investment strategies, (ii) better organisational effectiveness and (iii) enhanced social legitimacy. A purposeful industry can only emerge if there are sufficient organisations which are aligned in their individual purposes. And an organisation is only as good as the people within it. If the dials on the compasses (purposeful people, organisations and industry) do not align then the system will be suboptimal at best and, at worst, parts of the industry ecosystem can break down (sometimes to systemic proportions – think the global financial crisis). We believe that change can only be effected through a coalition of individuals with a common mission to ensure that the investment industry drives positive social value.

The investment industry cannot thrive without the trust of wider society – that society will obtain fair and sustainable results from the industry’s services. To gain this trust we, as building blocks of the industry, need to collectively agree the broader purpose of investment and better understand how our actions connect to this purpose. We need to shift the balance to improve the value proposition to society. Without that, we are in danger of losing our social licence to operate.

 


[1] POSIWID (purpose of a system is what is does), refers to purpose at a system level and asserts that purpose is revealed by what the system does. Clearly for individuals this is different. The pinnacle of Maslow’s hierarchy of needs points to self-transcendence which focuses on needs beyond the self like altruism, spiritual awakening etc. As individuals, it is clear that we may deem ourselves to have a purpose beyond what we actually do. And we have the ability to choose a purpose, and adjust what we do accordingly.

[2] See “Modern organisations”, A Etzioni, 1971; “Intrinsic motivation and self-determination in human behaviours”, E Deci and R Ryan, 1985; and “Strategic human resources”, J Baron and D Kreps, 1999.

[3] While group interaction can reduce overconfidence and make better decisions in uncertain environments, we note that groups introduced biases of their own. James Surowiecki’s three conditions, expressed more clearly in his 2004 book “The wisdom of crowds”, are critical to the intelligent design of groups.