Despite being Welsh, I love watching test cricket. The Ashes tests over the summer were unbelievable. England (overseen by the England and Wales Cricket Board) played skilful, high-risk cricket and almost won back the Ashes. They won millions of admirers around the world and even grudging respect from the Aussie greats of the game.
The England team included Ben Stokes, Moeen Ali, James Anderson and Harry Brook. England have clearly benefited from a wider selection of players, from different walks of life. Despite the team’s success, the nation’s cricket still has much to do to foster a more inclusive and tolerant approach, given the events over the past year or so. Just imagine how good they could be if all children in England had access to the sport.
So far so obvious. As with sports, we believe in businesses that fully embrace diversity, equity and inclusion (DE&I) so they can benefit from a wider pool of talent and experience. A global business that authentically represents its target customers is likely to achieve improved results and profitability in the long-term. Bear with me on this.
Let me be clear, we believe a diverse business is more likely to be successful, bringing in the talents of minority groups who can then offer a different perspective, resulting in more innovation and, crucially, less group-think. I head up the Rathbones Socio-Economic Background Network, for example, which aims to broaden our own talent pool and participation. Welsh fund managers are rarer than hens’ teeth, so I have skin in this game!
The key is in doing and not signalling. Company leaders must fundamentally believe in diversity and inclusion, ingrain it in the culture of the business, make managers accountable and be transparent in their corporate strategy so shareholders know what they are investing in. We have seen this executed in some of the most successful global businesses, from Microsoft to Nvidia (both of which we hold in our core multi-asset range) and they don’t seem short in the innovation race.
The problem, however, is that DE&I has become an unchallenged, simplistic catch-all acronym like ESG (environmental, social and governance). It’s worth remembering that not all ESG initiatives work well, and that holds true for DE&I. Poorly executed DE&I strategies can seriously damage your wealth.
As fund managers, we find ourselves increasingly drawn into these areas, as political activists attempt to gain influence on companies through shareholder voting and lobbying. To be blunt, treading this line can be difficult and sensitive, as our investors pay us to manage their savings first and foremost, not to use their money to express our political views. This is a distinction we take very seriously, even if on a human level it can feel irksome at times.
Generally, we prefer the companies we invest in to be apolitical (if that is not too utopian). But we make exceptions if it’s part of their corporate DNA and it is factored clearly into their business strategy. Nike, which we own in our core multi-asset portfolios, is one example. Whether a fund manager agrees or disagrees with the initiatives they take, this is part of their strategy and their customers seem to accept this. We would argue being ‘controversial’ is part of Nike’s brand.
There have been many other instances recently that we would argue have been naïve. Costa (owned by Coca-Cola), Adidas, Bud Light (AB InBev) and Coutts (NatWest) have created controversy by aligning their corporate values to their messaging rather than vice versa. Out of these four we own Coca-Cola in our multi-asset funds.
“Republicans buy Coke”
Coca-Cola upset Republicans in the US when it spoke out in 2021 against a proposed law in its home state of Georgia that required voter ID. Some activists argued the law would prevent people from poorer backgrounds voting. Arguably, in today’s world, politics has become so binary that to take any side risks alienating a significant proportion of your customers. Coke, when challenged, said it had been a mistake to comment, that lessons had been learned and it would no longer take sides in political arguments.
It was therefore somewhat surprising to see Costa – a subsidiary of Coke– and its cartoon mural depicting a transgender person with mastectomy scars. The campaign upset many Costa customers and appeared at odds with the apolitical stance that the parent company told investors it was adopting.
What we need to understand as investors is whether Coke’s head office knew what Costa was planning. It’s quite feasible that it didn’t. After all, a campaign in the UK for a small subsidiary might not have been on the radar of the C-suite. But here is the risk many companies now face in a febrile political world fuelled by social media and fear of not reacting: a seemingly disjointed, confused approach which could harm the brand.
So, DE&I for us as fund managers is a two-way street. We believe companies that embrace it fully are more likely to be successful and effect long-term changes in society; however, those that stumble into it as a perceived quick-win marketing opportunity or in a knee-jerk reaction to activists (from either side of any dispute) should be met with caution. These companies will most likely not have the right checks and balances within their decision-making processes, which can result in real short-term share price pain.
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