Disclaimer: This case study emanates from Willis Towers Watson’s Chief Human Resources Officer Thinking Ahead Group, which examines the approaches organizations are taking to address ESG-related factors involving sustainable human capital value. Its contents in no way reflect an endorsement of Ariel products or investment strategy or any other fund advisor by Willis Towers Watson.
By aligning its human capital management philosophy with principles from its own investment philosophy, Ariel Investments LLC, the oldest minority-owned asset management firm in the U.S., is able to offer perspective on the role human capital value creation plays in its business success.
Ariel’s Talent team is dedicated to recruiting, engaging and retaining talent by creating workplace experiences that foster personal and professional accountability, growth and development. Diversity, equity and inclusion are inherent in the way work gets done and are fundamental to the DNA of the firm as evidenced by the following actions and their measurement:
- People: When diversity and inclusion spans all levels of an organization, corporations are better.
- Purchasing: When contractual relationships with minorities are encouraged, corporate reputations grow.
- Philanthropy: When philanthropic contributions also target minority and civil rights organizations, corporations are ultimately supporting their consumer base.
This approach was forged by the firm’s co-CEOs, Mellody Hobson and John Rogers, long before human capital measurement, sustainable investing and ESG were mainstream.
Consistent with recent research from Willis Towers Watson and others, institutional investors continue to prioritize and apply valuation premiums to companies that excel on environmental, social and governance (ESG) measures, with continued emphasis on “social” factors, such as human capital value.
Ariel’s longstanding commitment to these principles as both employer and investor provides a unique lens into the performance impact of doing so.
Ariel began as a small- and mid-cap value manager and evolved strategically over time to $16 billion in assets under management to include international, small-cap concentrated and other products, by continuing to stress taking the long-term view, as do many fund managers. Ariel’s investment philosophy is rooted in assessing the human capital value of any company it considers adding to its portfolio.
Rogers, Ariel’s co-founder and chief investment officer, frequently conveys in public forums that it is no accident that the firm’s logo is a tortoise with a trophy. Ariel employs a rigorous analytical approach when considering ESG risk factors, which increasingly focus on human capital value factors, such as diversity, equity and inclusion, workforce financial literacy and wellbeing, workforce health and safety, pay and benefits equity, engagement and culture alignment. These also factor heavily into the company’s decision-making on internal priorities and programs.
Ariel’s leaders frequently discuss how boardroom “Jackie Robinson moments,” as well as rethinking retirement savings policies, company culture, employee wellbeing and other key people policies drive their success. Rogers told Market Watch, “If your management team and your board looks and acts like a 1940s company, it’s hard for us to have confidence in you as an investment. We want a company that looks like a 21st-century company.”
See also: What the Goldman Sachs scandal can teach about culture
The foundation of human capital value inside Ariel is culture, and the company belief is that culture surpasses everything. Leaders throughout Ariel understand that the culture of an organization is fragile, and it takes a lot of work. They also understand that organizations that have built great cultures are the ones that stand out in any industry, including theirs.
For example, Ariel executes culture through human capital programs that include:
- Maintaining a culture of dignity: Consistent with findings from the 2020 Workplace Dignity Survey conducted by Willis Towers Watson in collaboration with RFK Human Rights (of which Rogers is on the board), Ariel understands a culture of dignity promotes self-respect, pride and self-worth, influences an organization’s ability to foster wellbeing, and drives productivity and sustainable business results. The goal for Ariel is to maintain a culture where employees, especially women and people of color, can speak their truth and be bold with their ideas under the premise that “everyone loves good ideas.”
- Employee financial literacy, access, and opportunity for wealth creation: Building on Rogers’ experience chairing the U.S. Council for Financial Literacy, and the Ariel Education Initiative, the firm supports employees, their families and communities in this key area, where its leaders frequently acknowledge “there is still much work to be done.” Ariel’s model, where 95.4% of the firm is owned by employees and board members, allows employees to experience ownership as a form of wealth creation and operate as a true team with “skin in the game.” A mantra of the firm is: “We shoulder the lows together and we celebrate the highs together.”
