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In a democracy, it is said, we get the government we deserve. The same can be said of bestselling guru prescriptives.
Malcolm Gladwell's new book What the Dog Saw, a compilation of some of his favorite New Yorker pieces, has drawn both praise and criticism. Personally, I'm not a big Gladwell fan. Shoot me. I'm told he's an interesting person. And he knows how to tell a good anecdote. But, at the risk of oversimplifying my critique of his work ... he oversimplifies.
The general thesis of Blink, for example, was "trust your gut ... except when you shouldn't." Okay ... but why can you trust your gut sometimes, but not others? What does that tell us about what "gut" instinct really is? And what does that mean in terms of how we process information in the world? And what do we do with that knowledge? The really interesting points are left dangling. Why? I don't know, but I suspect it's because they're complex and not easily summarized ... and might muddy the simple and easily-grasped ideas or conclusions that are a trademark of Gladwell's work.
If I'm not a fan of Gladwell, it's because I want to see robust logic behind an argument, depth to its exploration, and acknowledgment of the complexities and contradictions it may entail. Simple, neat answers don't appeal to me, because they don't resonate with what I've experienced in the world. But clearly, I'm an outlier in that regard.
Judging from the sales of not only Gladwell's books, but the plethora of "3 step," "7 habits," "9 insights" and other success-formula books on personal and business improvement, there's an almost ravenous hunger in the world for simple answers on how things work and how to get the game right. And that hunger has only gotten more intense as the world has gotten more complex.
It's an interesting phenomenon. Surely one part of our brain knows that the world, or even the world of business, is more complex than the raft of simple, success-formula books promises. And yet, like a woman who, despite multiple failed affairs, convinces herself that this married man will surely leave his wife, we ... or at least a good number of us ... keep buying the fantasy. We keep being drawn to simple-sounding answers and solutions--to the tune of almost $13 billion a year. Even when, or perhaps because, they don't pan out to be true, as a writer for The Economist pointed out in a recent column.
"The Three Habits ... of Highly Irritating Management Gurus" takes the writers of those "3-step" and "7-habits" books to task on several fronts. First, for repackaging stale ideas as breakthrough insights. Second, for using seemingly "model firm" anecdotes to prove their points without a lot of rigorous research--anecdotes that often prove embarrassingly untrue several years down the road. And third, for ... well, peddling those "three habit" success-formula lists and prescriptives.
But "the most irritating thing of all about management gurus," the author writes, is that "their failures only serve to stoke demand for their services. If management could indeed be reduced to a few simple principles, then we would have no need for management thinkers. But the very fact that it defies easy solutions, leaving managers in a perpetual state of angst, means that there will always be demand for books like Mr. [Stephen] Covey's."
Ironic, but true. If writers come up with list-based solutions, and oversimplified trends or observations, it's because there's a far larger audience for that kind of book than one titled, "Some interesting ideas that might prove useful to think about as you make your way through a very complex world."
But why is that? One would think that we'd rather have a book that offers realistic assessments and thoughts on the tough choices and complexities we face than simple panaceas that sound terrific or comforting but describe a world that bears little resemblance to the mess we generally find ourselves navigating.
If we don't, it's at least in part because humans are just so uncomfortable with ambiguity. There are all kinds of psychological studies on that point. We desperately want there to be a pattern, an orthodoxy, a model, or a formula we can simply implement or follow to find our way back to safe, clear, and happy endings. Even if we're told that real wisdom, strength and growth come from figuring it all out for ourselves, as we go.
What's more, this tendency may be getting stronger in the next generation. I interviewed a business school professor yesterday who told me that she thinks MBA students today have a far lower tolerance for ambiguity than students she taught 20 years ago. She attributed the shift to the fact that many of today's students grew up with tightly scheduled lives and activities, leaving them little experience in exploring the world without structure, expectations, or guidelines. I think another factor may be the pressure they feel to achieve and get the "right" answer.
But whatever the reasons are, if her observation is true, then it's cause for concern. Because there are dangers to oversimplification, as recent events in both our economy and Iraq have painfully reminded us. No matter what we might like to be true, successful leadership in an increasingly complex world is going to depend not on condensing it to simple terms, or finding the right prescriptive formula, but on getting comfortable enough with ambiguity and complexity to see a way through it. One thoughtful, creative and unique step at a time.
In the 1840s, a French economist named Frederic Bastiat wrote:In the economic sphere, an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen. There is only one difference between a good economist and a bad one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those which must be foreseen.
In layman's terms, this is the law of unintended consequences, and it plays out, like Murphy's Law, in more spheres than just economics. And while not all unintended consequences are negative, we notice most when an attempt to improve something ends up with an unexpected counter-effect. The saying "the road to Hell is paved with good intentions" refers not only to those who think of doing good but don't act, but also those who think they're acting to a good end but end up causing harm.
The conundrum of the law is that, in many cases, the two types of effects are too closely linked to separate out cleanly. Eliminating the unintended negative consequence would require eliminating the positive effect, as well.
The first time I went to Sudan, for example, I interviewed aid workers and pilots who were flying relief supplies into regions of the country that had been decimated by 18 years of civil war. Without the supplies, people would die. But the local population had also grown dependent on the handouts, and some of the aid was being stolen by troops and helping to support continued fighting. What do you do in a situation like that? In that case, the need to stave off death by starvation was deemed more important than the subtler problems of stolen food and long-term economic impact.
But the issue gets stickier when the "seen" effect isn't addressing a need that's quite so dire or immediate. Take the case of a second-hand bookseller in Salisbury, England who claims he was put out of business by Oxfam--a non-profit organization that, ironically, was one of the organizations sending supplies into war-torn Sudan.
