Issue link: https://digital.shearman.com/i/1162884
Shearman & Sterling LLP Internal and External Forces — The Rising Importance of Corporate Culture Review | 43 5 See Leslie Albrecht, "This Is What Millennials Care About When They Invest," MarketWatch (September 11, 2018); see also Letter from Cyrus Taraporevala, President and CEO of State Street Global Advisors, to the Board of Directors (January 15, 2019). Investor Engagement Investors increasingly condition their capital on acceptable corporate operations, and culture is now part of that matrix. Who invests in the company and how they engage can be evaluated to assess corporate culture perceptions, which will also be reflected in the outcome of shareholder votes. Companies must be cognizant of the spirit of millennial investing, as well as the evolving priorities of institutional investors; 5 and the frequency of candid discussions of cultural challenges, both in the news and through publicly available disclosure documents, suggests that companies are recognizing this. As companies recognize that investors impute value to culture, we would expect to see increased disclosure of corporate culture by companies, including in the form of risk factors and business descriptions, due to materiality, even if not required by any specific line item. Strategic Partner Alignment Third-party companies that interact with companies on both an upstream and downstream basis may take a keen interest in the corporate culture of counterparties. Taking the simple model of a retail business, suppliers and end customers evaluate corporate cultural practices. Manufacturer suppliers may only want to display and market products through reputable retailers. Additionally, customers may resolve to only patronize shops or online stores that embrace particular cultural principles. Companies should assess whether they are getting pushback from existing or potential strategic partners due to cultural misalignment. Market Examples Although culture is not the type of metric that can be evaluated through direct peer comparisons, companies often look to peer companies for guidance on cultural development and reference "aspirational" examples in the market. A company should consider whether it is seen as a model (or the opposite) in areas that are typically associated with a positive corporate culture, such as diversity, trustworthiness and transparency. Thus, the market comparison is qualitative, rather than quantitative. EXTERNAL FORCES External perceptions of corporate culture can have measurable impacts on investor interest and strategic partner satisfaction, and ultimately, stock price and business performance. Companies should actively seek to engage with investors and strategic partners on cultural touchstones and alignment.