In the spring of 2002, the report “Organizational Blueprints for Success in High-Tech Startups” came out with details about the Stanford Project on Emerging Companies (SPEC). The project, led by professors James Baron and Michael Hannan, followed nearly 200 companies for eight years to understand the effect of early foundational organizational blueprints on company outcomes. Their timing could not have been better. In the mid-1990s, just as the commercial use of the internet was growing exponentially, they were creating their database on those companies.
So why is a report from almost two decades ago relevant today? I’ve been in the investment industry my whole career, and recently my partner and I created a discretionary global macro fund focused on sustainability. From that experience, I would argue that the industry is not too disparate from high-tech companies.
In Silicon Valley, companies strive to be the first to produce the latest innovative product, software or service. To accomplish that, firms must hire and retain the best engineers, designers, and product and project managers in the industry. On Wall Street, companies strive to achieve the highest risk-adjusted returns for their clients. To accomplish that, firms must hire and retain the finest CIOs, traders, and portfolio and risk managers in the industry. The investment industry may rely even more heavily on their human capital in an attempt to create outperformanceeach day. While technology engineers can complete the majority of the work by the time their product is released, investment management is an ongoing process that requires the same marginal labor input daily.
The SPEC report concludes by showing that from the handful of different blueprints, the Commitment blueprint was the one that did best in terms of time to initial public offering and longevity. The Commitment blueprint relies on workers’ emotional ties to their job, using peer and cultural control to hire for cultural fit. It starts organizational building early and hopes to retain employees up to the point of their retirement.
The sustainable investment sector can learn a thing or two from that model. Investment companies should aim to train and retain employees for life to grow their businesses. Knowledge grows exponentially at compound rates, just like investments, and tech firms know that. Also, focusing on the long term increases alignment with clients through long-term, value-creating investment decisions and compensation packages that can be stretched over longer periods, eliminating some of the moral hazards inherent in the business.
One of the more effective ways to embrace the Commitment model is to be particularly methodical about hiring employees, especially in the early stages of formation. This allows the founders to create a solid cultural foundation from the start. They can devote some time to drafting a mission statement, creating an idealistic organization chart and preparing an employee handbook that details the dynamic of the employer and employee relationship. After these initial formation activities are complete, the founders can then go out to the market very selectively, searching for that perfect candidate to fit the mold they have designed.
The workforce that has been coming out of university in the past 10 to 15 years has particular values and goals, especially as they relate to the environment, society, and the companies and sovereignties that govern the world around them. Millennials do not see their jobs purely as an economic exchange; they want to be fulfilled by their work. Sustainable investment firms need to embody such personal and professional goals to foster a sense of achievement, worth and ultimately happiness for those workers. The Commitment blueprint looks like the perfect model for nascent companies in this sector.