Oxfam does a lot of good work in the world. The United Nations camps for Darfur refugees I visited a couple of years ago in eastern Chad had been set up and were being run by Oxfam personnel who were sacrificing a lot to be there. Doing that work, of course, requires money. U.N. contracts supply part of the organization's operating budget, but Oxfam also relies heavily on charitable donations. According to a recent New York Times article on the subject, Oxfam also receives $500 million a year in support from the British government. Like many chartitable entities, from Goodwill to local hospital foundations, Oxfam also runs a series of shops where it sells donated goods. The proceeds help to support its development and aid programs around the world. It's a win-win for everyone -- donors get a tax break, starving children in Africa get food and clean water.
But here's the sticky part. Oxfam has opened up 130 used book stores around Europe, which bring in a reported $32 million a year ... and are competing with small, mom-and-pop used booksellers in the same neighborhoods. Oxfam has renovated, clean, and similarly-designed and decorated storefronts ... which it can afford to invest in, because it has government support, volunteer workers and tax-deductible, donated products. So it has a market advantage because of its special status as a non-profit organization--an advantage that at least a couple of booksellers claim has put them out of business.
The Oxfam spokesperson quoted in the Times article seemed a tad insensitive, at best, when he shrugged and quipped "Independent candle makers don't have the business they once had either. And if someone's business model is so marginal that an Oxfam shop opening nearby decimates it, then we are not the problem." This, mind you, from an organization that deals almost exclusively with people around the world whose "business models" are so marginal that they would not survive at all without outside assistance.
Marc Harrison, a former Catholic priest who had to close his second-hand bookstore when he couldn't pay his mortgage this past summer, accused Oxfam of "destroying lives here to save them elsewhere."
It's true, of course, that Oxfam's proceeds go to a good cause, instead of personal pockets--although part of its operating budget is the salaries of its worldwide personnel. It's also hard to argue that a former priest who has to close his second-hand bookshop because he can't pay his mortgage is a greedy capitalist. I would wager, in fact, that one doesn't open a second-hand bookstore for the golden profits it's going to garner, any more than people open animal shelters for the good, easy money involved. It's more about preserving something considered precious and finding orphans good second homes. And while the world is not fair, and businesses often have an edge over a competitor because of more favorable loan or other business terms, the Oxfam case does seem to represent particularly unfair competition.
It's an argument that has been raised before, in many different sectors. In trade negotiations in the aerospace industry, Boeing argued that Airbus had an unfair edge because of its government subsidies; Airbus argued back that Boeing had benefitted from NASA's research, which was a subsidy of a different sort. And NASA itself has been accused of unfair competition in soliciting new business to try to shore up its ever-changing and unsteady Congressional funding. NASA had always allowed private corporations to use its test facilities for a fee, but the fee used to be less than what other commercial test centers charged, because much of the overhead was covered by civil-servant salaries. Private industry objected, and NASA ceded the point, changing to a system of "full cost accounting" which put its costs at a more comparable level to that of private entities.
But it's easier to make those adjustments in a field where business is done by contract pricing. It would be harder to implement that kind of "level-playing-field" shift in the used bookstore market. The used clothing industry--also populated by many non-profit organizations--has a small commercial component, as well, but most for-profit "consignment stores" (the upmarket term for a used clothing outlet) tend to be pickier about the quality of their products to differentiate themselves from the everyday thrift stores. They also offer donors a piece of the profits, to lure customers who might otherwise donate the clothing to a non-profit outlet.
Perhaps booksellers could follow the same model, although the profit margin may not be big enough for that to create much incentive in the used book industry. But regardless, the question of non-profits generating funds through commercial means--while a staple of support for charitable organizations for many years--can sometimes unintentionally cross into some muddy, gray areas of commerce, fairness, and collateral damage. Successfully navigating the lines between good works, self-sustaining funding, and commercial competition and rights is a tough challenge. And a solution that preserves the good benefits while avoiding the negative side-consequences may prove as elusive in Salisbury as it did in Sudan.
Non-profit organizations do a tremendous amount of good in the world. But just as with the work they do around the world, the irony remains that a good intention, and even really good work, can sometimes carry with it "unseen" and unintended consequences. At home, as well as abroad.
(Photo: Flickr/greencandy8888)
(Photo: Flickr/greencandy8888)
At first glance, I thought that Alan Deutschman's new book, Walk the Walk: The #1 Rule for Real Leaders, was an exercise in belaboring the obvious. Just as Malcolm Gladwell's book Blink can be reduced to "trust your gut," I thought Deutschman's premise that top CEOs and leaders need to "walk the walk, not just talk the talk," was too obvious to warrant repeating, let alone spend 176 pages discussing at length. But after reading both the book and the business section pages over the past few days, I've decided I was wrong. On two fronts.First, it appears that Deutschman's premise about the importance of management being authentic, honest, and not asking anyone beneath them to meet any standard or make any sacrifice they're not prepared to meet or make themselves is clearly not as obvious or widely understood as I once might have thought. Take yesterday's column by David Carr of the New York Times about the management at the Tribune Company arguing to a bankruptcy court--after leading the company into bankruptcy (in no small part because of a badly-conceived, heavily-leveraged purchase that left the company saddled with debt) and depriving more than 2,000 employees of jobs-- that the managers should be awarded between 45 to 60 million dollars in performance bonuses. The bonuses are necessary, the company's lawyers argued, because getting a company out of bankruptcy is hard work, and "not being rewarded for hard work and hard effort is demotivating."
No kidding. As Carr says, tell that to the 2,000 journalists and other Tribune personnel whose reward for hard work and hard effort was the elimination of their jobs.
The stunning obliviousness of the Tribune management reminds me of a definition I heard a long time ago for "chutzpah": someone who kills his or her parents and then pleads mercy from the court because he or she is an orphan. Run a company into bankruptcy, and then plead with the court that running a bankrupt company is hard, so you need extra money to do it. That takes ... well, chutzpah. Among other things. Not to mention the fact that $60 million (if all the management performance numbers were met) would give every laid-off staff person $30,000 a year. Think of the products the Tribune could actually produce for that amount of money.
