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Does a strong culture equate to a strong investment?

We discuss how we seek out companies with the best possible corporate governance and management.

Date published
6 Dec 2023
Will Baylis Portfolio Manager

We are often asked by clients if we believe that a strong corporate culture equates to a strong investment.

We have long found that problems within corporate culture, governance and management are often expressed through its environmental and social track record. To us, this makes culture a reliable proxy for broader sustainability and longterm performance.

Why do companies with poor culture persevere?

As long-term active owners, we have long believed there is a real connection between corporate culture and returns, we do see that this has often been ignored by the market in the short term.

There has been a big rise in passive investing and active managers who fully outsource proxy voting to third party advisors. This trend exacerbates a growing lack of analysis of governance and corporate sustainability by the market, as well as a reduction in shareholder engagement with boards to enact positive change, allowing poor governance to persist in many large corporates.


During Covid we contacted the Transurban board regarding its capital structure plans, to ensure governance activities followed best practice.

We expressed our concern on dilutive equity raisings creating unnecessary lasting damage post- Covid. Pleasingly, when the Board discussed raising equity it decided against it, agreeing with our reasoning.

How do we measure, track, and impact culture

We believe that direct engagement by our investment decision makers is one of the most important ways to understand and improve a company’s culture.

A key objective of our engagement activities is to achieve positive outcomes through strong relationships and establish open dialogues with both the Board and management teams of investee companies. This direct approach allows us to express any areas of concern, encourage greater transparency on their management of these risks, and work to improve investor outcomes.

  • We believe that direct engagement by our investment decision makers is one of the most important ways to understand and improve a company’s culture.

Annual General Meeting (AGM) votes and shareholder resolutions are also an opportunity for us to express our opinion on performance and culture. While we seek to engage in the first instance, when we have a poor view of a Board’s overall governance quality, we often use proxy voting to re-emphasise our stance.

How does culture impact position sizing?

We capture our analysis of corporate culture through our proprietary Management and Governance ratings framework. These ratings help us quantify good management teams, better understand their motivation, and determine whether culture, strategy and interests are aligned with investors.

Management and Governance ratings go on to form a key component of our Quality research lens. A poor Quality rating reflects our belief that these factors can lead to an increased risk to the normalised earnings that our analysts have forecast. As such, our Quality ratings directly impact the size of an individual security in our portfolios, or our decision to invest or divest.

We monitor companies on an ongoing basis and can quickly update ratings if our fundamental research or engagement activities uncover material issues or changes.

Rio Tinto

Insights from our engagement with Rio Tinto, in addition to the independent inquiry review regarding the Juukan Gorge incident in 2020, exposed a complete lack of Governance and Board oversight.

Through this incident, Rio Tinto not only severely damaged their reputation, but their actions highlighted change in culture and raises important unanswered questions about the Board and management structure.

This caused us to downgrade our Management and Governance ratings, resulting in a Quality downgrade and exit from some portfolios.


We recently used proxy voting season to make a statement about our disappointment in Qantas’ corporate culture. We have for some time had concerns around a lack of balance at Qantas, including a reduced focus on the customer and front-line staff.

Through interactions, we also perceived an inability for corporate management to consider perspectives that conflict with what we considered overly biased head office-based messaging, which differed from the real-world perspectives we encountered via Qantas staff and customers.

While Qantas’ strong market position allowed this to go unnoticed for some time, ultimately, it has culminated in considerable damage to their corporate image and increased organisational instability. While these issues are still evolving, we believe there will be genuine lasting damage - the question is to what magnitude?

We voted against the remuneration report, and also the re-election of Todd Sampson (as a Board member), on the basis of Board accountability for the deterioration in Qantas’ public standing and a lack of Board oversight of management, and the fact that the executive received only trivial penalties in their remuneration.

More than 80% of shareholders also voted against the remuneration report at the AGM, resulting in a ‘first strike’ against the board. A second-strike next year will result in a board spill. We note management are taking positive steps to resolve the issues and we will closely monitor their progress.

Case Study of a 1-rated stock: Wesfarmers (WES)

Wesfarmers is a stock that has our highest rating of 1 (out of 5) by our team on both its Management and Governance.

Wesfarmers structure of headquarters’ (HQ) asset allocation and well supported operating companies has worked well over a long period of time and generated a long-term return driven culture.

They have great talent development capability within their diverse operating businesses / Mergers and Acquisitions (M&A) division, leading to an ability to fill gaps internally. The current CEO has experience across multiple WES operating divisions.

