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Wednesday 13 January 2010

Book Review: The Smartest Guys In The Room, Bethany McClean, et al

Although the fall of Enron now seems old news, the book and movie are as relevant today as in 2003.

It is an insider expose of the macho, ego-driven ride to disaster. It also, as today, charts a tragedy. Many decent hardworking folk working for firms acquired by Enron lost their 401ks and a lot besides.

Unchecked risk, leaders without scruple, out-right lying about the real value of stocks - it's all here. On the movie you can here the Enron traders cynically manipulating California's energy prices to max-out on profits.

It also shows how Enron innovated the very credit instruments that formed the heart of the 2008-09 sub-prime crisis. In my view, we have lived through one continuous crisis, starting in 2003, the alleviation of which caused the bubble of 2008.

The book neatly integrates the sequence of events and links to a psychological interpretation, referencing the infamous Milligram experiments, showing just how far people will go to follow the orders of authoritarian leaders.

The book also works as a story of how one female journalist and one female whistle-blower brought down the stack of cards.

Feeding time: Bankers bonuses and the need for Good Banking


I wanted to build on Colin Gruar's article yesterday and add some perspectives to the very topical subject of bankers bonsues, and what it says about the state of the banking industry.

I have added the widget of the gold fish. Like goldfish we seem to swim around, respond to the immediate stimuli and retain only about a seconds worth of memory. Haven't we been here before?

This tendency to forget is not new. If you watch the movie Smartest Guys in the Room about the Enron collapse of 2003, you will see Chuck Prince in denial to a Congressional hearing. This is the same Chuck Prince that led to the fall of THE biggest banking brand, Citigroup.

Just yesterday, the Economist dropped on my desk arguing that a second bubble had emerged. Yet, news from Wall Street and the City of London suggests that bumper bonuses are in the offing due to the massive year-on-year rise in profits. It might well be the case therefore that bankers will receive inflated bonuses on the back of growing assets temporarily, which will simply crash again mid year as we enter a second dip.

It is not banker bashing to suggest that this is wrong. Ultimately, it means that the bonus mechanisms inherent in many bank bonus plans ratchet up, but not down, resulting in a too greater share of the economic pie being given upfront to bankers.

The result is not just public anger, but the real risk that the Financial Centers of Europe end up being regulated by Belgian socialists. If bankers behave like goldfish there is only so much governments can do to prevent this, given the complex political trade offs going on in Brussels.

Banking by nature is a risk taking activity that has to allow large scope for entrepreneurship. Regulation that turns banking into a utility will impoverish the whole of Europe, not just Frankfurt and London.

The answer lies in rediscovering the old ethics that underlay the growth and success of the financial centers from the thirteenth century onwards. In 1801, the London Stock Exchange adopted the motto, "My word is my bond". We might guffaw cynically today. City slickers might say, "Come off it, mate, you don't really expect us to believe that today".

Well, the answer is yes, we do.

As both a former head of Executive Compensation for the Hay Group in Asia, and as an Executive Coach, I have seen banking leaders increasingly opt out of their leadership responsibility to allocate bonuses fairly and ethically. Rather than making balanced judgments, banks adopted formula based schemes, linking bankers bonuses directly to short term indices, such as new business, fee income and net profit. Nothing can indicate more the lack of trust within the banking industry that its leaders were no longer trusted to make decisions.

Cynically, banks created a lot of HR bumph around bonuses, designed to create an impression that clients came first and their bank was committed to the public good. The evident disregard for these words in the actions of their leaders meant that no longer was a banker's word to be trusted.

The key point I want to make however, is that we need good banking. Banking is how wealth is created. I recall some years ago at a function in the City of London sitting next to an bond trader. I asked him how his day had been. He replied, "Not good really, I just dropped $5 million. Never-mind, tomorrow's another day". We clinked glasses and toasted to success. This is banking.

Bankers who have protected their clients assets and found new sources of growth need to be reworded handsomely. Bankers who simply grow with the market should receive a salary and no more. Bankers who fall behind the market need to have immediate cuts in their cash compensation. These performance indices should be measured on a rolling three year basis. 

