Focus on conduct and culture
We have high expectations of the companies we invest in to achieve better long-term returns for our members, VicSuper, as part of Aware Super, is committed to enhancing the conduct and culture of the companies we invest in.
With corporate conduct and culture becoming increasingly important, what does the term actually mean? Put simply, ‘culture’ relates to the values and beliefs shared by those in a company, while ‘conduct’ relates to the behaviour of the company and its employees, which is often shaped by these beliefs.
More than just buzzwords, positive conduct and culture can have a huge impact on the long-term success of a company, including better performance, reputation and productivity. While poor culture and conduct can have the opposite effect.
In fact, Australian companies that rate well on culture metrics have been found to outperform those that don’t by up to 5.2% over 5 years.1
Culture metrics include:
- Staff turnover
- Employee engagement
Why has conduct and culture become so important?
Over the last few years there’s been a growing focus on the failings of corporate Australia, causing an erosion of public trust and confidence. This has come at a significant cost to those companies involved both in terms of their reputation and financial performance.
The Financial Services Royal Commission highlighted the negative impact that poor culture and governance can have. As a result, regulators have insisted on firmer rules and guidelines to prevent misconduct – and the poor corporate culture that often sits behind it. Investors and the community as a whole now demand higher standards of corporate behaviour.
Using our size and scale for positive impact
Aware Super is one of Australia’s largest super funds. We can use our scale and influence to make a real difference. That’s why we’re focused on using our investment influence to have a positive impact, extending to monitoring and engaging with companies to encourage a high standard of conduct and culture.
Australian companies that rate well on culture metrics have been found to outperform those that don’t by up to 5.2% over5 years.1
Working hard to improve conduct and culture
To measure and monitor conduct and culture from within a company – let alone as an investor – isn’t simple, but it is worthwhile. Our commitment to conduct and culture goes beyond looking at a company’s philosophy and behaviour. It means actively engaging with companies to influencethe decisions they make and keep them accountable. This includes things like:
- ensuring management supports positive conduct and culture
- monitoring key metrics such as safety, employee engagement, turnover and consequence management across different areas of the business
- engaging with companies to drive improvement, and
- using our voting rights for good.
Leading the way with our own research
Given that conduct and culture can have such a big impact on performance, Aware Super researched the key findings from the Royal Commission as well as insights from regulators into culture, governance, remuneration and misconduct in the financial services industry. We also reviewed research across broader industries. This enabled our expert investment team to put strategies in place that improve the way we assess and monitor the conduct and culture of companies across any industry. Through these best practice initiatives, we’re able to encourage a corporate culture that delivers a better outcome for shareholders and customers, which in turn drives stronger returns for our members.
As those trusted to look after more than 1.1 million Australians’ super, we work hard to improve conduct and culture because we want to protect and grow our members’ retirement savings, and give them more to look forward to in the future.
Taking action in relation to the conduct and culture of AMP
Action through voting
In 2018, following the misconduct of AMP’s financial advisers identified by the Royal Commission, we used our voting rights to highlight concerns about board oversight and accountability. Aware Super was concerned that the conduct and culture failings could damage AMP’s reputation and its ability to retain and attract motivated employees. Our actions resulted in significant board renewal.
Action through engagement
In 2020, Aware Super raised concerns with the board about the appointment of executives that did not role model the code of conduct and company values. Applying the framework developed from our research, we highlighted the importance of having a strong ‘Tone from the top’ to support cultural change and improve the retention of skilled employees. The resignation of the former AMP Chairman and another non-executive director was an important acknowledgement of shareholder concerns.
Aware Super has continued to engage with the AMP board regarding new executive appointments and monitor key metrics such as employee engagement and turnover. This is to ensure the culture improves to support the returns for our members. We will also continue to review our investments in AMP.1Macquarie Research: People Power, August 2020
Tone from the top - Board, executives and senior management, role model the expected behaviours
- Strong culture which supports the company’s values and strategy
- Strategy with clear link to people and culture
- External independent whistle blower
- Carefully structured remuneration that influences culture
- Risk appetite framework
- Code of conduct linked to company values
- Employees feel their opinions matter and feel safe to speak up
- Quantitative metrics e.g. voluntary turnover and employee engagement
- Discussions with companies about their oversight and insights
If you’d like more information, or if we can help, don’t hesitate to get in touch.