Why Some Investors Care About Culture

The other day, two investors from a major shareholder of Zillow Group visited our head offices. Fresh off our Q1 earnings report, I was well-versed in our figures and prepared to answer their questions about our financial results, business metrics, product strategy, market size and most recent wins and opportunities.

They asked about none of that.

For an hour, all these major investors wanted to talk about was leadership and culture. They started by asking about lessons I’ve learned from other great leaders who’ve been guests on my Office Hours podcast – Sheryl Sandberg, Dick Costolo and General David Petraeus, among others. They asked about our core values and how we put them into action. They asked about our approach to career and people development and how we motivate our employees. They asked how I engage my direct reports and think about their career paths. They asked how we compete for talent.

In my entire professional journey – spanning private equity, Hotwire and Zillow Group – never have I had such an intense discussion with investors about the leadership and culture of any company.

According to these fund managers, Zillow Group’s performance in these areas is the top reason they invest. Music to my ears. We see examples of celebrated cultures and inspirational leadership in the world’s most valuable companies: Google, Amazon, Facebook. Conversely, we see the cancer caused by poor leadership and culture, with scandals shaving tens of billions off their valuation: Volkswagen, Wells Fargo, Uber.

For years I’ve been outspoken about the importance of company culture as a way to recruit, retain and motivate great employees. Culture isn’t defined by office perks like free dry cleaning, nap rooms and in-house masseuses; culture is defined by how decisions are made about product and people. While my opinions haven’t fallen on deaf ears, they definitely hadn’t made the investor list of questions until this past meeting. I hope that the spate of recent scandals at other companies is causing investors to look harder at culture before investing, either when buying stock in a public company or investing in a private company.

In the transparent world we live in, a toxic culture can topple even the most lauded companies because misbehavior will inevitably be exposed. Susan Fowler’s blog post lifted the lid on Uber’s bro culture that ignored sexist and discriminatory actions, and it continues to generate shock waves throughout the tech industry; Volkswagen’s “Dieselgate” exposed the authoritarian culture that drove engineers to write software that falsified pollution emission tests; Wells Fargo’s ghost accounts scandal eroded public trust due to incentives focused on quick profit over customer benefit. In a world where everyone is a reporter through their social channels and personal blogs, whatever bad behavior lurks beneath their employer’s shiny surface will come to light eventually.

The flip side is that good behavior will get noticed, too. If you treat your employees with respect, if you encourage dissent, if you value diversity, if you care about your people as both contributors and human beings, if you work as a team, if you lead with transparency and give employees a mission to connect with and get excited about every day – that will show itself in results. The best and the brightest will want to work for your company; they’ll want to stick around, and they’ll want to further your mission because they’re part of it. That’s the thing about good behavior – it’s rewarded. It was encouraging to meet with a fund manager who has put company culture front and center in its investment evaluation process.