CFA South Africa September 10, 2009 Culture as a Strategic Advantage

1. CFA South AfricaSeptember 10, 2009Culture as a Strategic Advantage James Ware, CFA 847.373.8853 jware@focusCgroup.com www.focusCgroup.com

2. What is your firm’s competitive advantage? • Great people • Superior processes • Unique Investment philosophy • Work ethic • Creativity • Independent • Owner mentality • Ethical/Trustworthy • Leading edge IT • Focused, limited products www.focusCgroup.com

3. 3 Key Measures of Competitive Advantage • Trust: building it and maintaining it • Culture: defining and living it • Management: creating excellent teams“What you can measure, you can manage.” www.focusCgroup.com

4. Overview of Culture • What is it? Defining Culture • Why is it important? Benefits of Strong Culture • How do you Measure and Manage it? Metrics • Values • Strategies www.focusCgroup.com

5. Culture: The beliefs, values and behaviors that differentiate one organization from another. Value #1 Value #2 X X Measures: Perfect = 100% High = 72% Average = 40% Low = 18% Value #3 X X X X X X X X X = Culture Carriers: behaviors and attitudes support the chosen values X = Culture Converts: monitor and coach these employees to better reflect all the chosen values X = Culture Outlyers: behaviors and attitudes do not reflect chosen values www.focusCgroup.com

6. Benefits of Strong Culture • Attract and retain top talent. • Hire for fit much more effectively. • Orient new employees quickly into the culture. • Promote and compensate based on values. • Mentor and coach more effectively. • Better weather the tough times. • Improve decision making. • Create a stronger brand and better story for consultants and other external audiences. www.focusCgroup.com

7. Which of these values are most evident in the culture of your firm? • Accountability • Balance (home/work) • Client satisfaction • Clear performance goals • Collaboration/teamwork • Employee fulfillment/development • Ethical/Integrity • Excellence/being best • Long term perspective • Quality/precision/improvement www.focusCgroup.com

8. Which of these values SHOULD be most evident in the culture of your firm? • Accountability • Balance (home/work) • Client satisfaction • Clear performance goals • Collaboration/teamwork • Employee fulfillment/development • Ethical/Integrity • Excellence/being best • Long term perspective • Quality/precision/improvement www.focusCgroup.com

9. Culture Measurement: 3 keys • Cohesion: Are the staff members on the same page? Do they rally around the same set of values and behaviors? • Actual vs. Aspiratational: are the current values similar to the preferred values? Is the culture close to its “ideal state?” • Sludge: how much negativity is in the system? How much “bad behavior” lives in the culture? www.focusCgroup.com

10. Cohesion (Healthy) Industry 08 09High Average Low Existing Culture 22% 34%72% 40% 18% Aspirational Culture 53% 56%69% 49% 32% Cohesion is defined as the percentage of all votes that were for the top 10 healthy existing or aspirational values. Healthy values exclude sludge. www.focusCgroup.com

11. Bureaucracy/Territorial 53 Risk-averse 42 Slow moving/reactive 41 Collaboration/Team 30 Short-term focus 28 Client Satisfaction 27 Defensive 27 Manipulate/Politics 24 Balance (home/work) 21 Ethical/Integrity 20 Collaboration/Team 36 Risk-averse 36 Slow-moving/reactive 36 Expense control 34 Bureaucracy/Territorial 31 Client Satisfaction 31 Accountability/Resp. 30 Ethical/Integrity 23 Commitment 22 Defensive 22 Strengthening of existing culture 2008 2009 www.focusCgroup.com

12. Accountability/Resp. 53 Client Satisfaction 53 Collaboration/Team 45 Excellence/Being Best 40 Global (persp./leaders) 33 Creativity/Innovation 27 Ethical/Integrity 25 Long-term pers./Vision 23 Passion/Motivate 22 Quality/Precision/Imp. 22 Accountability/Resp. 58 Client Satisfaction 47 Excellence/BeingBest 42 Collaboration/Team 40 Creativity/Innovation 30 Ethical/Integrity 30 Global (persp./leaders) 26 Quality/Precision/Imp. 26 Candor/Honesty/Open 22 Adaptable/Nimble21 Strengthening of aspirational culture 2008 2009 www.focusCgroup.com

13. Areas to Strengthen from 2009 survey www.focusCgroup.com

14. Sludge: Slows down decision-making and stifles creativity Gossip Drama Defensiveness Disrespect Blame Entitlement Short-term focus Bureaucracy/territorial Manipulation/politics Slow-moving/reactive www.focusCgroup.com

15. Sludge Analysis • 2008: 34% of the total votes were for the ten sludge factors versus the 17% industry average • 2009: 22% vs. 16% for industry average • Top five sludge factors (# of votes): www.focusCgroup.com

16. From Values to Strategies • In the following slides, choose the strategy that you think creates the greatest competitive advantage www.focusCgroup.com

17. Mean = 5.7292 1) The team is mostly comprised of individual contributors/free agents and stars or9)The team is mostly comprised of team-players and loyal types • Very strongly first statement • Choice Two • Choice Three • Choice Four • Neutral/Balanced • Choice Six • Choice Seven • Choice Eight • Very strongly second statement www.focusCgroup.com

18. Mean = 6.7234 1) Leadership mostly focuses on asset gathering9)Leadership mostly focuses on investment process and alpha creation • Very strongly first statement • Choice Two • Choice Three • Choice Four • Neutral/Balanced • Choice Six • Choice Seven • Choice Eight • Very strongly second statement www.focusCgroup.com