The management team have a clear, consistent strategic plan, and a strong ability to deliver against plan. Overall, they care deeply about public impact and its perception.

In terms of the Board, it is of high quality, with appropriate level of experience, tenure and gender diversification. Workload is not a major issue except for Sharon Warburton who is a non-executive director on the boards of four listed companies. She has disclosed that she intends to reduce her workload over the next 12 months.

Wesfarmers has comprehensive policies covering sustainability principles, risk management, data security, health and safety of staff, governance policies, investor and stakeholder engagement. Wesfarmers demonstrates actions across all policies including modern slavery, product sourcing etc.

WES’ Key Executive Equity Performance Plan (KEEPP) awards have seen executives, CEO and CFO and other senior executives, receive substantial bonuses with high maximums.

JB Hi-Fi

Another company that we rate highly on its culture is JB Hi-Fi, a low-cost consumer electronics retailer. Focus on the customer, service, and supplier has been a key part of their long-term growth, and the level of empowerment and involvement that they provide to staff has been a key enabler.

What does good look like to us?

Our team’s stewardship and sustainability analysis has evolved over time, but we have always placed particular emphasis on seeking out companies with good corporate governance and management.

The questions below form the backbone of how we seek to identify companies that are looking out for the interests of all stakeholders, and generating long-term and sustainable wealth for shareholders.


In terms of analysing culture’s impact on long term returns, we see a real benefit from having a long tenured investment team. Analysts who have years of experience with dealing with certain sectors and individual companies, allows them to instinctively identify changes, be it improvement or deterioration.

Long term interactions with various stakeholders also importantly helps to differentiate between head office messaging of culture, and the real world we encounter when we meet customers and front-line staff.

It’s easy for corporates to talk to a good culture. What ultimately matters to long term returns is if that corporate messaging translates to real world behaviours that improve a company’s staff and customers experience, and thus bottom line.

Our questions:

MCA Governance rating

Board & CEO performance:

  • Have board members demonstrated a positive contribution?
  • Do they truly hold themselves accountable governance oversight?
  • Have they set the right tone for culture of the whole organisation?

Board composition:

  • Does the board have diversity?
  • Does it have industry experience?
  • Are board members “over-loaded” or “over-boarded”, and unable to give due focus?

Shareholder protections:

  • What conflicts of interest, dilution risks, poison pills exist?

Social license to operate:

  • Are the operating procedures of the company accepted by the public?

CEO relationship with the board:

  • Does the CEO have a good working relationship with the board?

Alignment of interests with shareholders:

  • Are incentives and rem packages justified?
  • Are they aligned to shareholders and the long-term The information provided should not be considered a interests of the company?
MCA Management rating

The company’s culture:

  • Does the culture of the company add to its performance or create a risk?
  • Do they have a Sustainability focus?
  • Is Diversity front of mind?
  • Do management instill Integrity and ethics from the top?

The company’s strategic plan:

  • Is the strategic plan a good plan?
  • Is it consistent?
  • How is execution/delivery against the plan?

The competency of key personnel:

  • Do they have a good track record here and at other companies?
  • Is the management internal or external?
  • Are they visionary?
  • Do they have the technical skills?
  • What is the tenure of the management team?

The level of financial responsibility:

  • Are there any questionable representations of the company’s financial accounts?

Important information

This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.

The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice.

The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.

Past performance is not a guide to future returns.

The views expressed are opinions of the portfolio managers as of the date of this recording and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.

Some of the information provided in this document has been compiled using data from a representative account. This account has been chosen on the basis it is an existing account managed by Martin Currie, within the strategy referred to in this document. Representative accounts for each strategy have been chosen on the basis that they are the longest running account for the strategy. This data has been provided as an illustration only, the figures should not be relied upon as an indication of future performance. The data provided for this account may be different to other accounts following the same strategy. The information should not be considered as comprehensive and additional information and disclosure should be sought.

The information provided should not be considered a recommendation to purchase or sell any particular strategy/ fund/security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable. It is not known whether the stocks mentioned will feature in any future portfolio managed by Martin Currie. Any stock examples will represent a small part of a portfolio and are used purely to demonstrate our investment style.

The analysis of Environmental, Social and Governance (ESG) factors forms an important part of the investment process and helps inform investment decisions. The strategy/ies do not necessarily target particular sustainability outcomes.