There are scores of get rich quick secrets of investing out there. You can find the “29 Masters’ Secrets I Used to Increase My Net Worth Ten-fold”, another tempts you with the the “100 Secret Strategies for Successful Investing,” while yet another promises the “7 secrets of money: An insider’s guide to personal investment.”
Investors in search of a good bet often end up passing the tricky challenge of investment choice to investment managers who are supposed to have superior analytical skills plus special insight.
In the case of hedge funds, those in charge must also be extra-talented at winkling out facts to give their investment decisions an edge.
Yet there are at least a couple of “secrets” that seem to continually escape so many otherwise intelligent investors.
The first so-called secret, is don’t invest in an organisation where the employees don’t trust their leader. Where there is not trust you can be fairly confident the organisation is not operating well, and may even be headed for oblivion.
Yet trust is one of those metrics that can and often is regularly measured. The results across many UK and US organisations are frequently disturbing and the trend suggests the situation is getting worse.
For example, the just-released survey from the CIPD finds over one in three employees (34%) saying their trust in senior managers is weak. Interestingly it’s senior managers that employees don’t trust, not colleagues, or their line manager. 1
When making make sense of their investment choices investors have many things on their minds. But employees trust in their company’s leadership is seldom one of them.
Most investment managers for example, rely on relatively easily obtained metrics and financial data, rather than dig deeper. Doing the latter for example would mean using their easily obtained access to senior managers to ask such a potentially confronting question as: “How far do your employees trust you? What are the facts please?”
The second secret is finding our the extent to which the organisation is driven by core values. That is, whether the organisation has a leadership not focused entirely on making the most money for shareholders.
Long ago Warren Buffet showed it’s possible to become one of the richest people in the world by not worrying about maximising shareholder return in the short term.
Companies driven by core values are relatively easy to spot. They have leaders who both talk about those values and walk the talk. They are determined to set the tone, and when you encounter them they make sure you know what they care about.
The Ashridge Centre for Business and Sustainability interviewed chief executives about what it means to be a business leader. Sure enough a few surfaced as having a new view of their role.
These relatively rare leaders have a passion for doing the right thing and realise that “addressing the big issues in the world is not adding cost but is actually core to creating value.” 2
Core values therefore show up in a number of ways in organisations. For example, in how far they demonstrate they are a responsible enterprise, caring about issues such as the impact they make in their community and in the world at large.
Or they surface in the extent to which employees see their leaders as having integrity and pursue doing what’s right, not just does things right—that is worrying about the how, not just the what.
There is a continual need for reliable indicators to measure the performance of leaders and their organisation, especially in the non-financial areas and to link these with business success.
Discovering how far a leader promotes integrity, fairness, transparency, and trust, may all seem less than hard-nosed to those obsessed with short-term returns. Yet when it comes to financial performance, companies with a code of ethics for example outperform those without one. 3
Since most large companies at least now have some kind of code of how employees should behave, smart investors need to look beyond the codes, to whether there are signs that running a responsible business is taken seriously by the leadership.
One useful sign to watch for is whether the company has a mandatory training programme for staff to understand and buy into supporting the company’s ethical stance.
Yet another sign is evidence the leadership can create high level staff engagement—that is people wanting to support the company’s ethical stance.
A long run analysis for the five years 2001 to 2005 found companies that trained for business ethics were associated with a better financial performance that those that merely disclosed their ethical values. 4
In simple terms, these company leaders did more than talk about core values, or say they wanted to run a responsible organisation. They make sure they put them into practice.
Measuring trust and the extent to which a company is driven by core values rarely seem to feature in more traditional assessments of what is a good investment. Yet like most good secrets they are entirely obvious, or as the ever perceptive Bernard Shaw put it: “There are no secrets better kept than the secrets everybody guesses.”
- Employee Outlook: Focus on Trust in Leaders, CIPD 2013
- R. Newing, It matters what you do when no one is watching, Responsible Business, FT 12th June 2013
- See for example: S. Webley and E More, Does Business Ethics Pay? Ethics and Financial Performance, Institute of Business Ethics 2003
- R.Ugoli and L. Moir, Does Business Ethics Pay, Revisited, Institute of Business Ethics 2007.