Insight

Insight

What happened? How could a sector so powerful fold like a house of cards, seemingly overnight?

Clearly leaders in global financial services, government, and regulators let us down.

As stakeholders in the financial and political systems, it is imperative we take a deeper look at how we select, evaluate and develop our leaders.

What can we learn and apply going forward about the leadership, culture and organizational values of the institutions that performed relatively well against those that did not?

CEOs and “One Firm”* Leadership

In the firms that performed well, CEOs executed and were attuned to the details. Leadership acted as a team, voices were heard, particularly risk management.

There was alignment around objectives, values, risk and accountability; “fiefdoms” did not exist.

Was anyone surprised that Goldman performed relatively well and that its leadership heeded the caution of the CFO and risk managers?

Also, privately held institutions and partnerships, which represent many of the premier players in asset management (hedge funds aside), held together well as a group despite declines in NAV.

Culture is a dominant factor within these firms. Leadership takes the view that it is “their firm.” Clients come first, the firm second and individuals third.

They tend -- and have the ability -- to take a long-term view. In hiring and virtually everything they do, opportunists or short-termers need not apply.

Conversely, many public entities are compelled to manage to Street and analyst expectations, focusing quarter to quarter. Hiring decisions geared to the short-term, sound bites and the need for managers to “look good” are all too prevalent.

CEOs navigating with relatively new teams, or who were new themselves, operated at a distinct disadvantage:

Dick Fuld was forced to fire his President and CFO earlier in the crisis. Did this action make a difference in Lehman’s outcome, or were these appointments flawed from the beginning?
Freddie and Fannie’s leadership were decimated in a prior earnings crisis, hence relatively new CEOs and their leadership teams were in a formative stage and untested as the crisis hit.
And at Morgan Stanley, John Mack was dealing with a relatively new team and leadership gaps in the wake of departures following the Purcell years.

Leadership Selection, Can We Do This Better?

The firms that weathered this crisis were not built overnight.

They live and breathe their organizational values and culture, and over time, it is woven into the fabric of the organization.

Successful hiring requires an organizational vision, the ability to meaningfully convey it and the willingness to commit the time and effort to do this right. These attributes are too easily sacrificed in the face of short-term considerations and competing demands.

Assessment and selection are difficult under the best of circumstances. Interviewing is a flawed process. There is no such thing as a perfect candidate, nor is there a perfect boss or perfect organization. Yet, interviewers and candidates often forget this and set the discussion on an unrealistic plane.

Face skills and personal charisma are almost always over-weighted and do not correlate with substance or proven performance.

Experience fit, culture match and leadership abilities must be assessed and calibrated, consistent with the realities of the organization.

Success alone is not enough. Existing talent needs to be embraced and developed and leadership must be prepared to acknowledge and act on hiring mistakes.

We believe the best hiring results are achieved employing the portfolio management framework, realizing a superior rate of return over time. No hiring executive is going to pick right every time.

* Maister, David H., “The One-Firm Firm: What Makes it Successful,” MIT Sloan Management Review, Fall 1985, Vol. 27, No