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How Zillow Group's Culture Helps It Compete for Your Investment Dollars

Fortune is out with its list of best technology companies to work for, and guess who has clocked in at No. 4 . . . Zillow Group (NASDAQ: Z) (NASDAQ: ZG) .

A company's culture is rarely accounted for in the financial statements and other numbers a shareholder focuses on. Yet it may be one of the more important factors in determining where to put your investment dollars.

Zillow employees and view from Zillow headquarters in Seattle, Washington. Image source: Zillow.

What is culture?

Culture, as defined by Merriam-Webster, is the "set of shared attitudes, values, goals, and practices that characterizes an institution or organization".

It is management's job to set the goals, create a team that has a clear understanding of those goals, and provide them with the tools and resources to necessary to achieve them. The culture is the underlying atmosphere of policies, practices, and self-regulated norms that drive the various teams within a company to meet those goals successfully.

When a company wants to measure how consumers view the company or its products, management typically turns to a metric called the Net Promoter Score. To obtain the score, consumers are asked to answer one question:

How likely is it that you would recommend our company/product/service to a friend or colleague?

The aggregate response of multiple consumers is valuable guidance for a company that is focused on pleasing its customers.

Zillow shines on Glassdoor

Investors can refer to a similar metric for company culture by visiting the career website Glassdoor and looking at two scores: (1) the impression employees have of the CEO, and (2) whether employees would recommend the company to a friend.

Glassdoor aggregates reviews from company employees and job seekers who are willing to share their experiences working or interviewing at a company. On the site, company employees are asked to answer two important questions:

Do you approve of the CEO?

In the case of Zillow, an impressive 96% of employees approved of CEO Spencer Rascoff, putting him on the list at No. 23 for top CEOs at large U.S. companies in 2016.

The second question, which mirrors the Net Promoter Score, is:

Would you recommend Zillow to a friend?

Zillow scored an 86% in this category, which earned the company 29th place on the Best Places to Work list for 2017.

Here is how Zillow and its CEO, Spencer Rascoff, have fared in Glassdoor rankings over the past few years:

Year Company Rank CEO Rank
2017 29th Award to be determined later this year
2016 10th 23rd
2015 33rd Not in the top 50
2014 26th 6th

Data source: Glassdoor. Chart by author.

The ability of employees to rate where they work can be a key indicator of employee job satisfaction. Investors can incorporate this information into their thinking as to how a company will perform going forward. If the company can rely on its workforce to stay at the company, it lowers the total cost of training and hiring replacements. It also can speak to the efficiency of the workforce as the collective knowledge within the company is retained based on employee continuity.

Is company culture the most important factor for an investor to focus on?

Company culture is a very important factor but not the most important. The business must be attractive in and of itself. If the business model fails to deliver profits, even the best company culture will not be able to overcome such serious shortcomings.

So when an investor compares investment opportunities, company culture should be considered another piece of the puzzle. An easy option is to check Glassdoor for ratings, or even better, speak with people who work for or with the company. Check company press releases to find out if they have recently won any industry or community awards. All in all, by adding company culture to your tool kit, you get the added benefit of a metric that plays an important role in creating long-term value for a company (and eventually, your portfolio).

Image source: Zillow.

Zillow has formed the kind of culture that investors would want to see, and that is demonstrated by Fortune 's selection of the company as the fourth best technology firm to work for. This is particularly important for companies in this industry where the competition to recruit talented employees is fierce. Providing potential hires with clear indicators of a welcoming work environment and experience can be a key differentiator for winning new recruits who go on to fuel future growth and innovation.

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Frank DiPietro owns shares of Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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