Judging Whether to do an Onsite Meeting or a Virtual One

It used to be that having a meeting meant deciding where (their place, your place, or some other location), when, and why.  If the parties were in the same geographic area, it was mostly a question of whether the time spent was commensurate with the assumed value for each of them.

The calculus was different when there were greater distances involved, including more time spent (usually much more) and significant travel expenses.  Would a phone call or series of them suffice?  Often not — there was too much on the line.

And so patterns of interaction developed, with some modest changes over time as electronic communications improved, but most important activities occurred in person.  With the advent of videoconferencing, things changed further, but overall use was relatively modest.  Then came the forced experiment of the pandemic.

Now investment organizations have extensive experience with video tools and are making choices about what kinds of interactions should occur virtually and which should be in person.  In this posting we’ll consider some of the factors involved with those choices as they relate to the due diligence of asset managers.  Similar assessments could be (and should be) performed for other functions across the investment ecosystem, including your own.

Meetings

To assess an asset management organization, there is extensive material available to asset owners, advisory firms, consultants, etc.  Websites, fact sheets, due diligence questionnaires, database submissions, presentations, performance analyses, and required regulatory reports, as well as third-party evaluations.  The depth and breadth of that information varies based upon the kind of manager under review, but there is always much to parse.

To go beyond that, those conducting due diligence usually engage directly with the asset manager.  The quality of those interactions determines whether there is any value added over and above the information (and quantitative analysis of it) available to all.

Intermediaries who make recommendations about managers often highlight the access they have to them and report the frequency of meetings with managers.  If asked, they may offer further detail.  For example, here is a (pre-pandemic) breakdown from one institutional consulting firm:

Onsite meeting at manager’s office (12%)

Video call with manager (1%)

Phone call with manager (58%)

Meeting with manager at consultant’s office (26%)

Interaction at conference or manager event (3%)

Upon seeing this, your first instinct might be to consider whether the aggregate count of “meetings” provided by the consultant is more a tally of “touches,” but that points out the key issue:  It’s impossible to tell the worth of the interaction from the categories that are given.  A phone call could yield an important discovery or it could just be a dry recitation of what did well and what did poorly over the last quarter, a nothingburger in the scheme of things.

Also, it matters who is involved.  If every call is with the portfolio manager, it might seem as if that’s as good as it gets, but that flow of information is one-dimensional and therefore likely to be of much lower quality than if a broader perspective is available.  (And that certainly applies if almost all of the information comes from an investor relations person.)  Narrow exposure to an organization limits the understanding of it.

Going on site

Edgar Schein’s classic book, Organizational Culture and Leadership, offers this simple list of instructions for someone trying to understand an organization:

1. Visit and observe.

2. Identify artifacts and processes that puzzle you.

3. Ask insiders why are things done that way.

4. Identify espoused values that appeal to you and ask how they are implemented.

5. Look for inconsistencies and ask about them.

6. Figure out from the above the deeper assumptions that determine the observed behavior.

You can argue that the list is more appropriate for an organizational consultant who has time and access than a due diligence analyst, but that points out a key gap in much due diligence practice.  Instead of discovering culture, process, and other attributes of an organization on their own, analysts lean on the narratives of managers, often accepting them as is or modestly poking around the edges of them.

As Gillian Tett wrote in her book (reviewed here), “We are creatures of our environment in a social, mental, and physical sense, and these aspects intensify one another.”  The promise of an onsite visit is to get a sense of that environment — in the hope that Schein’s “visit and observe” leads to some deeper insights than those otherwise on offer.

Yet most visits aren’t structured to encourage that.  Very often, the meetings occur in a conference room, with a standard set of interviewees (portfolio manager, analysts, marketing people) in attendance, hewing to a meeting format determined by them (usually some sort of presentation, followed by Q&A).

In contrast, a visit designed for discovery would follow an agenda set by the due diligence analyst, interviewing people (of varied functions and levels) one-on-one where they work, and focused on learning new things for the mosaic of understanding that is needed.

