Open Kitchen

Due diligence processes ahead of any M&A transaction tend to navigate well-chartered waters. This conventional process is set to evolve and expand, with environmental, social and governance criteria gaining further traction as the long term sustainability of any company’s performance is more carefully assessed as argued in ‘Green Shareholder Activism’ earlier this month.


A simple, readily available due diligence tool deserves some attention in that respect: Glassdoor, launched in 2008, lists and analyzes employee reviews about more than six hundred thousand firms worldwide today. A simple search for the name of a company, whether small or large, public or private, offers an array of information for anyone looking to make an investment decision: a CEO approval rating, an overall company rating (which is then split alongside five categories) and the recent trends in these ratings. At a basic level, reviews can be casually read to develop a feel for internal company dynamics. ‘Improving Workplace Culture, One Review at a Time’ by The New Yorker provides some interesting and relevant background to Glassdoor and its practices.


There are two critical caveats. First, employee reviews ought to be taken with a pinch of salt as various factors may impair their objectivity. Second, leadership is not a popularity contest. Depending upon a company’s circumstances, a low CEO rating and/or less favorable reviews by employees may be at least temporarily unavoidable and justifiable.


With that in mind, a number of institutional investors claim to integrate Glassdoor in their investment decision-making process. There is also one public example of a company, namely Salesforce, which at least on one occasion used the tool as an M&A filter to assess the quality of potential targets, in line with the enriched acquisition due diligence process advocated above.


The largest companies have more than 2,000 employee reviews each on average, equivalent to a few books filled with perspectives on any firm’s culture. As a result, there is a lot of data which can be mined to form a more scientific and fairer view on a company’s culture than what is available through a cursory reading. Indeed, the size of the sample reduces the degree of polarization and thus pollution in the reviews.


M.I.T. Sloan did exactly so earlier this year. The M.B.A. school analyzed the textual data contained in 1.2 million Glassdoor reviews for 500 leading companies. The report attempts to ‘measure’ culture by dissecting the reviews using a natural language processing (NLP) algorithm alongside nine culture drivers: agility, collaboration, customer, diversity, execution, innovation, integrity, performance and respect. The researchers provide on their website a perspective on the relative importance and contribution of each of these drivers to any given firm’s culture and on how any such firm ranks on these drivers versus its peers.


Industrial Technologies companies* represent about 5% of the 500 companies under the M.I.T. Sloan microscope. When looking at the top 50 by culture drivers, I calculated that they are over-represented when it comes to Integrity and, to a lesser extent, Performance. They are, however, underrepresented when it comes to Innovation and Agility. This is not a forgone conclusion. Rather, it represents two areas for improvement in the sector, both from a reality and perception viewpoint. Increasing the scores on Innovation and Agility would help Industrial Technologies companies attract a talent which is currently been wooed by tech companies which typically rank high on these drivers.


Glassdoor has become unavoidable by forcing the issue of transparency when it comes to firm culture and employee engagement. Organizations now operate like restaurants with an open kitchen. There are many detractors out there who do not value nor trust the site, the information available on it and the underlying business model. Yet, whether liked or not, fair or not, its reality cannot possibly be ignored. At a minimum it is a matter of brand management and equity story. At best, it is also a source of valuable input to any organization.


* In the M.I.T. Sloan research report, defined as « Industrial conglomerates » and « Electrical equipment » companies

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