Most banks simply don't do this. They prefer to manage performance by mass firings (often, after the market has crashed), leaving the rest to enjoy the pie. This creates a selfish, greed culture in which undermining your buddy from college becomes a rational act. At a macro level, it means partners of Goldman Sachs feast on the bones of Lehman brothers, while adding no value other than being the last man standing.

Back to Colin's article. Banking can only be recovered if leaders rediscover the morality inherent in banking. Short term concerns about loss of talent are misplaced. Banks that act on sound values will attract customers and talent in the short term, mid-term and long term.

Within a bank and across the banking industry, these winners and losers should broadly balance out to ensure the banking industry does not consume a too greater share of the economic goods.

Here's my view of how to do this:
  • Banking leaders demonstrate they act ethically when confronted difficult choices. For example, telling the truth would be a good start.
  • Banks do away with short term, profit-linked bonuses 
  • Banking leaders become individually accountable for making bonus decisions based upon good economic information and in accordance with core banking values
  • The overall pattern of variation in banker's bonus pay becomes clear to the public
  • Promotion within banks weight heavily towards those who have shown they can make good ethical choices
  • The Boards of banks are strengthened by well paid, expert and independent non-executive Directors with the power to report independently to shareholders and regulatory to governance risks within the bank.
There is much more to be done.  But these things would be a good start and help re-build a banking industry to be proud of.

Tuesday 12 January 2010

Guest Contributor: Dr. Colin Gruar, Bankers need morals to rebuild their brands


Dr. Gruar is a former Marketing Director of the British Heart Foundation and has been awarded a Doctor of Business Administration (DBA) from Cranfield School of Management. 

He now leads Repubrand and advises major corporations on strategy and branding.



Bankers have destroyed their global brands. Never has there been so much resentment against banks, and yet we need them as the wealth-generating engine of our economy.

Alan Greenspan thinks another collapse will happen again ... and we agree. He thinks it’s only human nature, and you can’t control that. We disagree. We think it’s behavioral, and we know we can change brand behaviors. Despite £1.3 trillion having been pumped into the ailing banking system (not to mention the ‘secret’ loan of £60 billion) in the UK alone, there remains real concern that we haven’t learned our lessons, or made changes to prevent it happening again.

Some say the Anglo – Saxon banking model is dead in the water. Many of our European partners want to see fundamental change

Lord Turner, Chairman of the UK's Financial Services Authority, conducted his thorough 'drains up’ review. With a ‘vested interest’ in shoring up the existing regulatory system, the FSA wants ‘tougher’ legislation with ‘more teeth’. But when you consider that the FSA failed to use the ‘simpler’ legislation effectively, why should we believe they could do any better next time, with more complex rules to follow? No Lord Turner, regulation is necessary but not sufficient. We need to address the root cause of the crisis if our global banking brands are to be rejuvenated

We think Gordon Brown is on the right track when he says ‘Bankers need Morals’, except it is not just about Bankers. And we don’t believe you can build morality off the back of legislation alone. Legislation can underpin a moral code, but not create it. Instead, it requires Leaders who are clear about their brand values (what they stand for) and demonstrate to their people how to live them. Deep down, most business people yearn for more integrity in the workplace.

Leaders set standards, including MP’s. So when our organizations have their ‘backs to the wall’, what happens? We ‘look after number 1’. That’s what we see everyone else doing. It’s a ‘learned’ behavior that we act out, subconsciously. We don’t know we are doing it. This is the real challenge, changing subconscious behaviors. Recent commentary on Bankers bonuses shows the game of ‘look after number 1’ is back in play, with JP Morgan recently paying its biggest bonuses ever! Looks like Greenspan will be proven right, unless we do something major, soon.

Bizarrely, the FSA recognize this issue but have done little to address it, In March 2009, Hector Sants, Turner's boss, was reported as saying:

‘Managers of the future must acknowledge and fight against the herd mentality ... the recognition that financial markets are not rational, but rather that they are a behavioral system built around personal aspirations, is critical to us effectively changing this time around’.

