Management

Wall Street and its Clients

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Ann Althouse has a good post today. I can’t get through her Captcha system so I thought I would post a few comments here. This NY Times op-ed piece is the source for her observations. It is behind the Times’ idiotic payment wall so go to her blog for the link.

TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

That certainly states the issue clearly. What does he complain about ?

I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.

I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.

What specifically is the problem ?

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Labels, Stories, and Personal Experience

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Erin O’Connor links to George Eliot:

It is an interesting branch of psychological observation to note the images that are habitually associated with abstract or collective terms — what may be called the picture-writing of the mind, which carries on concurrently with the more subtle symbolism of language. Perhaps the fixity or variety of these associated images would furnish a tolerably fair test of the amount of concrete knowledge and experience which a given word represents, in the minds of two persons who use it with equal familiarity. The word railways, for example, will probably call up, in the mind of a man who is not highly locomotive, the image either of a “Bradshaw,” or of the station with which he is most familiar, or of an indefinite length of tram-road; he will alternate between these three images, which represent his stock of concrete acquaintance with railways. But suppose a man to had successively the experience of a “navvy,” an engineer, a traveller, a railway director and a shareholder, and a landed proprietor in treaty with a railway company, and it is probable that the range of images which would by turns present themselves to his mind at the mention of the word “railways,” would include all the essential facts in the existence and relations of the thing. Now it is possible for the first-mentioned personage to entertain very expanded views as to the multiplication of railways in the abstract, and their ultimate function in civilization. He may talk of a vast net-work of railways stretching over the globe, of future “lines” in Madagascar, and elegant refreshment-rooms in the Sandwich Islands, with none the less glibness because his distinct conceptions on the subject do not extend beyond his one station and his indefinite length of tram-road. But it is evident that if we want a railway to be made, or its affairs to be managed, this man of wide views and narrow observation will not serve our purpose.

Probably, if we could ascertain the images called up by the terms “the people,” “the masses,” “the proletariat,” “the peasantry,” by many who theorize on those bodies with eloquence, or who legislate for them without eloquence, we should find that they indicate almost as small an amount of concrete knowledge — that they are as far from completely representing the complex facts summed up in the collective term, as the railway images of our non-locomotive gentleman. How little the real characteristics of the working-classes are known to those who are outside them, how little their natural history has been studied, is sufficiently disclosed by our Art as well as by our political and social theories.

Read the whole Eliot passage plus Erin’s post.

See also Peter Robinson’s post about Khrushchev and Soviet management practices, which I see as being pretty related.

A Tale of Two Companies

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Two old rivals. One is in Chapter 11, the other is thriving. Why?

Kodak and Fujifilm

Iatrogeny in Management Reporting

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In medicine, an iatrogenic disease is one that is brought on by a medical treatment itself. An example would be when a physician treating a minor condition fails to properly wash his hands and as a result gives the patient an infection more serious than the original problem.

It strikes me that iatrogeny also occurs in the management reporting and control systems of businesses and other types of organizations. A particularly awful example was reported in Britain a couple of years ago: hospitals were being measured on time from a patient’s entry into the emergency room until the time that patient was seen by a physician. It appears that in quite a few cases, the optimization of that measurement for the hospital was achieved by leaving the patient in the ambulance, in some cases for as much as five hours, so that the clock on the measurement would not start until the criterion was certain to be achieved.

So a measurement intended to improve patient service had the opposite effect. It directly caused unnecessary pain and danger to the individual ER patient who was kept in the ambulance while harming the effective utilization of expensive vehicles and skilled personnel, while at the same time providing upper management with a distorted picture of what was really going on.

Smirk not, fellow capitalists. While this particular example of iatrogeny was perpetrated by a government entity, plenty of examples can also be found in the private sector. Indeed, I saw an interesting example in a Target store just the other day.

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Knowledge, Stability, and Black Swans

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The sense of security more frequently springs from habit than from conviction, and for this reason it often subsists after such a change in the conditions as might have been expected to suggest alarm. The lapse of time during which a given event has not happened is, in this logic of habit, constantly alleged as a reason why the event should never happen, even when the lapse of time is precisely the added condition which makes the event imminent.

–George Eliot in Silas Marner

I was reminded of the above passage by a couple of recent posts:

Claire Berlinski excerpts some thoughts by Hernando De Soto, asking “Is the knowledge system broken?” Some good discussion in the thread at Claire’s post; see especially the concept of a “knowledge bubble” in the comment by Late Boomer. Although I’d say that it’s more a matter of an assumed-knowledge bubble.

Richard Fernandez suggests that “too big to fail” really means “wait for it,” where “it” means a failure on a very large scale. He cites Nassim Taleb:

Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite.

Both of the above are very worthwhile reading. See also my related post penny in the fusebox.