Inside and out.
Companies that draw on a wide variety of voices from within their own workforces to advance diversity and inclusion are often better aligned with their customers’ needs.
All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.
In our research and engagement, we place most emphasis on those issues which could have a material impact on the long-term sustainability of a business. Diversity and inclusion (D&I) is often one of the major considerations. Many of our portfolio companies well understand its importance, while others are waking up to the potential risks of ignoring it.
As with most things, the assessment of diversity and inclusion needs to go beyond the optics – the headline statistics and ESG scores – to a fuller exploration of the motivation and actions behind them. At Netflix there has been a very conscious decision both to structure the workforce to reflect the global population and to be deliberately inclusive. Netflix added inclusion as a cultural value in 2017, believing it to unlock its “ability to innovate, to be creative, to solve problems” and thus better entertain existing and future subscribers. This is part of a broader strategy to tell stories that others aren’t, and represents a deliberate inversion of the traditional Hollywood-centric approach.
Netflix published its first inclusion report earlier this year. It shows good progress, but the firm continues its drive to have this reflected on screen. This starts with the writers and involves the internal Netflix community. To this end, the company has established the Netflix Fund for Creative Equity. It will invest $100m over the coming five years in organisations that help members of under-represented communities get training and find employment in TV and film.
Why is this important to LTGG and what is its impact on the investment case and the potential upside for the business? This approach to content moves Netflix away from a one-to-many model and towards a
many-to-many dynamic. Not only is that a disruptive hook that encourages deeper engagement, but it is also more effective because content for one audience can find new audiences in unpredictable ways. Although content will be created for smaller audiences, the company can track when shows and movies break through to other unexpected demographics. This feedback loop should allow Netflix to continue to improve and build a larger loyal subscriber base.
Diversity is important to the home fitness brand Peloton’s growth for similar reasons. In order for it to be truly mass market, its on-demand exercise classes must appeal to a diverse range of people. For this reason, both the firm’s instructor base and its senior leadership team have become more diverse in terms of gender, race and nationality over the period of our ownership of the stock.
One of the company’s priorities is to further increase the diversity of its instructors, so that its content library caters to as many different people as possible. A positive step in this direction has been its addition of German and Spanish speakers. Their classes serve not only its international markets but also Spanish speakers in the US.
Beyond these initiatives, which promote the company’s long-term growth, the management team announced the Peloton Pledge last year. This is a commitment to pay hourly employees better rates, at a cost of $80m over the next four years. As a result these workers, who are disproportionately non-white, will get $19 per hour. That compares to Amazon’s equivalent wage of $15 and the $7.25 federal minimum. In addition, the firm pledged to ensure these staff get access to learning and development opportunities. Peloton has also set aside a further $20m to help its non-profit partners fight racial injustice.
Adyen, which operates a global payments platform, believes diversity is a key driver for innovation and its ability to service and grow a multinational merchant customer base.
The ‘Adyen formula’ – key principles that support the company’s culture – calls on staff to include other people’s perspectives to sharpen their ideas.
The aim is that each of its teams encompasses a broad set of philosophies, with emphasis placed on ‘intellectual diversity’. This doesn’t necessarily correlate with diversity of race or gender, but the company recognises that these factors can nonetheless play an important role.
In 2020, the company formed a diversity, equity and inclusion working group. It prioritised areas for improvement in the spirit of its formula. They include a more balanced representation of genders. Today female staff are 34 per cent of the total, 29 per cent of team leads, and 16 per cent of management. The firm is also making efforts to recruit new workers from historically under-represented groups and giving all staff regular unconscious bias training.
Much like Adyen, Shopify views diversity and inclusion as a driver of innovation. The company’s goal is to create more entrepreneurs and to align itself with their success. Shopify sees these entrepreneurs as a source of energy, and wants to enable them rather than put obstacles in their way. It sees this as a democratisation project with which its own fate is bound. It’s not just that Shopify is being inclusive. Its business won’t succeed over the long term unless it can encourage people from all communities to become entrepreneurs. To that end, Shopify practises outreach on an industrial scale. Last year it ran more than 1,000 classes, workshops and meet-ups for local communities, and has further initiatives under way.
The case of Moderna and the development of its Covid-19 vaccine provides a different perspective on D&I. Inequality in medicine is nothing new, but it’s our understanding that ‘equitable design’ is not just an ESG issue; it’s also good science. Unrepresentative clinical trials could miss side effects suffered by some groups. And researchers could fail to recommend therapies for certain people because they were under-represented in trials. These are both commercial and societal failures.
