Jump to content

Unique Corporate Culture


Recommended Posts

Long time lurker, decided to finally make the jump and post about a topic that I find to be extremely important to long term investing but not discussed as often because it is more subjective and harder to understand - corporate culture.

 

I tend to hold positions for a decade or longer, so in addition to finding advantaged businesses run by astute allocators of capital at reasonable prices, I have found that companies that truly excel over the long term often have a corporate culture that is different or unique compared to the vast majority of companies.

 

Some characteristics that I believe could signal a unique culture would be (this list is certainly not exhaustive):

 

Decentralized organization that fosters entrepreneurial thinking

Shunning Wall Street's short term orientation and truly thinking like a long term owner of the business

Going above and beyond to take care of your employees

A customer-first mentality whereby you do what is right for the customer before worrying about shareholders

Mission-driven, passionate leaders

 

I am sure there are others I am blanking on. Companies that I believe have at least some of these characteristics are Home Depot, Progressive, Berkshire Hathaway, Charles Schwab, CarMax, Fastenal, O'Reilly, Expeditors, Disney, Amazon, Costco, Starbucks, and Satya Nadella's Microsoft.

 

I am curious as to people's thoughts on (1) agree/disagree that culture is extremely important over the long term, (2) other cultural characteristics I am not thinking of, and (3) other companies that fit the mold of a unique corporate culture.

 

Thanks!

Link to comment
Share on other sites

Welcome to the board!

 

Culture matters, but in a publicly listed company - it only lasts as long as the latest strategic plan. If the executive is long standing (ie: betting on the jockey), it will last for longer - but otherwise it is < 4 years; at best. The strategic plan is all about doing things today to position yourself for where you want to be tomorrow. Implementing change.

 

Private companies are very different, and what you describe is commonplace. When the owner jockeys are typically both present and hands-on, the company is an extension of themselves, and the long-term view typically prevails. The better companies often have very good/experienced jockeys with long tenures, they are free of whining shareholders, ownership is by invitation only, and their reputation matters.

 

SD

Link to comment
Share on other sites

SD -

 

I completely agree that it is pretty rare in publicly listed companies. However, I disagree that it only lasts as long as the current strategic plan. Often it is perpetuated by a truly wonderful leader or "jockey" (think Iger at Disney) and can be fleeting once that leader leaves. But there are very real examples of unique culture characteristics that transcend the current leader.

 

I would highlight Home Depot from Frank Blake to Craig Menear, Progressive from Glenn Renwick to Sue Griffith, Expeditors from Peter Rose to Jeff Musser, and Costco from Sinegal to Jelinek. These companies have a culture that has endured several leaders over much longer than 4 years and been through strategic changes along the way.

 

Again, I do think this is quite rare and often is not enduring over the long term. Ideally, you find a truly special leader and he/she sticks around for a long time. When it does endure for a long period it can be pretty special. And because it is so rare as well as hard to analyze, it can be pretty valuable.

Link to comment
Share on other sites

While I dont share your time horizon for investments in general (though it is a goal of mine) - I think culture is a key attribute for longer-term investments as well. I agree with SD that culture matters much more when the company is private or if the management is under the control of larger shareholders.

 

Many of my larger positions are in the Tata group of companies in India (Tata Consultancy and Titan being amongst the largest). While there have been many companies in India who have done better than these companies from a simple total return perspective, the value add that management brings is undeniable. In my personal experience, management guidance are typically more grounded in reality (especially when comparing with direct competitors in India). Investor questions, feedback, ideas are taken on board, whereas in other enterprises there is a lot more pushback. And when you speak to lower-level managers or employees they value their positions at these businesses more and as a result I imagine will work harder for the company. But all of this is partially due to the fact that Ratan Tata retains a significant influence on the operations of all the businesses (even though he does not have anything like a majority stake). One only has to look at his actions with regards to employees in the aftermath of 26/11 or during the Covid crisis. I do not think that the culture would be as strong, as unified, or as deeply rooted were it not for a member of the Tata family having such influence.