So how do we stop this game? Sir David Walker, former Chairman of Morgan Stanley International,  was asked by the British Government to make recommendations on Bankers pay and these may help, but again, we think ‘necessary but not sufficient’. More than controlling pay, we need to create strong, value driven cultures that are clear about what is acceptable behavior. For Banks, this must include a social responsibility. How would they account for their social impact to day? To change, we have to help managers practice appropriate behaviors and decision-making, just like pilots regularly practice how to fly (and crash) safely. Building the behavioral competency of an organization is the only way to ensure its members act appropriately through uncertain times.

And we agree with Mervyn King, Governor of the Bank of England. It is essential for Banks to be subject to market economics, including failure. That’s a big, big problem at the moment that has not been addressed. Bad behavior isn’t being met with a punishment that fits the ‘crime’. Nobody has been properly brought to book. ‘Crime’ is therefore being rewarded. And as any law enforcer knows, that’s a recipe for anarchy. Only by rewiring the value system, will behaviors really change and that will take time, so the sooner we start, the better.

As news is received of record bonuses being paid this month at JP Morgan, and other banks clearly feeling the need to continue to ‘reward’ their staff, it will be interesting to see how this moral dilemma is played out, publicly and politically across Europe. Both the British and French governments have already expressed their consternation at the behavior of some Bankers, when will they wake up and smell the coffee?

Suggestions for Comments: How do you think values-based leadership can be instilled once more in Banks?

To learn more about value driven cultures and how you can build the behavioral competency of your organization, contact colin@repubrand.co.uk.


Dr Colin Gruar is a strategist, consultant and coach at Repubrand Limited. Repubrand specializes in helping brands build strong reputations. It does this by working with clients in 3 ways: 1) to increase their strategic momentum (because most change takes too long and lacks focus); 2) to learn new skills to improve the effectiveness of strategy implementation (because good strategy requires doing new things); and 3) to help top teams achieve greatness (because being the best at what you do is what its all about). You can read more at www.repubrand.co.uk.

Friday 8 January 2010

Connecting The Dots


I watched the press conference last night in which President Obama displayed understandable frustration at the failure of various National Security departments to "join up the dots". As a leader, he is not alone in watching in disbelief as staff fail to spot important trends, see new threats and opportunities, or connect different pieces of information to get a clear picture of what is going on.

The picture emerged of highly educated and intelligent analysts myopically looking at lists of data, rather than spotting the significant fact that Al Quaeda had adapted by recruiting single angry young men into their ranks using a simple,  intoxicating ideology.

As journalists pointed out quickly, the 9/11 Commission had identified the exact same failings eight years earlier.  The President, like many leaders in his situation has called for "Accountability Reviews". But, this is not a structural problem of who's accountable for what. This is about an unproductive repetitive pattern of behavior, with it roots in cognitive psychology and the way in which we think and form images in our minds.

What the President and all leaders have to deal with from time to time, is for the natural human tendency homeostasis: The tendency to see things the same way unless presented with overwhelming proof to the contrary. It is one reason why we have stereotypes. It is one reason we sometimes fail to join up the dots.

I would argue therefore, the answer lies not in "Accountability Reviews" but the compulsory reading and discussion of "Zen and the Art of Motorcycle Maintenance" for all Homeland Security staff.  The book is about a sensory journey of the author, Robert Persig, who discovers how to become aware of the significant things in life. In his analysis of why most people find motorcycle maintenance difficult he appears to describe exactly why highly intelligent analysts fail to spot threats, or marketing people miss opportunities, or sales people fail to close.

He explains:" The real cycle you're working on is a cycle called yourself. The machine that appears to be "out there" and the person that appears to be "in here" are not two separate things". In other words, it is when we become aware how our self and pieces of information interact as a whole that provides the subtle clues as to how solutions to apparently complex problems can be developed. This calls for a creative process, not an analytical one.

All science must involve the creation of an imaginative hypothesis at some stage in the discovery process. Science, economics nor business are never "just about" the data, the numbers, the facts. It is the meaning we draw from these facts that allows us to form new figures in our mind (gestalts) and see patterns, possibilities and solutions that were previously hidden from us.

And, first, we have to be ready to drop our previously held images. US National Security held onto an image of complex, multi-event plots. They did not see Al Quaeda reacting and adapting so easily.