Compare that, for a moment, to some of the military and business leaders Deutschman uses as examples--from Alexander the Great, who took more hits on the front line than any of his soldiers, to Norman Schwartzkopf, who insisted that officers in his command eat the same food and meet the same fitness standards as the troops they commanded. Or Bill Hewlett of Hewlett-Packard, who Deutschman says made every employee, including himself and his entire top management team, take every 10th day off without pay, rather than laying off any employees in the recession of 1970.
Another point Deutschman makes is that a great leader has, in the words of Urban Meyer, head football coach at the University of Florida (where Tim Tebow plays), "the ability to make the level of play of everyone else around him better." Again, a seeming statement of the ridiculously obvious. But consider this piece on Bank of America's outgoing CEO (and former chariman) Ken Lewis, who announced last week that he was retiring--although he said he'd stay on through December because a successor wasn't waiting in the wings. And why wasn't a successor waiting in the wings? Because, according to the article's author, Joe Nocera, Lewis "brutally fired many of the firm's most talented executives, seemingly afraid to be surrounded by potential successors."
So, Lewis wasn't well liked, or good at nurturing or inspiring good performers around him. But not every leader has to be liked to be successful, right? Possibly. But they have to be respected, at least. And ... oh yeah, successful. But during Lewis's tenure, he also made a series of less-than profitable business decisions and purchases, including the purchase of the notorious mortgage disaster known as Countrywide Financial, not to mention the Merrill Lynch mess, that caused the stock to return negative 13 percent while he was in charge.
And yet, Nocera reported, Lewis has taken home $60 million in compensation over the past three years. Clearly, the idea that a good leader--one worth compensating obscenely well-- should be someone who not only exceeds expectations but also inspires better performance in those around him and sacrifices with the troops, is not a patently obvious or well-understood idea at the top levels of Bank of America. Or among executives at any number of other financial institutions and corporations who have spent the last year boggling many people's minds at their capacity for tone-deaf and enduring senses of entitlement. So much so that the entitlement-laden gestures and complaints aren't even eyebrow-raising to many people at this point.
So maybe the more interesting question is: Are these executives beyond hope? Are really great leaders born, and these executives simply don't have what it takes? Or, even if great leadership traits can be learned, are they traits we have to learn in childhood, not at age 55? Or can they be rehabilitated into better behavior and leadership?
Deutschman doesn't get into whether leadership traits are innate or acquired. But he does sketch out, at the end of his book, some traits that he believes are essential in a great "leadership personality": focus; empathy; relentless authenticity; belief not only in themselves, but also in others and in change itself; resilience; and dogged persistence.
Another person's list might differ. But I found the list interesting food for thought. For one thing, "empathetic" isn't generally the first word we hear when Wall Street and corporate titans are described. Brilliant, focused, ruthless, sharply analytic, and relentless, yes. But authentic and empathetic ... not so much. That might explain a lot. (Also ironic to see empathy given such big play in a business book, after all the argument about it in Sonia Sotomayor's confirmation hearings.)
But just for argument's sake, let's say Deutschman is right, and the traits he lists really are the essential pre-requisites for a great executive or leader. Can they be taught in business school, or in a business setting? Or do we simply have to start looking for a different kind of leader in the first place?
Evolutionary psychologists are only beginning to look at how individual personality traits may evolve (as opposed to more basic domains of survival, sexuality, parenting, community, cooperation and aggression). But a recent paper on the subject by David Buss, professor of psychology at the University of Austin, noted that "virtually all personality characteristics ... show heritabilities in the range of 50% and substantial cross-time stability, even over spans of decades."
Which still leaves 50 percent, of course. And education and training can certainly help strengthen or mitigate someone's natural tendencies. After all, belief in a person's ability to change is, itself, one of the traits Deutschman says great leaders possess.
On the other hand, if the traits Deutschman lists as important really do have a significant genetic component, and personality traits have substantial stability over time, then it might not do troubled executives much good to read Deutschman's book. But even if that's the case, it could still prove useful to the rest of us ... if only in underscoring the seemingly obvious fact that we might want to give a little more attention to the personality traits of who we hire to run things. Walking the walk, it turns out, is a lot harder, and rarer, than one might imagine.
Photo Credit: Flickr User lumaxart
When I was 19, I spent a summer working in the craft shops of Colonial Williamsburg, in the Tidewater area of Virginia. I was the only Yankee within sight, and my southern colleagues would say, repeatedly, that they could tell I was from New York.
"Why?" I'd ask. "My accent?"
"Nah," they'd answer. "Because anytime you walk anywhere, you put your head down and power on over like you're on a mission. Don't ever look left, right, or up." They'd shake their heads, as if I were a sad case in need of some serious help. "Girl," they'd advise, "you need to look around more, see what there is to see along the way!"
That story came to mind again this past weekend as I read about new research that's exploring the differences in how baby and adult minds perceive and approach the world. In a nutshell: babies are more like the slow-paced, observant Virginians I worked with, while adults are more like New Yorkers. Young brains, according to UC Berkekey psychology professor Alison Gopnik, are "remarkably plastic and flexible. ... But they are less efficient." They wander in all sorts of connectional directions, imagine all kinds of possibilities, and are drawn particularly to objects and events that are "new, unexpected or informative." Things, in other words, that will teach them the most.
Adult brains, on the other hand, have been honed to ignore superfluous information and events--especially when given a particular goal to achieve. Gopnik references an experiment where adults, told to count the number of ball tosses in a video, don't even notice a person in a gorilla suit who walks through the scene. Like the way I walked through Williamsburg, they focused on the goal to the exclusion of all other distractions.
But is that a bad thing? Depends. Focus and efficiency certainly have their place. I wouldn't want a trauma surgeon getting distracted by some interesting side-topic while performing emergency surgery. Ditto for a check-out clerk at the grocery store during a very busy shopping time.