19. Mean = 5.3191 1) The investment team mostly uses a consensus approach to investment decision making9)The investment team mostly relies on “expert” opinion for decision making • Very strongly first statement • Choice Two • Choice Three • Choice Four • Neutral/Balanced • Choice Six • Choice Seven • Choice Eight • Very strongly second statement www.focusCgroup.com

20. Mean = 5.9787 1) The investment team is large and has depth or9)The investment team is lean and nimble • Very strongly first statement • Choice Two • Choice Three • Choice Four • Neutral/Balanced • Choice Six • Choice Seven • Choice Eight • Very strongly second statement www.focusCgroup.com

21. Mean = 3.5714 1) The team believes and practices one investment philosophy 9)The team is flexible and uses multiple philosophies • Very strongly first statement • Choice Two • Choice Three • Choice Four • Neutral/Balanced • Choice Six • Choice Seven • Choice Eight • Very strongly second statement www.focusCgroup.com

22. Mean = 5.4894 1) The firm is responsive to clients, offering them what they want or9)The firm is internally driven, offering clients what they SHOULD want • Very strongly first statement • Choice Two • Choice Three • Choice Four • Neutral/Balanced • Choice Six • Choice Seven • Choice Eight • Very strongly second statement www.focusCgroup.com

23. Mean = 6.0213 1) Leadership is results oriented, emphasizing bottom line or9)Leadership is mission driven, emphasizing the “why” behind the numbers • Very strongly first statement • Choice Two • Choice Three • Choice Four • Neutral/Balanced • Choice Six • Choice Seven • Choice Eight • Very strongly second statement www.focusCgroup.com

24. Mean = 6.6875 1) The investment strategy relies heavily on process with little human judgment or9)The investment strategy relies heavily on analysis by individuals, using lots of judgment • Very strongly first statement • Choice Two • Choice Three • Choice Four • Neutral/Balanced • Choice Six • Choice Seven • Choice Eight • Very strongly second statement www.focusCgroup.com

25. 3 Key Behaviors of Top Investment Firms • Curiosity • Candor • Accountability www.focusCgroup.com

26. Above the line: Curious and Open Trust-Based “CREATIVE” Driver: desire to learn Fear-based Villain: You’re to blame! Hero: I’ll save the day! Corporate Drama Victim: Poor me… “DESTRUCTIVE” Driver: need to be right Below the line: Defensive and Closed www.focusCgroup.com

27. Candor Mastery – How do you score? 0No mastery: I lie and manipulate the truth to get what I want. • I am honest in what I say but I withhold in order to get certain outcomes. • I am honest in ALL I say and don’t have any withholds. 3. I speak candidly and am able to differentiate FACT from STORY. www.focusCgroup.com

28. F exercise: 8 is the correct answer! www.focusCgroup.com

29. Candor Mastery – How do you score? 0No mastery: I lie and manipulate the truth to get what I want. • I am honest in what I say but I withhold in order to get certain outcomes. • I am honest in ALL I say and don’t have any withholds. • 3. I speak candidly and am able to differentiate FACT from STORY. • 4. I speak candidly differentiating FACT from STORY and I hold my story lightly not needing to be right. • 5. I speak candidly differentiating FACT from STORY, holding my story lightly, and not blaming or criticizing when I speak. • 6. I model and live candor such that people around me move toward candor in their lives because of my presence. www.focusCgroup.com

30. Accountability • Accountability = • 100% responsibility + • Making and keeping clear agreements www.focusCgroup.com

31. Thank you South Africa for inviting me! • Questions, Comments? www.focusCgroup.com

32. Decision Rights Alignment Level Of Buy-in Consensus w/fallback Majority vote Subgroup decides w/input Subgroup decides Leader decides w/input Leader decides Time www.focusCgroup.com

33. Culture Cohesion (Healthy) Industry Firm AHigh Average Low Existing Culture 22% 72% 40% 18% Aspirational Culture 53% 69% 49% 32% Cohesion is defined as the percentage of all votes that were for the top 10 healthy existing or aspirational values. Healthy values exclude sludge. www.focusCgroup.com

34. Bureaucracy/territorial Risk averse Slow moving/reactive Collaboration/teamwork Short-term focus Client satisfaction Defensive Manipulation/politics Balance (home/work) Ethical/integrity Accountability/Responsibility Client satisfaction Collaboration/Teamwork Excellence/being the best Global (perspective, leadership) Creativity/Innovation Ethical/Integrity Long-term perspective/Vision Passion/Energy/Motivate Quality/Precision Top 10 Values – Existing & Aspirational Red font = sludge value Green font = Top 10 match between existing and aspirational value www.focusCgroup.com

35. Sludge Analysis • 34% of the total votes were for the ten sludge factors versus the 17% industry average • Top five sludge factors (% votes): • Bureaucracy/territorial (8%) • Slow-moving/reactive (6%) • Short-term focus (4%) • Defensive (4%) • Manipulation/politics (4%) www.focusCgroup.com

36. Manager Scorecard (Focus 14) Industry = 45 investment firms www.focusCgroup.com

37. U.S. InstituteNovember 12, 2008Leadership & Talent Development James Ware, CFA 847.373.8853 jware@focusCgroup.com Jamie Ziegler 847.853.8251 jziegler@focusCgroup.com www.focusCgroup.com