Persig writes: "We take a handful of sand from the endless landscape of awareness around us and call that handful of sand the world".

I can imagine the the pressure on the Honeland Security analysts. "Stay focused", might have been the directive command from their boss, encouraging the person to think that the more they looked at the data, the more deeply and intensely they thought, the more likely it is that answer will be deducted. All the time, the person moves further away from making the critical connections. Being focused can be precisely the wrong directive to solving complex problems.

Alternatively, sitting back, looking out the window, going next door for a chat, even going for a walk and looking at the data again when you get back, moving it around, looking from different angles, feeling it, rather as a craftsman would carve a table, can be far more effective in such situations. 

There are several key things all leaders can do to coach people to "connect the dots" :
>Help people see the whole landscape through exploratory language: What's happening out there?
>Foster a creative and energetic work environment, with minimal routine work
>Encourage peer-to-peer contact, and overcome silo-ed thinking
>Question preconceived images and assumptions, often hidden in peoples metaphors and word choice
>Recognize work as a craft, not just a job with defined lists of accountabilities
>Articulate  clearly what is important and what is less important NOW, and the reasons why

The US, as with most organizations, has the capability to solve its own problems, if it draws fully upon the resources of its culture.


Discussion suggestions:

What are the ways in which leaders can help their people make conenctions between different pieces of information?

How far can we rediscover work as a craft? 

How do leaders themselves overcome homeostasis, and what are the consequences if they don't?

Thursday 7 January 2010

Book Review: Why There is Something Rather Than Nothing, Leszek Kolakowski



This is a wonderful and very readable book. It is a long way from the dry and jargon ridden books on philosophy that I had to endure at college. It is written with the general reader in mind and with beautiful economy, clarifies questions raised by the great philosophers. I found it a particularly useful resource to understand philosophical approaches to human motivation.

As the book is divided neatly into chapters for each great philosopher, it is easy to skip the material you don't find as relevant and move on.

It is a book that promotes thoughtful reflection and that has to be a useful thing in this day and age.

What's it all about?

Wednesday 6 January 2010

Book Review: Psychology of Executive Coaching, Bruce Peltier



Surely one of the best books on Executive Coaching and a milestone in coaching literature for providing an integrative approach to psychotherapy and business coaching. While most coaching literature tries to show how they're different, Pelitier successfully argues that psychotherapy and psychodynamic approaches have an important application in coaching.

There are important and very practical sections on defensiveness, avoidance, etc, useful to all business leaders, I think. I reflected that few of us realize our debt to Freud when we use phrases in the everyday such as "He's defensive"; "She has a big ego"; "Look at how he projects himself".

What attracted me was his criticism of lightweight coaching approaches that have no basis in how personality is formed and developed and as a result lapse into glib superficialities. At the same time, he recognizes the danger of introducing psychotherapy to the coaching and business arena:"The trick is to integrate "analytic" or dynamic thinking into coaching without pathologizing the client relationship".

As he makes clear, executive coaching is the perfect vehicle to do this. Executive coaches are trained to produce results while recognizing the independence and autonomy of the client.

A good read and a useful reference.

Happy New Decade! Time for the Teenies


Congratulations. You made it through the Noughties. Twin Towers; two wars, Afghanistan and Iraq, both with terrible aftermaths; Hurricane Katrina; The Tsunami; floods in India; two major economic crises, Enron to Lehman; two epidemics, Bird flu and Swine flu; and urban terror, 7/7, and Madrid; and the double shame of Abu Grahib and Gitmo. The past decade is not likely to be mourned by many, struck as it was by a series of paired misfortunes. We have to feel happy at least that we got through this.

And yet, we also need to enter the Teenies with a sense of optimism, even pride. Beneath the calamities, the worst decade since the 1940s taught us is how to work together. The last two years have seen a major global depression avoided by unprecedented and successful coordination. China weighed in and threw itself behind global stability, ironic given its continuing ideological allegiance to communism.

Poland and other new entrants to the EU tangibly brought Europe together again, in a fashion not seen since medieval times. Hundreds of thousands of young East Europeans sought jobs and experience abroad, returning cash and knowhow to their home countries in the process.