But one can worship overmuch at the temple of efficiency--as my Virginia friends pointed out. We have spent much of the past century extolling the virtues of efficiency in everything from food preparation and daily life to production and processes in the business and manufacturing world. Books on achieving greater efficiency crowd the business section in bookstores. The "Six Sigma" management training program, which focuses largely on streamlining and improving the efficiency (and effectiveness) of management and manufacturing processes, is so popular there's now even a "Six Sigma for Dummies" book. Seriously. From factory floors to boardrooms, numbers-based efficiency rules, in an equation that reads, roughly: increased efficiency=increased production=increased profit. What that focus on machine-like efficiency does for the motivation and spirits of human workers is an open question, of course.
But more importantly ... as Gopnik's article and research point out, getting the brain to think creatively, about new possibilities, employs and requires a different process than focusing on efficiency and goal-achievement. Creative thinking is not something you can streamline or use time-management studies to improve, as any writer or artist well knows. Ideas have their own unique ways and schedule for coming into the world. And sometimes, ironically enough, they arrive most efficiently when we stop focusing on efficiency. I've come up with more breakthrough writing answers sitting in my back garden watching the hummingbirds (see my previous post on that subject here), when I wasn't even consciously looking for an answer, than at any other place or time. Lord knows I wish it were otherwise. Life would be so much easier to manage and plan.
But Gopnik's point also has implications for businesses. If an increase in efficiency-oriented thinking comes at the cost of a broader mental radar that's more tuned to unexpected or new possibilities, that could account for why more companies don't do better at innovation. Innovation requires imagining a process, product, or service that doesn't yet exist. It's a creative function. And minds long pressured and trained to focus on efficiency and numbers-based goals aren't even close to being in the right frame of mind, so to speak, to tackle the challenge. This is a major argument made by advocates of "design thinking" ... consultants like Darrel Rhea of Cheskin Added Value and Tony Golsby-Smith of 2nd Road, and educators like Roger Martin, dean of the University of Toronto's Rotman School of Management and Jeanne Liedtka of UVa's Darden School of Business. All of them would say that if you want more innovation and creative problem-solving in your ranks, you have to relax the laser focus on efficiency and short-term, numbers-based goal achievement.
And Dr. Gopnik, it seems, would agree.
But there's another intriguing dimension of these research results, as well. I often get asked why it is that young people have such passion for dreams and possibilities ... and why many adults seem to lose that passion and belief as they grow into middle age. Part of the answer is undoubtedly fear of failure, an increase in responsibilities and financial commitments, and a higher risk of loss--both of money and status--with any departure from the inertia of known routines. But part of it also may be that a continual focus on efficiency and goal achievement actually makes it harder for an adult brain to shift back to the habits of its youth, when it got excited by the things that would teach it the most. And when it focused not on efficiency, but on exploration, curiosity, and all the possibilities that an uncharted landscape, or path in life, might hold. (Photo: Flickr User Paul Foster and so.salem)
The most stunning fact I discovered in the many obituaries written this week about former Secretary of Defense Robert McNamara was that he'd studied philosophy as an undergraduate at UC Berkeley. Stunning because it means that underneath the number-driven economic theory and modeling he learned and practiced after that, he actually had the knowledge that could have saved him the tragic and flawed miscalculations for which he is best remembered, and least forgiven.
How so? Because no philosophy student could have avoided the study of Aristotle. And the elements of McNamara's tragedy--both his fatally flawed thinking, and the antidote that could have countered it--stemmed directly from Aristotle's work.
In McNamara's defense, I'm not sure I'd have seen the connection so quickly, even though I, too, studied Aristotle in college, if I hadn't gotten a refresher course on the subject a couple of weeks ago. My refresher was courtesy of Tony Golsby-Smith, a teacher, Aristotelian scholar, and CEO of the 2nd Road training and consulting company, who electrified a Design Management Institute conference last month with his ideas about redesigning business thinking. Golsby-Smith argued that the reason many businesses don't do better at innovation or effective strategic thinking is because they focus too much on analysis, and too little on rhetoric--both subjects that Aristotle explored at length.
"The western world bought the wrong thinking system from Aristotle," Golsby-Smith argues. "Aristotle conceived two thinking systems, not one. We made the mistake of just buying one, and then allowing it to monopolize the whole territory of thought. We should have bought both and used them as partners." The first thinking system, which laid the foundation for western scientific thought, is what we generally refer to as deductive reasoning, analysis, or "logic." (If a=b, and b=c, then a=c.) The second thinking system Aristotle discussed was a more open-ended process of supposition, hypothesis generation, and argument, which he called "rhetoric."
Analytic logic--the rational, numbers-based analysis that McNamara prized and clung to so fiercely--has a lot of appeal, Golsby-Smith points out, because it holds "the promise of certainty and control." And it has an important place in the world. "The logic road underpinned the era of science, the era of science delivered us technologies, and technologies made the industrial revolution possible," Golsby-Smith says. "The industrial revolution delivered us untold wealth and capitalism, and sitting at the end of this beneficial trail lays modern management and its strategic processes, deeply indebted to the logic road."
The analytic method worked well for McNamara in terms of making Ford Motor Company processes and the Defense Department more efficient, which undoubtedly reinforced his belief in the approach. Unfortunately, as McNamara and many businesses have discovered, the logic road has its limits. The control and certainty it promises do not always materialize. But that, Aristotle would say, is because the analytic method is only the best way to truth in domains where things "cannot be other than they are" (e.g. natural science). There is only one answer, for example, to why a leaf is green. So a deductive, analytic approach to discovering that answer makes sense.
When it comes to planning for the future, or making decisions in domains where things can be "other than they are," Aristotle believed rhetoric was far more useful than analysis. "Humans have never predicted the future by analyzing it," Golsby-Smith says. Designing effective strategies for the future--especially in areas involving potentially irrational human actions and reactions--requires imagining various scenarios and perspectives on the truth, and then making judgments based on the persuasiveness of each one.
