Like love, true leadership is difficult to define but undeniable. Too often individuals point to problems of ‘culture’ holding their organisation back from greatness, when what they should be doing is looking inward and making change themselves.

Genuine leadership that effects transformational change is urgently required within institutional asset owners if they are to evolve into full-service financial services organisations, but this is difficult when the notion of leadership itself is undergoing a quiet revolution.

Transformational change is a rare beast among asset owners says Roger Urwin, head of investment content at Willis Towers Watson. But he identified five funds globally as exemplars of it: Australia’s $148 billion Future Fund; the UK’s £25 billion ($43.8 billion) Railways Pension Scheme; the US$289 billion ($390.1 billion) California Public Employees Retirement Scheme; and two Canadian funds, the C$116 billion ($115 billion) PSP Investments and C$298 billion ($295.5 billion) Canadian Pension Plan Investment Board.

Urwin’s advice for organisational change among investors is to differentiate between the operating model – which includes culture, leadership, talent, reward and technology – and the investment model, including how assets are allocated and to what they are allocated.

Daniel Garant, chief investment officer of PSP Investments, one of the leading funds nominated by Urwin, says a change of leadership at the chief executive level was a catalyst for his fund to look at how it allocated assets in the context of the total portfolio.

“We realised the silos you end up with are a collection of different assets that aren’t optimised at the total portfolio level, so we changed that a couple of years ago. We were faced with great investment opportunities but they didn’t fit anywhere. The principle I came up with is if it’s good for the fund then we’ll find a way to make it fit. We still do strategic asset allocation and asset liability modelling but if we come across a strategy that is good we make it fit,” he said.

One example of that is a private debt investment to which the fund allocated C$1 billion ($1 billion).

“For the private debt asset class, it didn’t make sense; it was too big for one deal. But we decided to do it because on a total fund basis it made sense. You need to look at what moves the dial for the total fund,” he said.

Urwin said transformational change at institutional asset owners is rare because these organisations “don’t have a burning platform” to spur change. Across the industry change is more linked to the concept of good to great, which is an incremental concept, he said.

But incremental change, especially in difficult market environments, is unlikely to have much impact on the way investors conduct their business, nor ultimately on returns.

Urwin and Garant were speaking at the Fiduciary Investors Symposium at INSEAD in April. INSEAD has been voted the number one MBA school globally by the Financial Times. The faculty of the school, including INSEAD’s associate professor of organisational behaviour Gianpiero Petriglieri, were among the speakers.

Transcending culture

Petriglieri said true leadership transcends the difference between personal and organisational change.

“Leadership erases that distinction. Personal change for leaders will result in the organisation adjusting, and vice versa. The most significant quality the leader can have is to deal with ambivalence. Most of us like the idea of change but not the practice of change,” he said.

For Garant, Pertriglieri’s concept of leadership transcending personal and organisational change rang true, given a change in leadership was the impetus for organisational change at PSP Investments.

“We felt, compared to our peers who were trading in private equity, that we didn’t have a global presence or portfolio, and we didn’t have private debt. A few months after the new CEO joined, we opened a New York office dedicated to private debt. This was a big plus, as you hire experts who have been doing it for decades,” Garant said.

“But you also have the complexity of adding people who have never worked at PSP before. It’s much tougher than people believe to bring it together. We also opened a London office focused on private equity and it was all done within a year, because people wanted results quickly and wanted change to be permanent and dramatic.”

In the Australian context, organisational change has been rare at big asset owners. However, two organisations that have been focused on it are the Future Fund, as identified by Urwin, and the NSW State Government fund TCorp, which had change forced upon it via a merger with State Super and NSW WorkCover.

Susan Doyle, who is chair of the TCorp investment committee, was one of the founding board members of sovereign wealth manager the Future Fund. She said when the sovereign wealth manager was first created the issues of culture were front of mind.

“The strategic side of investments was straightforward. But the culture side of it was not. How you assess it is a challenge for our industry. It is very costly for organisations to figure out culture,” she said.

The myth of culture

Petriglieri believes, however, that there is no such thing as organisational culture.

“Look at the people; they are the culture. Look at how you allocate resources and what you reward positively and negatively. If you change those things, then you are changing the culture, everything else is rhetoric,” he said.

Urwin pointed out that, in the context of culture and people, asset owners have the distinction of having a strong purpose, of investing on behalf of other people, but he added that not enough organisations have marshalled that as motivation.

Garant agreed and said PSP Investments was using its sense of purpose as a tool to distinguish itself from different actors in the financial markets.

“Adding a local presence in London has increased our access and talent pool,” Garant said. “But it’s expensive, and you get a sub-culture. You need a mix of local talent and people from head office, so you have one culture not many cultures.”

Redefining leadership

At the core of organisational change is leadership, but Petriglieri said the outcome of what we understand and practise as leadership “is no longer a good fit for the world in which we live”.

“Good leadership is hard to define. There is no empirical evidence of leadership – like there is no empirical evidence of love. They manifest themselves when you see some kind of behaviour.”

Leaders, he said, have such a sense of ownership over a community to improve or change it, they have a committed vision; and leadership can be explained as an exchange of meaning for trust.

“If you observe a leader, look at whether they get stuff done, and do people trust them?” he said.

How leaders are defined and identified needs upgrading, he said. Competence is no longer enough. In a world that has shifted from a mono-culture to nomadic leadership, leaders struggle to connect with potential followers and face resistance and mistrust.

“We are still using an idea of leadership developed in the mono-culture, but we have a different world, now leaders struggle most with connections,” Petriglieri said.

“As a leader, you have to show you’re more than devoted; however, now we live in an age of nomadic professions, so leadership is not about how you stand out but how you have enough connections. People are more devoted to their work than to the organisation.”

Petriglieri, who is also the academic director of the INSEAD Initiative for Learning Innovation and Teaching Excellence, suggested a different definition of leadership in a multi-culture enterprise.

“I believe leadership can be defined as: the courage, capacity, curiosity and commitment to work with, learn from and give voice to the other.”

“It’s a lot harder to have that type of skill,” he said. “The commitment to a counterculture always puts you on the edge, it’s difficult.”

The Fiduciary Investors Symposium was held at INSEAD in Fontainebleau, France from April 2-4, 2017. INSEAD’s MBA program has been ranked number one by the Financial Times for the last two years, and the program of the Fiduciary Investors Symposium drew on the academic faculty of the school to focus on business excellence and leadership. For more stories from the event visit Investment Magazine’s sister title top1000funds.com