The Tsunami brought a coordinated global response and on-the-ground activism in a way that contrasts strongly with the indifference towards Rwanda and Sarajevo in the 1990's.

India and China emerged as major economic forces with the ability to lift tens of millions out of the poverty trap.

The decade finished with the highly imperfect but significant Copenhagen agreement. Again in pairs, the Lisbon Treaty came into force, which will enable much higher levels of European integration to take place.

The role of women in public life and business took huge strides. Women lead countries and corporations; and they now account for about half of all entrants into the accounting professions. In developing countries, women are benefiting from service jobs resulting from globalization. Yet, think back twenty years to the times when many men and women argued that a male dominated society was an natural order of things. The rise of women shows that change can and does happen. Things are not going to be always the same. We can make conscious decisions about how we organize society.

If there's one thing all of the above showed, it was how these events were seen and felt around the world. Globalization is not just a function of the expansion of corporate structures, it is a mindset reshaping the way we think about the world. Media too, both official and unofficial, is becoming more global and real-time. Social media is at the cutting edge of this. We look at Iran on the bring of a revolution, we see videos and read tweets from the streets.

President Obama was elected saying "Yes, we Can." What has he achieved, people ask? Well, aside from stabilizing the economy and passing historic health care legislation in year one, I believe he has made us all feel differently. The proud Iranians patriots fighting injustice in their country are not not necessarily pro-American, but the changes they are attempting to bring about are going to be a lot easier to achieve with a thoughtful and conciliatory Obama as President, rather than the instinctive and abrasive Bush.

Unquestionably, the world faces great challenges. The troops will need to come home from the Middle East, while maintaining stability in these countries. The debts incurred while stabilizing the economy will need to be paid off through taxation or cost-cutting, while not triggering a global recession. The world will actually need to cut its emissions and mitigate the effects of environmental erosion on people already at the economic margins.

But I for one start this decade in a cautiously optimistic mood. There is a new global alignment around the need for economic and banking reform; for environmental action; for fairer policies governing global trade. There are disagreements about how to do this, and who should pay for what. But, we are leaving behind much of the thoroughly neo-conservative and nationalistic baggage that has so constrained the debates in the last decade. The Teenies will see solutions to these problems.

One thing stands out for me as the defining theme of the coming decade: The need to change patterns. Alignment and awareness are not enough. Individually and collectively we need to reduce our dependence on debt; live sustainable and balanced lives; be prepared to give more to those injured by global changes that they cannot control. This requires us to think and act differently. We need to rediscover our ethical sense and work pride - we do it because it is the right thing to do, not just because we are incented that way. Yes, Thiery Henri might be right that most footballers would commit handball as he did. Yet, neither Bobby Charlton nor Franz Beckenbauer would and they achieved greatness because of this.

So, I think the Teenies will be about a decade of change. Reform of business and financial institutions has to occur. Businesses and banks will have to account for the social cost of what they do and the broader societal risk that they incur.

Business will need to be authentic and honest. They will need to appeal to a young generation of employees and consumers who feel they have been lied to. Just like the Ayatollahs of Iran no longer have a monopoly of information within their country, corporate bosses need to understand the revolutionary nature of Web 2.0 and how social media empowers individuals and communities.

The beginning of the decade is a good time for each of us to think about how these broader patterns will shape us, because shape us they will. People who succeed in this decade will be the ones who will sense the changes taking place and embrace it, rather than fight it.

The hackers who broke into the servers of the University of East Anglia Environmental Science department, revealing as they saw it the falsehood of climate change, are a metaphor for what we have to overcome: the saboteurs in our own minds. When change seems difficult, our mental sabateurs start telling us that "We don't need to change; no one else is changing; change is a trick; what do these experts know anyway; let's just stay the same until we're really, really sure". All these mental "saboteurs" will be present in our minds over the next decade. Being aware of them, and staying committed to changing dysfunctional or too-risky patterns of behavior will be the key to avoiding a personal and collective calamity in the coming decade.

So, I have chosen the image of a door into the next decade to represent a sense of new beginning, opportunity and relief. It is up to us to walk through it.