Of course, imagining valid alternate futures, from different perspectives, also requires an ability to see things from a point of view other than your own ... culturally and psychologically. Which is something humans are notoriously poor at doing, especially across international boundaries. But it appears that McNamara never even made the attempt. Part of the reason might have been his previous analytic successes. But he was also a product of his time. The analytic, scientific approach was coming into full bloom in the early 1960s. The space and computer ages were beginning, technology was giving "efficiency" a new level of importance, and science was the new frontier--even in business. (In 1959, the Ford Foundation released an influential study advocating a more "scientific" approach to business education.) And yet there were others, even at the time, who saw what McNamara failed to see.
There's no lack of lessons to be drawn from the tragedy of McNamara and Vietnam. But certainly one of them ... a lesson Golsby-Smith is intent on conveying to as large a segment of the business world as possible ... is the importance of both of Aristotle's roads to truth. As Einstein himself once said, imagination can sometimes be even more important than knowledge.
At first pass (so to speak), the linebackers of the National Football League and the CEOs of corporate America might seem to have little in common, other than larger-than-average paychecks. But a recent article written by Roger Martin, Dean of the University of Toronto's Rotman School of Management, argues quite convincingly that they share more than most of us would think. And, more importantly, that the NFL has some very important lessons to teach American business leaders.
Personally, I'm impressed that a Canadian-born, Harvard-educated economist even thought to employ a football analogy to explain how flawed economic theories about compensation and investment contributed to the recent melt-down on Wall Street. More impressive still is that his basic argument, and the economics behind it, is so easy to follow, once you view it in football terms.
Martin's argument goes like this: both the NFL and publicly-traded companies operate in two different worlds. First, there is the real world. In football, that's where the players play real games, with real touchdowns, and games are won and lost. In business, that's where real products and services are developed, produced and sold. The second world is the world of expectations. In football, this is where bookies establish "point spreads" for each upcoming game, so people have to bet on not just whether or not a team will win or lose, but by how much. That way, a strong team isn't an easy-win bet. You have to bet whether or not the strong team will exceed expectations (the point spread) or not. In business, the "expectations" world is called the stock market. Like point spreads, stock prices are based not on actual product sales or performance, but on expectations of a company's future performance.
The problem with expectations, and especially rising expectations, is that at some point, they become impossible to sustain. Martin gives the example of the New England Patriots, who in 2007 did not lose a single regular-season game. As a result, the point spread for their 14th game, against the New York Jets, was "a record high of 24.5." The Patriots won the game, but only by 10 points, thus winning the game in the real world, but failing to beat the spread in the expectations world.
Fortunately for the Patriots, the NFL compensates its players and managers based only on real-world results. Not only are they not compensated on beating the spread, they would be banned from football forever if they ever dared to bet money on whether or not their team would do so. Why? Because if they stood to gain from fluctuations in the expectations world, they might be tempted to throw or fudge the real game for their own financial remuneration. The integrity of the game would be compromised.
(You see where this is going, right? Like I said, it's really easy to follow, when you look at it in football terms.) In the business world, on the other hand, CEO pay has become more and more closely linked not to real-world results, but to the company's performance in the expectations (stock market) world. (Martin points to three flawed economic theories to explain how and why that evolution occurred, but the gist is that it was decided that CEOs needed to have their interests more aligned with the "principals" who invested in the company, and compensating executives with stock, or based on stock performance, was seen as a good way to make that alignment happen.)
But one of the problems with that approach is that expectations have an insatiable and ever-growing appetite (as the Patriots' rising point-spread demonstrates). A company might develop a very successful product, raising the stock value "x" amount. But once that product is launched, and the stock adjusts up accordingly, the success of that product, while perhaps profitable and stable over the long-term, isn't enough to drive the stock up further. So other strategies are needed to keep up the pace--and satisfy new stockholders, who bought at the higher price. As a result, executives are tempted (or pressured) to make decisions that aren't necessarily good for long-term stability or profitability, but which increase the next quarter's stock price.
And yet the expectations keep rising, and the math gets harder and harder to manage without big risks, or increasingly creative approaches to bookkeeping. And that's even without the concerted efforts of executives and hedge fund folks to drive prices up or down for their own profit.
In short, Martin suggests that the common sense that led the NFL (and most, if not all, professional sports) to prohibit players from betting on their own games should be adopted by the corporate boards of America, as well. Speculation is all fun and fine, as long as it's not linked to, or able to influence, the real game being played. Compensation to executives, Martin says, should be completely separate from stock market performance, and compensation to investors should be in the form of "dividends plus appreciation of book value of equity in the long run."
"The true key to long-term sustainability," Martin argues, "is building customer and employee bases that enable long-term profitability. If we are to emerge from the current mess, executives must switch their focus entirely to the real market and completely ignore the expectations market. Management should not, and in fact cannot, protect the interests of those who buy shares on the open market at prices that are purely a function of expectations."
If that sounds radical or impossible, stop and imagine, for a moment, NFL owners arguing that part of the players' pay should be linked to how the bookies make out on each game, instead of just playing full-out to win the best game they know how to play. In the real world. And for keeps.
The best version of Martin's article is in the most recent Rotman Magazine, but unless you already subscribe, there's a fee to download it. (Raising another interesting question about how academic journals still routinely charge to view content, even as more "mainstream" media outlets have failed to make that model work.) But the Financial Times carried an abbreviated version of the article in a recent issue that can be viewed for free. Well worth reading the latter, if you can't justify, or get hold of, a copy of the former.
There is no lack of contributing culprits, factors, or causes when it comes to the current financial crisis. But one particular thread that's intrigued me from the start is the role that bold, arrogant, or naive (depending on your take) attitudes about risk played in the calamity.
It's a theme that's received new attention with the publication of Gillian Tett's book Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan was corrupted by Wall Street Greed and Unleashed a Catastrophe. According to Tett (and many others), it was the idea that risk could be eliminated (or diluted so much that it wouldn't matter anymore) that fueled the innovative securitized debt and derivative schemes that resulted in such a breathtaking global disaster. The system came apart when the housing bubble burst because all sorts of players had extended themselves far beyond what would have been considered prudent, or even possible, without the magical, disappearing risk trick that J.P. Morgan's financial whiz kids devised.
