Interviewed on Radio 4’s Today Programme to promote his upcoming book, “A Colossal Failure of Common Sense”, Larry MacDonald, the ex VP of trading at Lehman Brothers, revealed some of the boardroom secrets of the financial institutions that have resulted in the current economic meltdown. But, the behaviours he describes, and their consequences are actually much more common. The only difference with Lehman’s is the extent of the impact.
Describing the CEO at the time as unprepared to listen to criticism and as creating an “either get your head down and get on with your job or lose both” culture it’s not hard to see why warnings made as early as 2005 were ignored, and later on not even expressed any more. A bit of research into Richard Fuld, Lehman’s CEO, revealed an individual who is described as reclusive and who in his pre banking career was dismissed from the US Air Force for a fist fight over a misunderstanding. At work he is described as so single minded and focussed that he has few interests outside of work. As Business Psychologists we see these behaviours so often in senior leaders: those people that become detached from others around them and make decisions in isolation, not sharing their thinking, and those that are so engrossed and passionate in their work that anything approaching bad news can lead to such disappointment and frustration that tempers flare and only good news is well received. But these people get to the top. Why? There is likely to be an element of managing their impact as they move through the ranks, but primarily I think it’s because the negative aspects are ignored because they deliver results. Many businesses reward task leadership over people and thought leadership, an approach which actually encourages such behaviours. The changes that are needed therefore, are a shift in what is rewarded as well as early leadership development interventions because by the time people have made it it’s too late.
Following Shell's CEO, Jeroen van der Veer, comment to the FT saying that: "You have to realise: if I had been paid 50% more, I would not have done it better. If I had been paid 50% less, then I would not have done it worse", let's explore the issue of remuneration and bonuses. Psychologists have long concerned themselves with human motivation and whilst there is no theory that can explain it in its totality, they are useful in understanding what is going on here. What van der Veer was referring to is the "motivation ceiling". The theory of money as a motivator goes like this: more money = more motivation. But where is the ceiling? At what point can someone no longer work hard to warrant the remuneration they receive? Whilst we could, in theory, increase remuneration without a limit, an individual's performance will not increase in a linear fashion. Clearly levels of remuneration are not just linked to how hard people work. Other factors to consider are the level of responsibility, the complexity of the role as well as the value that an individual contributes.
Further, continuously increasing salary can create what we call the Hedonic Treadmill: an increase in salary motivates us for a short period of time, but then we grow accustomed to it and want more. Combine this with our need for equity, whereby we compare ourselves to others in similar roles and become dissatisfied when they earn more, we get into a situation of spiraling remuneration and eye watering bonuses. But does some one already earning £1.3M really need that additional £200K to bring them to £1.5M? Of course not.
Whilst to some extent, we are all motivated by money, there are other factors that should be considered here. Work can give us meaning, recognition and a sense of purpose. All have a motivational impact. Maslow spoke of the hierarchy of needs in the 40's, with self actualisation being at the top and our physiological and security needs being at the bottom. Although a simplified theory, it does suggest that financial rewards do not contribute towards the higher levels of human motivation. In thinking about remuneration, therefore, we should be thinking about more than just how much we give somebody. More money does not equate to better performance.
Today is Friday 13th! How many of you reading have already had something bad happen to them? How many of you have avoided black cats, not walked under ladders, greeted Magpies or any other such superstitious behaviours? Isn’t it odd, that in today’s society where we generally regard ourselves as scientifically and media savvy, critical and questioning, many of us still have superstitions. After all, many of us have come to accept Darwin’s theory of evolution even though it flew in the face of contemporary Christian belief at the time.
As a psychologist, I find this fascinating, and indeed, psychology and evolutionary psychology can offer us some of the answers as to why people believe irrational things that fly in the face of the scientific evidence that we have.
Let’s start with our evolution. Humans are sentient beings, and along side this comes an enquiring mind, and the wish to be able to explain the unexplainable. It’s these aspects to our make up that have resulted in the success of the human race, our ability to adapt to circumstance, work out the answers to problems and build the society that we value. Where explanations for events are less forthcoming we try to provide our own explanations to fill the “explanation vacuum”. Many of the world’s religions started out like this - we could not explain the weather, nor why the earth existed at all. We had a god for rain, and a god for sunshine and we believed that praying to either of these would help us to influence the weather. This leads us to our first psychological phenomenon - our wish to have influence on the world around us. In psychology we refer to an internal and external locus of control. Internal refers to when we feel we have control over something, and an external locus of control is when we have no control, i.e. the control is from an external source. Taking the weather, for example, we try to influence this by praying to an external locus of control, a weather god, in the hope that he or she will influence the weather for us in a favourable way.
Another theory in psychology that can be used to explain superstitions is that of attribution. Research has shown that if you believe that you have done something positive, you are likely to attribute it to your own skills. If somebody else does, you are likely to attribute it to something outside of their control, for example, the circumstance favoured them. Similarly, with superstitions about when something bad happens, we are unlikely to attribute it to ourselves, but we also wish to provide an answer - remember, we want to fill that “explanation vacuum”. So, we end up blaming it on other circumstances - the black cat that we saw that morning, or the day of the week, for example. So why is any of this relevant? Think about it. We live, at the moment, in very ambiguous times, and I’d venture that as a result of that we are likely to see more people turning to religion as a means of making sense of what is going on and gaining a sense of stability, as well as seeking explanations that could be deemed to be of a superstitious nature. Further, I’d suggest that if anything else happens in the global economy today, many people will put it down to the fact that it’s Friday the 13th.
My word, what a furore over John Sergeant resigning from Strictly. I couldn't believe how much press coverage that got, and how passionate people seemed to get about it. I think he was right to resign - he was an awful dancer!
Then I started to think about this from a psychology perspective and the parallels between what went on in a public TV programme and what occurs in organisations. As a psychologist I spend much of my time working with organisations to introduce accurate, fair and valid processes in terms of measuring people performance, so that personal preference, biases or likes and dislikes are removed. Here people are trained to provide accurate assessments of individual's performance. In Strictly, we have a group of expert judges who know and understand dancing. They consistently rated John as a poor dancer, and yet, the public voted for him to stay in. The public however exercised their personal preferences and biases because these were all they had to go by - the majority being incapable of assessing whether or not he was a good dancer. For John this probably created mixed feelings. He had repeatedly heard that he was no good, and yet the public voted to keep him in, until ultimately, he felt that he had to quit. Hopefully now the best person will win.
In business we can often observe similar situations. Individuals may progress in their career because they are popular and not because they are good. Some will eventually quit because they get the message, but many will not. If they are to remain successful, organisations need trained, expert assessors who can make a proper judgment of the people they are selecting or promoting and not gifted amateurs who provide a populist vote.
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