People’s Feelings Matter: A Culture Index


The U.S. Secretary of Defense during the Vietnam War, Robert McNamara, required that every possible combat statistic be recorded and tracked. Famously, McNamara once asked the Head of Special Operations at the Pentagon, Edward Lansdale, for his views on the data collected.

Lansdale’s response was, “Something’s missing…you might call it the X factor.”“What’s that?” McNamara asked.“The feelings of the Vietnamese people,” Lansdale replied.

The story then goes that McNamara initially jotted down an ‘X’ but then erased it, asking sarcastically how anyone could get an accurate reading on people’s feelings.In retrospect we know what an oversight that was.

People’s feelings matter.

So, how does this relate to TDM Growth and investing more generally? Culture (‘people’s feelings’) is a core pillar of our investment philosophy, along with Sustainable Competitive Advantage, Growth and Valuation. In that order of relative importance.Unlike many of the other components of the investing discipline, culture can be notoriously hard to quantify, as McNamara attested to. There are no widely quoted ‘culture ratios,’ no readily available statistics on financial news providers and very few other quantifiable data points to measure a company’s culture, particularly for outsiders.Although, as I’ve tried to show, I believe it is imperative for investors to try and make an assessment. TDM’s Culture King (*not his real title) Hamish Corlett is currently working on a blog to illustrate how we assess People and Culture as investors at TDM (I will link it here retrospectively when he releases it).

The core questions I have tried to answer, at a high level, are;

1/ Can we make a broad assessment on culture’s impact on investment performance over time, and;

2/ Might investors gain an edge by incorporating an assessment of culture into their investment process? (“cultural alpha” )

‘The Culture Index’

Whilst not perfect, with over 60 million monthly visitors and 50 million unique employer reviews, insights and salary guides, Glassdoor offers a rich data set on corporate culture.Using the annual Glassdoor ‘Best Places to Work’ company rankings I have set out to test whether strong culture (i.e. being selected as a great place to work in the ranking) has correlated with shareholder returns. There is no doubt I’ve committed a number of statistical cardinal sins, but the purpose is to be directionally right, rather than precisely wrong.The methodology for calculating this rough and ready ‘Culture Index’ is straightforward:1/ For each year since the Glassdoor rankings began in 2009, I assumed that an equal share of each public company included on the index was purchased on the first trading day of the year and sold on the last. Note this list only includes American companies.2/ For those companies where a division of a public company was included (i.e. SAP America) the parent company’s share was included as a best proxy (SAP).3/ The index then assumed that the portfolio was rebalanced each year as per the new Glassdoor rankings.4/ I then compared the annual performance of the ‘Culture Index’ against the performance of the Nasdaq Composite and S&P 500 indices.

Over the 11 year period since the rankings began, the Culture Index returned an average 18.3% IRR vs. 17.1% and 12.3% for the Nasdaq and S&P, respectively.


If you had invested $1,000 at the beginning of 2009 in the Culture Index it would be currently worth $6,373 vs. $5,690 and $3,577 for the Nasdaq and S&P, respectively.

Annual index performance:

Cumulative performance of $1,000 since inception:

Proportion of companies in ‘Culture Index’ listed on the Nasdaq:

The correlation between the ‘Culture Index’ and the Nasdaq begs the question of the extent of overlap in their composition. As per the chart below, Nasdaq-listed companies represented <40% of the Culture Index most of the time, so it is likely responsible for some, but not all, of the correlation.

In conclusion, it is hard to argue, ceteris paribus, that you wouldn’t prefer to invest in a company with a great culture over an inferior one. At a high level, the analysis above shows this to be true.

My view is this likely reflects the general principal that things that can be easily quantified tend to be overvalued and the corollary that things that cannot be easily quantified tend to be undervalued. I believe culture to be one of these things.So, next time you’re looking at making an investment, enquire about the feelings of the people who work there. People’s feelings matter.I’d also stress that these results are as important to management and business owners as they are to investors. Our investment in Culture Amp reflects our strong belief that culture is hugely important to company performance and ultimately shareholder performance. Culture Amp has developed the ability for management to collect, understand and act on employee feedback. Thanks to their innovation, what was impossible for McNamara is now a reality for modern managers.

P.S. Many thanks to Sophia Crocker for assistance in helping me pull together the data and analysis!

P.P.S. I’d encourage you to view this year’s current list of Glassdoor Best Places to Work, we think there’s some great opportunities in this year’s batch (hint)

P.P.P.S. Post writing this article I was made aware that Culture Amp have conducted a similar study with private data, where the results are arguably more compelling! You can view the study here.

Harrison Moot

Investment Team @ TDM.

About the author

Harrison has taken a circuitous route to TDM. From his time as a gunner in the Australian Army, followed by a stint as a SCUBA instructor in Asia, and international investment roles, he’s covered some ground over the years. As part of the investment team, Harrison currently leads our portfolio work on Block Inc. (fintech) and is a core part of the team working with Culture Amp (HR B2B SaaS).

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