Other writers, including Tett, can get into the exact details of how that played out far better than I can. But what has struck me since I first heard about how these bankers decided they could, as one reviewer put it, "defeat the banker's oldest foe--the danger that borrowers will not repay their loans," is the thought that all of Wall Street's risk-takers should be required to learn to fly small airplanes. For if they did, they'd learn that risk, like gravity, can only be negotiated, not eliminated. And that one gets overly bold and audacious about their ability to ignore, out-scheme, or beat the immutable powers of nature and physics--risk included--at their peril.
Risk, for a pilot, is an ever-present and formidable opponent that faces you down in a three-dimensional chess game every time you climb into the cockpit. Flying a small airplane, without all the back-up systems and performance of a large airliner, is not a matter of bold audacity. In fact, there's a well-known saying in aviation: "There are old pilots, and bold pilots, but no old, bold pilots." Survival in the sky is a constant dance between immutable forces of nature (gravity, drag, winds, weather) and the plane and pilot's ability to navigate skillfully through that gauntlet. And if you judge that balance incorrectly, and fail to give risk its due respect, there's no bailout available. The consequences are unforgiving, life-threatening, and final. No numerical wizardry can outfox a strong downdraft, counter a low gas tank, or perform a magical pull-up after a badly-planned low show-off pass.
Any number of young guns begin their pilot training with the idea that they can outmaneuver the elements better than their elders. But few pilots get through even their initial pilot training without experiencing at least one moment of truth when they miscalculate the risks or forces at play, and end up scaring the daylights out of themselves. Something about the realization that you can actually kill yourself doing this activity tends to sober most pilots up a bit. Those who don't sober up tend not to live that long.
What's particularly helpful about flying for teaching a respect for risk is not just that the consequences are physical, but that they follow so quickly after a bad or overly risky decision or approach. Years don't unfold before you learn the downsides to your arrogance or misjudgment. And the consequences don't happen to other people while you continue to fly merrily along, undisturbed and well-compensated.
Not that pilots are immune to the lure of new innovations or the seductive idea of conquering risk. The advent of glass cockpit technology (computer screens in the cockpit that allow moving maps, terrain, traffic, and weather information to be clearly displayed and updated), and the Cirrus Design Corporation's famous all-airplane parachute, have lured more than one pilot into a false sense of security. But the sky, and the laws of physics, are stern and swift correctors to any overly bold thoughts. The Cirrus planes had a higher level of accidents than other models, when they first came out, until pilots realized that the new equipment hadn't eliminated risk, after all, and they still needed to exercise serious and prudent judgement, even with the new technology and tools.
Having flown small airplanes for 20 years, my respect for the ubiquitous and constant presence of risk, and its always-attendant consequences, is almost part of my basic DNA. Some pilots manage risk better than others (hence the still-present pilot-error accident rate), but nobody could ever convince me that any new technology--financial tools or strategies included--could ever truly conquer or eliminate the demon of risk.
So I can't help but wonder ... before they gamble with other people's money, in situations where consequences are often long-term, distant, and impersonal ... what would happen if we required all of Wall Street's risk-takers to actually learn something about the nature of the beast first? In a setting where the consequences for hubris, arrogance, or misjudgment would be real, immediate, and personal? It might not prevent another bubble of reckless, over-confident behavior or thinking. But it might leave an impression on enough of them to mitigate the excess inclinations of the others who, like the doomed flyer Icarus, believe they can fly to any heights without peril or care.
Thinking may be coming back into fashion.
Never mind the fact that we have a President known for his intellectually rigorous abilities and habits. But three times in the past couple of weeks, I've encountered business people discussing Aristotle. Not in an esoteric conversation of culture or literature, either, but as a way to improve every-day life and business decision-making ability.
"We're capable, but not practiced, in the art of thinking," says Phil Terry, CEO of Creative Good, a business consulting company, and the founder of a web-based reading and lecture organization called Reading Odyssey. "We're all endowed with curiosity, but a lot of us, for very good reasons, stop using it after a certain point. After a certain age, we tend to substitute opinions for thinking."
Terry's assessment would resonate with anyone who's spent any amount of time watching cable TV news channels. But even if we recognize the problem, how do we get those dormant curiosity and decision-making skills back in gear?
According to Terry (and Berkshire-Hathaway vice-chariman Charlie Munger, among others), the answer lies in the classics. Why the classics? First, to gather a broad base of knowledge about the "big ideas" across all the major academic disciplines. And second, to develop the ways of thinking and the "habit of wisdom" Aristotle believed were critical to good decision-making.
Munger is apparently well known for his belief that good decision-making--including good investment decision-making--comes from having a "lattice-work of frameworks" with which to approach a subject. If, for example, you can compare how a historian, economist, psychologist and probability theorist would look at a given situation, you can see it more clearly--including angles or weaknesses one discipline alone might miss. And as a result, you're likely to make better decisions about what to do or where to head next.
Of course, "accumulating a broad knowledge base of all the major academic disciplines" isn't exactly a three-hour task you whip out over a long weekend. Fortunately, for anyone so inclined, there's Peter Bevelin. Bevelin, a businessman and investor, wanted to reduce the number of bad decisions he made in his business life. Ddrawn to Munger's approach, he took a year off just to read and study the big ideas in all the major disciplines. Bevelin's book, Seeking Wisdom: From Darwin to Munger, is the synthesis of the notes he took over that year. It's not easy or quick reading (and copies are a bit hard to find), but it's a far shorter path than doing all the original research yourself.
Some of the gems Bevelin has to offer? In a talk on the book I heard him give two weeks ago, he gave one example of how probability theory applies to a company trying to expand its operations. If you have a tool with one part, and that part is 99% reliable, the chance of something going wrong is only 1%. But if you have a Space Shuttle with 2,000 parts, each of which has a reliability factor of 99%, the probability that any one part will fail jumps to 14%. How does that work? That's the point. You have to understand probability theory to know. But understanding how risk expands exponentially with size might influence a company's dicision to expand or how fast it wanted to expand.
