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Corporate culture is a hallmark of quality businesses, yet often overlooked by investors in favour of more quantitative touchpoints. A quality culture can drive innovation and attract top talent to a firm, making an analysis of company culture an important tool for any investor.

A close focus on corporate culture is one of the many things that sets Sanjay Ayer and WCM Investment Management from its peers.

In this wire, Ayer details how WCM assesses something as subjective as culture and identifies one company which has an outstanding culture, insulated from the disruption seen in markets this year.

Edited transcript

How do you analyse something as subjective as corporate culture?

Yeah, I think you used a great word there. Subjective. I think culture is not something that analysts - who tend to be analytical - look for. They want hard, quantifiable data. It's been a journey for us. I think we've always had an intuition that culture was really important, but how do you diagnose that as an outsider? It's no easy feat, and we've come at it from many different fronts. I'd mention two here.

One is really about alignment. Is the culture aligned with the business model? So, it's not just coming to a company with a set of specific questions. What's the behaviour that's driving that competitive advantage forward, and does the culture incentivize that behaviour? So, it's reverse engineering really what the culture is.

Then the second is learning what types of questions to ask when talking to management when talking to former employees. About 10, 12 years ago, we'd go into a meeting and ask the company, "Hey Mr. and Mrs. CEO, tell me about your corporate culture." We were the only ones asking that, so it felt kind of neat, but in reality, most companies haven't put pen to paper or really given a lot of thought to that question. It's a hard question to answer just when you're coming out of a bunch of other meetings where people are grilling you on quarterly earnings, right? So, understanding the types of questions to ask.

So for example, instead of asking, "Tell us about your corporate culture," now we'll ask something along the lines of, "Let's say a new employee invites you out to coffee and asks you, 'What does it take to be successful here?' how would you answer that question?" It's getting at the same points, but it's asked in a much more approachable, accessible way. So I think that's kind of been an evolution, types of questions to ask. But it's not just talking to the company themselves, it's really building a mosaic of talking to really everyone in the value chain, including former employees. To the extent data does exist, and I would say cultural data is starting to become more and more available with various data sets out there, we'll complement our analysis with that as well.

What is a company that WCM sees with a great corporate culture?

Yeah, I think Shopify is a terrific example. It’s a tech company based in Canada and they help merchants build a direct-to-consumer presence traditionally online, but increasingly in bricks and mortar as well. Shopify's vision of the world over the next 20 years was that every merchant, every retailer would have a digital backbone, and then they'd be various channels that they sell through, whether it's e-commerce, mobile apps, Instagram, and bricks and mortar. What happened with COVID is their vision of the world was pulled forward for probably a decade. This caused a lot of small merchants a lot of angst, and this was a company that our thesis was rooted in a culture that was both adaptable and very merchant focused. Their culture was really put to the acid test.

I've been analysing technology for a while now and I haven't come across a company that innovated so much in such a short period of time that Shopify did in the first half of this year. They are really trying to solve merchant pain points, helping keep bakeries alive, restaurants alive by offering them various ways to attract customers. Offering loans when needed, offering logistics.

I think Amazon pulled back on a lot of nonessentials, and it left a lot of merchants struggling and looking for an alternative, and Shopify was right there to capitalise on it. So, I think that's a company whose culture really shined this year as far as being adaptable and being merchant focused. Obviously, the stock and the company has since come out a lot stronger because of it.

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