Why company culture counts

CONTRIBUTORS

Amritha Kasturirangan, CFA

Portfolio Manager,
Research Analyst,
Franklin Equity Group
United States

Nick Getaz, CFA

Portfolio Manager,
Franklin Equity Group
United States

Matt Quinlan

Portfolio Manager,
Franklin Equity Group,
United States

Nayan Sheth, CFA

Portfolio Manager,
Research Analyst,
Franklin Equity Group
United States

Preview

At the start of this century, a now-leading technology provider, Microsoft, was struggling in an increasingly competitive marketplace. Plagued by infighting, bureaucracy and other organizational challenges, the company failed to innovate and product development faltered. When new management took the helm several years later, they identified transforming Microsoft’s culture as a high priority. Currently considered one of the most valuable companies in its industry, management’s focus on culture proved crucial to the company’s eventual turnaround and subsequent growth.

As a concept, company culture is intangible and may be underappreciated by investors. It refers to the collective values, perspectives and practices that form the identity of a business.¹ Traditional valuation methods cannot captured it, and it may not bear much relation to official mission statements.²In today’s world, investors may be drawn to businesses where technology adoption drives productivity, but they may not recognize how a strong culture and a motivated, unified employee base can enable productivity that fosters improved profits and dividend growth.

Read the full paper to learn more.

Endnotes

Source: Wong, B. “What Is Company Culture? Definition & Development Strategies.” Forbes Advisor. August 15, 2023.
Sources: Edmans, A. “Does the stock market fully value intangibles? Employee satisfaction and equity prices.” Journal of Financial Economics. March 30, 2011. Sull, D., Turconi, S., Sull, C. “When It Comes to Culture, Does Your Company Walk the Talk?” MIT Sloane Management Review. July 21, 2020.

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