But one of the other main points Bevelin made was that wisdom isn't just about knowledge. It's about a way of thinking. Darwin, he said, wasn't particularly brilliant. But he had exceptional thinking habits ... of observing, contemplating, reading, conversing with close confidants and, above all, of ceaselessly challenging even his own assumptions and beliefs.
Which brings us to Aristotle. Wisdom, according to Aristotle, isn't an object anyone acquires. It's a habit; something that emerges from a particular way of processing information and engaging with others and the world. And a habit that's essential for us to develop to make better decisions in business and life. That theme is prevalent not only in Bevelin's book, but also in Terry's Reading Odyssey teleconference-based lecture and discussion groups--which he set up to help curious adults explore and debate classics and "big ideas" from thinkers ranging from Homer, Aristotle and Herodotus to Darwin.
Then, just a week after hearing Bevelin speak, I heard Aristotle's name and that same theme again--this time at an international conference sponsored by the Boston-based Design Management Institute. Tony Golsby-Smith, a business consultant and educator from Australia, argued that while Arisstotle's Posterior Analytics laid the groundwork for quantitative analysis and the modern scientific method, his Rhetoric laid the groundwork for exceptional decision-making and creative innovation. And that business executives therefore ignored Aristotle's "second road" to knowledge at their peril.
What accounts for this new visibility for the classics, wisdom, and learning how to think? I'm not sure. The ideas themselves aren't new. But perhaps, after years of hubris born of steadily rising stock markets, we're suddenly, post-crash, a bit more open to the idea that we might not know all there is to know--and that we might even need to develop new ways of learning what there is to know. The Greeks knew something about that, too. After all, they're the ones who coined the term "hubris." And anyone who paid attention in history and literature class knows that it was almost always followed by a fall.
A friend of mine who runs a management and innovation consulting business recently told me that almost all of his clients were responding to the recession by making drastic cuts in budgets and personnel, including innovation, R&D, product development and marketing efforts. "The problem with that," he said, "is that when the economy recovers, it's going to take them another two years to ramp up again. They won't even have the right personnel or teams in place anymore. They'll be way behind."
So if it's going to set them so far back, why do executives make those decisions? Why do senior managers tend to have such a potentially limiting focus on improving the bottom line numbers in the next quarter, the post-recession world be damned? Clearly, the pressures of unhappy stockholders is a big factor, at least for public companies. But I came across a more intriguing explanation in a recent "Financial Page" piece by James Surowiecki in The New Yorker magazine.
Surowiecki explains the choice as stemming from a difference between risk and uncertainty. Quoting the economist Frank Knight, he says that risk "describes a situation where you have a sense of the range and likelihood of possible outcomes. Uncertainty describes a situation where it's not even clear what might happen, let alone how likely the possible outcomes are." Risk is an everyday part of business. But a deep recession ups the ante of unknowns so high that instead of calculated risks, managers are faced with actual uncertainty. And like sailors facing a dark, unpredictable storm, the typical response is to batten down the hatches, reef the sails, and just try to ride it out.
Not every sailor chooses that option, of course--especially during a race. More than one race has been won by a gambler captain who's actually let sail out during a storm wind, taking advantage not only of the strong wind, but the fact that every other competitor has pulled in their sails, to gain an unassailable edge. Not surprisingly, the same has been true in business, as well. Surowiecki lists numerous companies who have let out their sails in tough times and emerged dominant after the market started to recover, starting with Kellogg cereals in the Great Depression.
So if the evidence is so strong that the industry leaders, post-recession, come from the ranks of those who didn't trim the sails in the storm, why don't more companies follow in their footsteps? Ah. Probably because more than one race has also been lost by a gambler captain who's let out sail in a storm wind ... and ended up capsizing rather ignominiously for their bold, courageous effort. Swing for the fences and you may just end up striking out.
We forget that sometimes, in our canonization of the innovative heroes of America. Or ... maybe we don't forget it. Perhaps the reason we give such great lip service to taking innovative risks but don't, as a market whole, tend to follow suit ... especially in tough economic times ... is precisely because we understand quite clearly the risks involved. As the saying goes, "Nobody ever got fired for buying IBM." Playing it safe may not win the race, but it's less likely to end up with you going down in flames.
On the other hand, as the former CEO of Continental Airlines once said, if you're in the pizza business and you just keep cutting one topping after another, pretty soon, all you have is crust. And it's hard to sell crust.
It's also hard to get people excited about making crust. "Think very conservatively, safely, and predictably" is not nearly as zippy or persuasive a slogan--or as likely to inspire employees to commit hearts and souls to the effort--as Apple's slightly more dramatic "Think Different!" campaign. What if pitcher Tug McGraw of the 1973 Amazin' Mets had tried to rally the team with "You know, we can get through this season without too much embarrassment," instead of his iconic "You gotta believe!" Now, granted, the Mets didn't win the 1973 World Series. But they went from last place to within one game of a World Series Championship in the span of a couple of months. Which isn't exactly going down in flames.
Vision alone doesn't guarantee success, of course. Christopher Buckley's new book (Losing Mum and Pup) recounts how the vision of his acclaimed father William F. Buckley, Jr. for a more perfect Christmas Eve mooring once led to the running aground of the sailboat, with the loss of Christmas tree, presents and all good cheer. It's a cautionary, if highly entertaining, tale.
But there's a lot of ground in between battening down the hatches and voluntarily taking on a Christmas Eve gale. The captain I'd most want to crew for would be one who kept one eye on conserving the ship, but kept the other one ... crafty, conspiratorial and twinkling ... focused on how we might just outsmart that storm by concentrating on one or two particular strengths we had, or could develop, and taking advantage of the wind. Someone who wasn't content with survival as an end in and of itself, but had a passionate vision of something worth surviving for--and a clever vision of how to get there ahead of the rest of the pack.
