Corporate Culture: The Secret Sauce for Growth Success

Investors don’t often pay much attention to corporate culture when evaluating business and return potential. But cultural norms can make the difference between success and failure, especially for growth companies, which thrive on innovation and must be flexible to adapt to changing business trends.

Company reports don’t say much about culture. Unlike the profit and loss statement, balance sheet and business updates that dominate a quarterly report, a company’s internal behavioral features don’t usually move stocks. Yet we believe culture is actually the secret sauce for sustainable growth, because in a knowledge-based economy, cultivating human capital is essential for building a business with staying power. And for investors focused on environmental, social and governance issues, this awareness is key to engaging with management and stakeholders more effectively and integrating research on a company’s culture with its business outlook.

Top Growth Companies Have Dynamic Cultures

Just look at the top companies in the Russell 1000 Growth Index. Facebook, one of the five largest companies today by market capitalization, didn’t exist in 2000, while Google and Amazon were basically still start-ups. Apple, Microsoft and—which existed in 2000—constantly reinvented themselves to stay on top. All five built exceptional businesses based on new ideas and a willingness to take calculated risks. In contrast, the top US growth companies in 2000 had significantly more resources at the time, but, excluding Microsoft, they couldn’t keep up the pace of growth and were ultimately overtaken (Display).

Two tables side-by-side show the five largest companies by market capitalization in the Russell 1000 Growth Index in 2000 and in 2020. Benchmark weights for each company are shown as well.