SSGA: Monitoring Culture Isn’t Easy—But It’s Important

State Street Global Advisors (SSGA)’s senior managing director and head of ESG, Rakhi Kumar, on aligning culture with long-term strategy.
State Street Global Advisors (SSGA)’s senior managing director and head of ESG, Rakhi Kumar

In 2017, State Street Global Advisors (SSGA) introduced the world to the “Fearless Girl,” a statue that ignited a conversation about gender diversity in leadership roles—in the boardroom and beyond.

How do you follow up on an initiative that’s as successful and iconic as Fearless Girl? If you are CEO Cyrus Taraporevala, you write a letter. While his recent letter to directors is a lot more understated than the Fearless Girl, it’s just as important and impactful. The letter—sent to companies in State Street’s investment portfolio—focuses on how companies can align corporate culture with long-term strategy.

Beyond just advising companies to tie strategy into culture, SSGA went a step further and shared a framework to get them started. To get a better idea of what that framework entails, Corporate Board Member spoke with SSGA’s senior managing director and head of ESG, Rakhi Kumar. Here are excerpts from that conversation.

What made SSGA decide to enact this framework

We’ve been engaging with companies o n corporate culture for years, but more often those conversations were typically in response to something had happened at the company or if they were in the news for a particular reason. It was at the other end…culture being identified as a something that needed to be changed or it became a reason for something, an event happening at a company. And through those conversations, we started to develop a framework as to how are we thinking about this. Culture is such a difficult thing to define, how can we simplify it? And that’s when we came up with this framework.

When we had the framework, we said look, we need to make this more public and share it with companies, to allow them to really take this complex issue…and try to break it down into a place where they could start tackling and thinking about it. So instead of reactively talking about it with companies, we would proactively talk about it in a systematic manner and as a driver of long-term value. So it was more a question of wanting to be ahead of the issue instead of on the wrong side of the issue.

What are some of important pieces of this framework that will be especially important for boards to consider?

The most important thing is conducting a gap analysis. I think really being able to think, “Okay this is our strategy, but what kind of culture is needed to help achieve that strategy?” Gap analysis sounds easy, but it’s actually a little hard to do. So, let’s give an example of this.

Let’s say there’s an aggressive growth strategy, right? So the company may say, “The culture needs to be aggressive in the way we think of growth.” There’s nothing wrong with that. There’s no value judgment there. You just want to make sure you don’t have a culture that is a bit more cautionary when your desire is to be very aggressive in terms of growth. Make sure your culture is not contrary to what you’re trying to achieve.

Every part of your culture has a flip side. So how do you ensure that the flip side doesn’t get more prominent? [If you have an aggressive growth strategy] …you need to have a tolerance for risk, but you want to make sure a risk-averse culture doesn’t take over. That gap analysis is about understanding what you want to push for and how you want to balance that out is very important.

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How do boards get started?

I think the first step is talking about strategy. What’s our strategy? What kinds of behaviors do I want to promote and what kind of culture do I need that will help facilitate achieving the strategy? That’s why this framework is interesting because it is very complicated, but it’s asking questions that you can start breaking down and start trying to answer. It will not give you the answer, but you have to intuitively try to draw the answer and do some thinking around it.

 

How can boards monitor and report on something like culture?

This is a challenge. I want to be upfront and say this is not easy, but because it’s not easy doesn’t mean we don’t try doing it right.  And I think that’s the point. I don’t have all the answers. Nobody has all the answers, but the fact is that companies are trying to monitor and measure culture. By monitoring, it could be something like turnover.

I’ll give you an example. In some cases, an increase in turnover may set off alarm bells. But in a company that is going through a transition and retrenchment, turnover is expected. So it may not be the right metric for you. You may not want to measure that. You may want to do a qualitative assessment where you say, “These are the behaviors that are a preferred and encouraged” And then see if those behaviors are              something that are retained and also cited by your employees as the behaviors that will be awarded. You need to see if your talent management system identifies those behaviors and rewards those behaviors correctly.  The reason why measuring becomes important at some point…is because companies reward CEOs based on culture.

What’s your plan to follow up on this letter?

We’ve already started engaging on this in a very systematic manner. At the start of every conversation we’re having with a company, we both talk about culture. For us, it’s a journey. We recognize that by raising the issue in a systematic manner, we’re learning ourselves and we will share our insights at the end of the year with the market. More importantly, I think we expect the quality of conversations to start improving and it’ll help us identify [in what sense] culture becomes a big issue [in a company].

I think what’s important is that we recognize that it’s difficult. We want to bring it up as a proactive issue that we’d like boards to look at. We want to make sure that there’s a complete understanding that it’s a multiyear issue. It’s not going to happen by the end of this year and be dropped immediately. We want to make sure that there’s no value judgments attached to culture. It’s just an alignment question.

Read more: Beyond Compliance: How Boards Should Think About An Ethical Culture