- Employee education, learning, and development: The firm’s core value of intellectual curiosity is operationalized by its offering of deep and broad employee self-directed, functional head or HR-driven curricula for personal and professional development and growth. This happens through the LinkedIn Learning platform where every employee has their own account to take advantage of learning opportunities at their own pace.
- Career equity through inclusion, representation, mentoring, and sponsorship: Ariel President Mellody Hobson recently told Investment News Ariel demonstrates its commitment to career equity through “everything from making sure we get the same opportunities, the same pay, making sure that unconscious bias doesn’t limit opportunities, that we really ask each other super-hard questions about why certain people aren’t making it through.” Hobson recalled a time when Ariel promoted someone while she was on maternity leave, and people were shocked. “We weren’t going to wait a whole year to promote her just because she happened to be on maternity leave,” she says. “These are not hard things.”
- Competitive compensation: The same principles apply to the compensation elements of base pay and performance incentives, where Ariel makes pay decisions that are free from bias and provide fair opportunity. Pay for performance offers a platform to use fair and objective criteria, which Ariel considers a competitive advantage.
- Benefits equity through inclusive health and retirement benefits that meet employees where they are: Research by Willis Towers Watson shows that Black and African American employees are less likely than other groups to be eligible for health and retirement benefits and are 31% more likely than their white peers to experience financial and health wellbeing issues. It also shows that social determinants of health and wealth were exasperated by the pandemic. This experience is consistent with Rogers’ long-term focus on the issue of financial inclusion, which is central to Ariel’s commitment to highly competitive health and welfare benefits. For example, Ariel funds 100% of healthcare deductibles into HSAs.
- Employee safety and wellbeing: Ariel’s culture is one that encourages its people to take care of themselves and each other, to have the power to speak up when they need to and to self-advocate and be heard when it comes to all issues, including safety and wellbeing. In the end, the company views a central part of its mission to include providing the resources its employees need to be safe and healthy. The environment at Ariel has been described as a “seven-day-a-week” culture given its fast pace and high-touch approach to clients and stakeholders. This comes from employees being passionate about their work and the firm’s purpose, which means fostering an environment of psychological safety where employees are empowered to be vocal about what they need is even more important.
- Acceptance of diverse workstyles: The pandemic challenged Ariel to rethink traditional assumptions about work location, flexible work options and work styles. To better recognize the broad needs of its diverse workforce, the firm regularly engages employees in two-way communications through surveys and Zoom, gleaning insight on what they need to be successful in their lives and careers, while also meeting the expectations of clients and demands of the business. This exchange goes a long way toward empowering employees to have the courage to express their needs and opinions in a thoughtful and safe way. At Ariel, these notions are not mutually exclusive. Ultimately, the company strives to recognize the broad needs of a diverse workforce while empowering employees to understand how to get what they need to be successful in their lives and careers while meeting the expectations of clients and demands of the business.
- Corporate social responsibility: Ariel has made a significant firm-wide commitment to social and civic responsibility. Each Ariel team member is encouraged to give back through volunteer work and/or by providing their expertise as volunteer board members. For example, Ariel Community Academy, a public school located on the south side of Chicago, supports career-long education, learning and development opportunities, including reskilling and upskilling. It is made even stronger by the real-life donations from Rogers, who provides each first grader $20,000 to invest in real stocks and gain real-world experience. As students advance through the school’s specialized financial education course, they become actively involved in making investment decisions. Upon graduation from eighth grade, their profits are divided equally between a class gift to the school and a distribution to the graduates as cash or matched contributions toward a 529 College Savings Plan. The original $20,000 is also returned to the incoming first grade class so that the program can be sustained in perpetuity.
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Ariel ultimately builds the type of culture for its own organization that it wishes to see in its portfolio companies through mindset, behaviors, programs and employee experience. According to Hobson: “My philosophy is that you cannot be a jerk and work at Ariel; I don’t care how smart you are. That is a cultural decision we make. In other organizations, you can yell at people, you can call them names, you can do all sorts of stuff and still be successful. That’s not what we want at Ariel. Lots of people will interview a person before we hire them because we think a bad cultural fit can really rot an organization.”
A 2020 Willis Towers Watson assessment of diversity and performance outcomes found that investment teams with diversity generate better excess returns. Ariel believes the same and that its approach to human capital management will lead to attractive long-term investment outcomes.