 

I would add that while culture is important everywhere, it is more important in opaque markets where there are weaker regulators. I think the culture impact of a TCS for example is a higher value variable for me as compared to culture in an American/European/Japanese/Australian company, simply because of the opacity of the Indian market and the weakness of regulators in Mumbai to control the markets. I sleep sounder at night knowing I am a Tata shareholder than I would if I was a shareholder of the same exact company without the Tata culture.

Link to comment
Share on other sites

Some similar comments from Prem Watsa in Fairfax Financials most recent annual report https://s1.q4cdn.com/579586326/files/doc_financials/2020/q4/WEBSITE-Fairfax-Financial's-2020-Annual-Report.pdf

 

... companies that have survived for over 100 years have four characteristics:

1. They are sensitive to the business environment, so that they always provide outstanding customer service.

2. They have a strong culture - a strong sense of identity that encompasses not only the employees but also the community and everyone they deal with. Managers are chosen from the inside and considered stewards of the enterprise.

3. They are decentralized, refraining from centralized control.

4. They are conservatively financed, recognizing the advantage of having spare cash in the kitty.

Link to comment
Share on other sites

I just started reading "Berkshire Beyond Buffett" by Lawrence Cunningham, last night.

 

Tom Murphy says in the introduction that BRKs' moat is due to culture.

 

I agree here, I made a big position recently in BRK because of culture. In my opinion BRK culture is: "smart capitall allocation". Buffett has taught us all what is good capital allocation means and I think he has made sure his successors will keep allocating capital intelligently.

 

The excess capital their businesses produce will be put in places where it makes sense and I am expecting 8-12% long term returns perpetually due to culture.

 

Another example that comes to mind, is Alibaba. Their first mission of the company is to survive 3 different centuries 1900s, 2000s and 2100s. Well that is a statement of "long term thinking" corporate culture and that is their MOAT in my opinion.

 

Link to comment
Share on other sites

This thread underlines that culture matters, and that in a large company - it is very much a product of the continuing long tenure of the men/women at the top. When they leave (Buffer, Munger, etc.) the culture leaves with them - momentum may continue for a while, but the new men/women will want to make their mark. Change.

Culture and process substitute to a limited degree. A GS is as good as it is, largely because of its market driven internal processes. Up or out, is widely copied by many others, and very successfully. Obviously, it is worth something; but valuation is very subjective, and wide open to error. Analytically, the value of a Jack Ma, or an Elon Musk, should be worth MORE (than that of a Web/Munger) - simply because they have more 'runway' left to them. But would most actually conclude that?

Nothing wrong with betting on the jockey, but there are limitations.

Different strokes.

 

SD

 

Edited by SharperDingaan
Link to comment
Share on other sites

The market seems to think Jack Ma's relationship with the CCP is a very large liability for BABA right now.

 

As for Musk, I think it's obvious the "Musk premium" at Tesla is bigger than the WEB premium at BRK.

Link to comment
Share on other sites

The market seems to think Jack Ma's relationship with the CCP is a very large liability for BABA right now.

 

As for Musk, I think it's obvious the "Musk premium" at Tesla is bigger than the WEB premium at BRK.

 

Actually Jack Ma is an interesting case where a founder created a cooperative  culture from the get go. Alibaba created several billionaires while AMZN only created one (Jeff Bezos).

 

There are some interesting articles pertaining to how Jack Ma ran Alibaba early on. He never was the all controlling operator , he was more like a leader why deputized most of the operations to a core group (who all become very rich) with him being the face until 2 years ago,

https://hbr.org/2014/06/the-secret-to-alibabas-culture-is-jack-mas-apartment

Link to comment
Share on other sites

The market seems to think Jack Ma's relationship with the CCP is a very large liability for BABA right now.

 

As for Musk, I think it's obvious the "Musk premium" at Tesla is bigger than the WEB premium at BRK.

 

Ma held 76% of Ant Financial until recently, and with the recent IPO - is now a multi-billionaire in China.

Just exactly HOW does one pull off this trick in a communist country?

 

SD

 

Link to comment
Share on other sites

The market seems to think Jack Ma's relationship with the CCP is a very large liability for BABA right now.

 

As for Musk, I think it's obvious the "Musk premium" at Tesla is bigger than the WEB premium at BRK.

 

Actually Jack Ma is an interesting case where a founder created a cooperative  culture from the get go. Alibaba created several billionaires while AMZN only created one (Jeff Bezos).