“Analyst capture” is possible in either case, but more likely in the first one.  Group meetings tend to be performative rather than realistic, with everyone playing their part.  Individual interviews offer more information, not because people betray trade secrets but because they naturally describe how things work.  And getting out into the organization opens up new avenues of inquiry and observation, including how the office is structured (the kinds of work spaces and who sits where) and the nature of the activity within it, all good indicators of culture.  Plus, the artifacts in an office or cubicle provide clues about the people within them and about the organization.  Most importantly, being where the work gets done gives you the ability to ask “show me” questions that inform your understanding of the elements of investment process.

There is a big difference between conducting a visit to confirm what you already believe and being open to new evidence and possibilities.  The design of a visit should maximize discovery and push on the boundaries of transparency — not follow a standard playbook.

Where can’t you go?  Who can’t you see?  What won’t they talk about?  Why?

Going virtual

The pre-pandemic breakdown of consultant visits listed above showed that only 1% of its contacts involved video calls with managers.  No doubt it is much higher than that now and may even constitute a majority of interactions.

While a virtual meeting doesn’t offer the advantages that really getting immersed into an organization does, it can be a workable substitute for the standard conference room meeting.  It is preferable to have the parties appear in separate video feeds, since it can be hard to see the reactions of people arrayed around a table (one of the few advantages of being in a group meeting).  While analyzing facial expressions and body language is always hit and miss, given the extent of our use of video tools over the last five years, we can probably come close to judging people’s reactions as well as we could in person.

To improve the discovery process when doing due diligence from a distance, it helps to copy those aspects of the recommendations for onsite meetings given above if they are feasible.  You still should try to interview individuals from different roles and parts of the organization; sometimes it is even easier to do so virtually than during an onsite meeting, since people may work at a variety of locations.  Other basic tenets can be mimicked:  Your agenda, no presentations, one-on-one meetings.  The key missing pieces in a virtual setting are those observations and inferences that can only come when you are on location.

Making choices

Given that the constrictions related to the pandemic are now behind us, those doing due diligence have been making choices about whether to continue with their previous practices regarding onsite visits or to replace some of those meetings with virtual ones.  (That is in addition to the increased use of virtual meetings to replace many of the interactions handled by phone before.)

There are obvious time and cost advantages to cutting out travel and going virtual, so organizations doing due diligence need to weigh those advantages against the possible repercussions of not “kicking the tires” in the old-fashioned way.

The crux of the matter is what you feel you get out of in-person meetings and how to value those hard-to-value benefits versus the costs, which can be easily calculated.  What are you looking for?  And what is the best way to get what you are after?  Being specific about your goals at various stages in the process and across time can provide general rules (and exceptions) to guide you.

That applies to both initial due diligence and ongoing, “maintenance” research.  Regarding the latter, perfunctory quarterly updates are usually lost opportunities.  Instead of talking to the same person about the same short list of topics, the time should be spent on expanding your knowledge base about the firm into new topics through new contacts.

Many involved in due diligence have already lowered the frequency of onsite visits, deciding that virtual interactions sufficiently meet their needs.  It will be interesting to see where the new normal is — whether the trend will continue in that direction or whether there will be a reversal.

Parting thoughts

If you have read the Investment Ecosystem for very long — or certainly if you have attended a workshop or taken an online course* — you know that the qualitative analysis is at the core of what we do, and that onsite due diligence is strongly preferred, but only when it can be performed in ways that allow for substantive discovery.  Otherwise, it is not worth the incremental time and resources.

Virtual tools can be extremely helpful in some situations.  They also allow for experimentation in practices — and for backing away from onsite visits when the payoff isn’t clear but the costs are.  But the shortcomings can’t be minimized.

On the other hand, those who can leverage access to go deeper into organizations — to not just see what they are today but to make good assessments of what they are likely to become — may find that onsite visits are even more valuable now than they were before, especially relative to what their competitors are doing.

 

*There is much more on these topics in the Meetings and Interviewing modules of the Advanced Due Diligence and Manager Selection course (or as part of the course-plus-coaching option).