To hear Matthew Crawford tell it, he's discovered a grand new truth of life. And that is: contrary to conventional belief, there is great nobility--far greater, even, than can be found in the white-collar world--in the more fundamental trades in life. The kind of work publicized in shows like "Dirty Jobs." And the kind that Crawford himself, despite his PhD education, has chosen: that of a motorcycle mechanic.
Crawford's book Shop Class as Soulcraft was released last week, and an excerpt was published in last week's New York Times Sunday magazine. And given our collective horror at the excesses of the white-collar denizens of Wall Street, whose hubris and disregard for consequences contributed to bringing down a global economy, Crawford's argument seems particularly sound and appealing at the moment.
But there are several major flaws with Crawford's case, as he presents it. First, he looks at his own personal--and limited--experience in both the white-collar and blue-collar worlds and draws far-reaching conclusions as if there were no other possible experience beyond his own.
Second, Crawford overlooks the fact that he doesn't just work with his hands, in a "trade." He works for himself. Some of his satisfaction in his work, and the lessons and ethics that accompany it, come from being an entrepreneur with a huge degree of control over his work and standards, and a direct link and responsibility to a product and a customer, instead of being just a cog in a very big wheel. Many of his rants against the white-collar world would be more accurately directed toward any job that's a cog in a bureaucratic machine, where efficiency tops quality and the worker has no control. Factory work comes to mind as an example of that just as easily as middle-management. Likewise, many of the satisfactions he derives from his work would be well understood by entrepreneurs of many stripes and colors. (A career track, it's important to note, that only about 10% of the population has the desire or personality to pursue.)
Further, many of Crawford's complaints about the white-collar world would be applicable only to bad white-collar jobs, and bad white-collar managers. There is no mention of white-collar professionals who lose sleep at night trying to make sure they get their jobs right, or exhaust their brains trying to figure out the cause of a problem, or feel elation at finally cracking the code on some important stumbling block or flaw. At the end of the day, I was left with an impression of someone writing through a lens warped by both an idealized view of manual labor, and a need to justify his own life choices, without a view to other perspectives on the subject.
Which is not to say Crawford doesn't have any points at all.
Our idealized image about the nobility of "real work" is not a new phenomenon. America has had a love affair with people--and particularly men--who do physical labor for a long time. And, yes, many in the white-collar class have harbored a trace of envy for the satisfaction they imagine comes with more visibly consequential work. Not to mention the satisfaction of being your own boss. Hence the mythic fascination with, and idealization of, the American Cowboy.
America also has a very rich history of respect for the craftsman. There is an art form to creating something with your hands, carefully and with great skill, whether it's furniture, pottery, sculpture, woodwork, glasswork, music, or restoration of any antique, whether mechanical or artistic in nature.
As for the importance and satisfaction of working with your hands in terms of the lessons it imparts ... I offer Thomas Jefferson's ideal vision of the "gentleman farmer." It's not a new idea that a balance between the world of ideas and the world of practical, tangible work creates a more well-rounded citizen. Most of us--even the most hardened city intellectuals--also understand the satisfaction that comes with a tangible, measurable, complete-able task, and the relief that can come from immersion in a less complicated and ephemeral activity. They might not work on motorcycles, but most of the people I know who work in the world of ideas find relief in their spare time through some kind of physical endeavor: home renovation, cooking, gardening, or sports. And I don't think it's coincidence.
Are there just as many mechanics who spent their weekends perusing the pages of great literature or discussing intellectually challenging ideas for balance? For sure, there are some. A few years ago, I was up in Alaska researching a story about the diminishing salmon industry in the town of Yakutat--a community of 800 souls whose roads stopped a mile outside of town. Nothing from the outside world made it to Yakutat except by barge or airplane, One afternoon, I went for a ride to an outlying barrier island with one of the local commercial fishermen. We were zipping across the bay in an outboard-powered dory when out of the blue, salt water spraying in his face, the fisherman turned and asked me, "Do you ever read John McPhee's stuff?" "You mean the New Yorker writer?" I asked. "Yeah," he said, nodding. "I really like his work."
But in my own heady, idealistic days of imagining the nobility of cowboys, adventurers, and all things "real," I, too, left the academic world I'd grown up in for the far more tangible world of manual labor and physical challenge. In my case, it wasn't motorcycles. It was airplanes, and the restoration of old airplanes ... although a lot of the pilots I knew also owned and worked on motorcycles, so I'm pretty versed in that field, as well. I spent the better part of 15 years immersed in the world of blue-collar mechanics. And when I look back on all the things that time of my life taught me, I find that it's not nearly as simple or clean-cut as Matthew Crawford presents.
Is there satisfaction and learning that comes from tangible involvement with something that has immediate, real-world consequences? Absolutely. Get something wrong on an airplane, and the pilot doesn't just pull over to the side of the road. He or she comes out of the sky. The lessons are graphic, visceral, and unforgettable. And so, often, are the rewards. I've seen a pile of scrap metal transformed into a living, breathing aircraft that lifts effortlessly off the ground as if reborn. I've watched craftsmen ply their trade, skill and artistry in ways that left me silent in wonder. I've known people who live by a very rock-solid code of giving a friend in need the shirt off their back.
But I've also found many people as disgruntled about their lot as in any white-collar job. I've found disconcertingly narrow, parochial, and uninformed views of the world beyond the shop or airport. I've watched the same people who'd give a friend the shirt off their back utter horrifying racial or ethnic epithets against people they'd never even met.
In the end, we're probably all at risk of distortion when we idealize anything. Real life is rarely, if ever, that unidimensional or simple. As for the type of work that's most "noble," I think I side with William Allan Neilson, the president of Smith College from 1917 - 1939. I don't even know for sure that he's the one who said this particular line. But my grandmother, who went to Smith but then became crippled and a single mother in the Depression and ended up doing a lot of different jobs to keep food on the table, used to quote him as saying, "It is the worker who ennobles the job, not the job that ennobles the worker." Soulcraft, in other words, is not just the province of shop class. It is found anywhere we choose to practice it.
Lane Wallace