 

There are some interesting articles pertaining to how Jack Ma ran Alibaba early on. He never was the all controlling operator , he was more like a leader why deputized most of the operations to a core group (who all become very rich) with him being the face until 2 years ago,

https://hbr.org/2014/06/the-secret-to-alibabas-culture-is-jack-mas-apartment

 

Sorry, I wasn't trying to say that BABA had a bad culture. More that a Jack Ma discount could be an opportunity if you think the culture is good.

Link to comment
Share on other sites

The market seems to think Jack Ma's relationship with the CCP is a very large liability for BABA right now.

 

As for Musk, I think it's obvious the "Musk premium" at Tesla is bigger than the WEB premium at BRK.

 

Ma held 76% of Ant Financial until recently, and with the recent IPO - is now a multi-billionaire in China.

Just exactly HOW does one pull off this trick in a communist country?

 

SD

 

The answer is simple - China is not a communist country.  The communist party is just communist by name, for historical/legacy reasons. China’s current economic system is crony capitalism.

Link to comment
Share on other sites



I am curious as to people's thoughts on (1) agree/disagree that culture is extremely important over the long term, (2) other cultural characteristics I am not thinking of, and (3) other companies that fit the mold of a unique corporate culture.

Thanks!


My 2 humble cents. Culture is an output. The input is something like long-term customer-driven focus + proper incentives on various levels + focus on decent process (vs. the outcome). As easy as it seems it is very rare in practice (even though basically every company pays a lot of lip service to it).

Let's say Amazon was doing something like this. Measure inputs, tweak the process and see what is going to happen with the output, rinse and repeat. However, it also helped that it was a platform with a leading market share in the turbo-growth market almost from day 1. If it was a brick-and-mortar bookstore, I suppose no amount of "culture" would save them.

Link to comment
Share on other sites


My 2 humble cents. Culture is an output. The input is something like long-term customer-driven focus + proper incentives on various levels + focus on decent process (vs. the outcome). As easy as it seems it is very rare in practice (even though basically every company pays a lot of lip service to it).

Let's say Amazon was doing something like this. Measure inputs, tweak the process and see what is going to happen with the output, rinse and repeat. However, it also helped that it was a platform with a leading market share in the turbo-growth market almost from day 1. If it was a brick-and-mortar bookstore, I suppose no amount of "culture" would save them.


I think this is spot on and an interesting way to frame it. Putting in place the correct inputs like the ones listed above is perhaps the way to give it the best chance of enduring past the founder or current leader. IMO, many of the examples I listed previously have these inputs and as a result have a unique culture. It does seem quite rare in practice, and I am always trying to find additional examples that I am unaware of. Certainly culture isn't the end all be all and can't save a bad business, but I view it more as an added cherry on top when I find a company that meets my other criteria.

One of the best ways I have found to evaluate culture is to read annual letters to shareholders going as far back as possible. Look for consistency of message and how they discuss their customers and employees. I wish more companies had these.

Netflix is probably a good example that I didn't think of. Reed sounds like he is staying for a while, but it will be interesting to see if the culture he created endures.

I have never spent any time on BABA or Jack Ma, so I will add that to the list to read about. Thanks!

Link to comment
Share on other sites

  • 6 months later...

The Unconventional Franchise Model Behind Chick-fil-A’s Success

 

Chick-fil-A has built its rapid growth on the popularity of its chicken sandwich. But its unconventional approach to business has helped make it the third biggest fast-food chain in the U.S.

 

https://www.wsj.com/video/series/the-economics-of/the-unconventional-franchise-model-behind-chick-fil-as-success/18DD9C3D-5712-41BB-9F43-FB5F39301F92?mod=business_lead_pos5

Link to comment
Share on other sites

I finally got around to reading the Netflix book (No Rules Rules) and would highly recommend it. There is no doubt that NFLX culture is unique and a big part of their success, although it is certainly not for everyone. The big question will be - is the culture enduring post-Reed or not?

 

Also, thanks for the Chick-Fil-A video. It does seem like every time I leave their restaurant I always feel like it is just a much better experience than any other fast food or quick service experience.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...