When the leader of the world’s third-largest asset management firm decides to focus on something, it attracts attention. Two years ago, State Street Global Advisors, the $2.5 trillion (AUM) investment firm, decided to highlight women’s lack of power in finance and society by dropping their “Fearless Girl” bronze in the heart of lower Manhattan’s financial district, igniting ire, accolades and a general uproar around gender equality in boardrooms and on Wall Street.
This year, now-CEO Cyrus Taraporevala has been more low-key in communicating his firm’s focus—but no less clear. In a January 15 letter sent to 1,120 independent chairs and lead independent directors across six markets (S&P 500, FTSE 350, DAX 30, CAC 40, ASX 100 and Topix 100 companies), Taraporevala said that SSGA would have a heightened focus on corporate culture “as one of the many, growing intangible value drivers that affect a company’s ability to execute its long-term strategy.”
“At a time of unprecedented business disruptions, whether in the form of technology, climate or other exogenous shocks,” he wrote, “A company’s ability to promote the attitudes and behaviors needed to navigate a much more challenging business terrain will be increasingly important.”
The letter was Taraporevala’s most high-profile communication since he took over the top job at SSGA in November, 2017, after a career at some of the world’s top asset-management firms, including Fidelity, BNY Mellon, Legg Mason and Citigroup—as well as 14 years as a management consultant at McKinsey.
His comments are hardly unexpected, of course. The past two years have seen a wave of high-profile fiascos at companies— including Wells Fargo, Papa John’s, Facebook, CBS and others—where culture problems and behavior breakdowns led to disaster for shareholders. But for Taraporevala, just focusing on the downside is a mistake. “We think that it’s as much on the upside,” he says. “If the culture and the strategy are really aligned, you can really move mountains as a company and as a team.”
After dodging traffic from the Patriots’ post-Super Bowl parade, Corporate Board Member made our way to SSGA’s headquarters near Boston’s booming Seaport District and sat down with Taraporevala and Rakhi Kumar, the firm’s senior managing director, head of ESG investments and asset stewardship, for a conversation (edited for length and clarity) about the letter, the nuts and bolts of shareholder engagement—and the growing power of mega-investing firms to influence markets, companies and society.
So tell us about the origins of this year’s letter. Why the focus on culture right now?
Cyrus Taraporevala: Over the last several years, our asset stewardship program has looked at a whole range of ESG-related factors. We spend a lot of time thinking about issues related to the board and board governance. This year, as we stepped back and thought about the issues, we thought culture was particularly important. It’s always been important, but this year we wanted to just increase the visibility to boards that this is something we were going to focus on. By the way, that’s part of our philosophy in how we engage in asset stewardship. This is not a game of gotcha. We signal in advance. We’re very transparent about the issues that we want to talk about so that boards can actually think about it and come prepared to engage on the topics.
So it is in that spirit that we’ve raised this topic. There’s nothing particularly new about culture being important, right? I mean, you say every time there’s something going on people ask, “Where was the board and what happened?” But it just is getting increasingly important. We’re actually surprised at the number of boards we still encounter who don’t have a clear view of the culture of the company. What is the culture that they aspire for, and how are they measuring and monitoring that?
How do you measure culture, monitor culture and not step all over your management in the process?
Taraporevala: There is no one size fits all. It’s not like we are saying, “Here’s the measuring tape. Just put it on top of your culture and see how it measures up.” We think the way that companies— and ultimately the boards—measure culture can vary in lots of different things. Whether it’s employee surveys, other metrics, there are lots of different ways. We’re not trying to be prescriptive. I think that would cross a line. But the question that I think is still a legitimate one is, “Are boards thinking about it? Are boards engaging with management? Who is responsible for the culture?” That’s the other important distinction. We’re not saying boards are responsible for creating or driving the cultural change, that’s management’s responsibility. But are boards engaging with management just as they would on strategy or other important issues?
Rakhi Kumar: I think philosophically, what we want boards to think of is, “is this intangible asset—culture—sitting on the liability side of my balance sheet or on the asset side of my balance sheet?”
How are you going to monitor this, and how do you like to do the engagements? How do boards engage you, and how do you engage them?
Kumar: There’s no right answer. It’s a qualitative conversation you’re having about how the board is thinking about culture. We expect for people not to have the answers all lined up in the first year. It’s about starting the process for thinking.
We’re raising this, bringing it into the boardroom and allowing for the board to say, “Hey, this is actually pretty relevant, do we not think so? And how do we really think about it?” I think we’ll have different answers in the next year, but, more importantly, we’ll hear very different things. Currently, when we are engaging on culture, the conversation very quickly pivots to actual strategies they have for assessing what people like and [their] behaviors. They go to the tactical instead of the philosophical alignment. I think that philosophical alignment will come. They tell you how they get a sense of what the culture is, but they don’t tell you what the culture is.
