State Street Global Advisors Ltd.'s chief executive is urging boards to examine their companies' corporate cultures, the latest signal that governance issues remain top of mind for the world's largest asset managers.
With $2.81 trillion under management as of Sept. 30, 2018, the asset manager plans to press the companies it invests in about their corporate cultures and whether they align with their corporate strategies, President and CEO Cyrus Taraporevala wrote in a Jan. 15 letter.
"We acknowledge that corporate culture, like many other intangible assets, is difficult to measure and manage," Taraporevala wrote. "However, we also recognize that at a time of unprecedented business disruptions, whether in the form of technology, climate or other exogenous shocks, 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 comes amid an environmental, social and governance awakening in the financial ecosystem. Large asset managers such as BlackRock Inc., Vanguard Group Inc. and State Street have become activist investors in certain regards, pushing companies for reforms in their businesses over issues such as climate change, gun sales and gender pay equity.
A year before Taraporevala's letter, BlackRock Chairman and CEO Larry Fink issued a similar letter, calling for companies to make "a positive contribution to society." In an August 2017 letter, Vanguard's Chairman and then-CEO F. William McNabb III said companies ought to be exploring potential solutions to broader issues such as climate risk.
State Street believes addressing corporate culture — and by extension, human capital management — is vital as it has found that most board members cannot adequately explain their companies' cultures. The asset manager has found that poor corporate culture has led to cases of "excessive risk-taking or unethical behaviors that negatively impact long-term performance," Taraporevala wrote.
In an attached piece, State Street outlined guidance for how companies and their directors ought to be thinking about corporate culture. The asset manager said it plans to engage with directors and executives specifically on whether they can articulate the current corporate culture, whether it is a priority for the board, how the board is evaluating progress in reforming corporate culture and what steps senior management is taking to address any concerns.
"At a time of historic disruption, increased focus on corporate culture and how it supports strategy is essential to sustainable, long-term value creation," Taraporevala wrote.