Ensuring racial and ethnic diversity in clinical trials was especially important for the development of Covid-19 vaccines given the disease’s disproportionate toll on people of colour. Studies indicate that people of colour and particularly Black adults have historically had lower vaccination rates and been more likely to express concerns about vaccines. Diversity within clinical trials helps to ensure safety and effectiveness across populations and may also increase confidence. Given this, we were encouraged by Moderna acting to slow enrolment into its Covid-19 trial to ensure there was minority representation. It took the decision despite the risk of its programme falling behind that of its closest competitor, Pfizer.
While Moderna is trying to ensure equitable representation, more recent conversations with Dexcom, the manufacturer of continuous glucose monitoring systems, have been a little disappointing. With approximately half a billion individuals living with diabetes globally, the market for its devices is considerable. We recently spoke to Dexcom’s management about international expansion and specifically its plans for India and Brazil. Together the two nations account for roughly 20 per cent of the diabetic population. We detected reluctance to expand into certain geographies based on deflationary economics. While this is rational and capital preserving, it’s not indicative of a patient-
While there is always more to be done, we can conclude that it is increasingly important for companies and organisations to represent society as a whole. Nowhere are we more conscious of this than in our own organisation – we know it’s important to clients. If you would like to hear more about Baillie Gifford’s approach to diversity and inclusion please visit our website or speak to your client contact.
The views expressed in this article are those of the LTGG Team and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.
This communication was produced and approved in October 2021 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
Potential for Profit and Loss
All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.
Any stock examples and images used in this article are not intended to represent recommendations to buy or sell, neither is it implied that they will prove profitable in the future. It is not known whether they will feature in any future portfolio produced by us. Any individual examples will represent only a small part of the overall portfolio and are inserted purely to help illustrate our investment style.
This article contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.
All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.
The images used in this article are for illustrative purposes only.
Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.
Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.
Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.
This document is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.
Baillie Gifford Investment Management (Europe) Limited provides investment management and advisory services to European (excluding UK) clients. It was incorporated in Ireland in May 2018 and is authorised by the Central Bank of Ireland. Through its MiFID passport, it has established Baillie Gifford Investment Management (Europe) Limited (Frankfurt Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Germany. Similarly, it has established Baillie Gifford Investment Management (Europe) Limited (Amsterdam Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in The Netherlands. Baillie Gifford Investment Management (Europe) Limited also has a representative office in Zurich, Switzerland pursuant to Art. 58 of the Federal Act on Financial Institutions (‘FinIA’). It does not constitute a branch and therefore does not have authority to commit Baillie Gifford Investment Management (Europe) Limited. It is the intention to ask for the authorisation by the Swiss Financial Market Supervisory Authority (FINMA) to maintain this representative office of a foreign asset manager of collective assets in Switzerland pursuant to the applicable transitional provisions of FinIA. Baillie Gifford Investment Management (Europe) Limited is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co.
Baillie Gifford Asia (Hong Kong) Limited 겝샘亞碌(窮멍)唐掘무鱇 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 and a Type 2 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 겝샘亞碌(窮멍)唐掘무鱇 can be contacted at Suites 2713-2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.
Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.
Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.
Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a ‘wholesale client’ within the meaning of section 761G of the Corporations Act 2001 (Cth) (‘Corporations Act’). Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client. In no circumstances may this material be made available to a ‘retail client’ within the meaning of section 761G of the Corporations Act.
This material contains general information only. It does not take into account any person’s objectives, financial situation or needs.
Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.
Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.
The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission (‘OSC’). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford International LLC is regulated by the OSC as an exempt market and its licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.
Baillie Gifford Overseas Limited (‘BGO’) neither has a registered business presence nor a representative office in Oman and does not undertake banking business or provide financial services in Oman. Consequently, BGO is not regulated by either the Central Bank of Oman or Oman’s Capital Market Authority. No authorization, licence or approval has been received from the Capital Market Authority of Oman or any other regulatory authority in Oman, to provide such advice or service within Oman. BGO does not solicit business in Oman and does not market, offer, sell or distribute any financial or investment products or services in Oman and no subscription to any securities, products or financial services may or will be consummated within Oman. The recipient of this material represents that it is a financial institution or a sophisticated investor (as described in Article 139 of the Executive Regulations of the Capital Market Law) and that its officers/employees have such experience in business and financial matters that they are capable of evaluating the merits and risks of investments.
The materials contained herein are not intended to constitute an offer or provision of investment management, investment and advisory services or other financial services under the laws of Qatar. The services have not been and will not be authorised by the Qatar Financial Markets Authority, the Qatar Financial Centre Regulatory Authority or the Qatar Central Bank in accordance with their regulations or any other regulations in Qatar.
Baillie Gifford Overseas is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.
Ref: 12928 10004717