Friday, July 11th, 2008
patterns of behavior

It was one of those wonderful days of travel that ended with a canceled flight that meant an unexpected night in a hotel in the wrong city. The morning had begun with me learning everyone else’s business, starting with the guy in the airport lounge that was clearly trying to coach the person he was talking to on the phone through the corporate jungle that entangled sales credits that he deserved — and to console him at the same time. “It’s the same thing over and over,” he said, “Every month there’s something. It’s a pattern of behavior.”A couple of the other conversations I got to hear on the flight out involved the elevation of Dr. X (his name was actually stated) to Chief Medical Officer (although he couldn’t report to Mr. Y) and the entire process of transferring money from one bank account to another. It’s amazing what people broadcast these days, which brings me back to the fellow in the lounge. Perhaps it shouldn’t have been a surprise given that the skin on his cell phone was camouflage, but he ended his call by referring to the accounting clerk that would soon be apprised of her errors: “Let’s hope she doesn’t have a .38 in her purse.”

We are creatures of habit. We also are parts of organizations of habit, collective entities that evince patterns of behavior of their own. Some are patterns to be encouraged and celebrated, and others to be sought out and destroyed if possible.

While behavioral finance has increased in importance, it often focuses on the individual (and the classic behavioral errors that we tend to make) or the collective of the marketplace (“look at the lemmings heading toward the cliff”). Very little work has been done at the level that I find most interesting — the investment organization.

The firms I have studied are all unique (can we use that touchy-feely word “culture”?), driven by different strategies, goals, histories, and personalities. Whether one succeeds over time depends in large part on the ability of its leaders to understand the patterns of behavior that result (not just its advertised performance, which often gives a false signal of the organization’s health), and to make good judgments about how to steer a path to the future.

The task seems impossibly complex given the key moving parts — intricate, global markets and smart, opinionated, highly-paid decision makers. The easiest thing is to let those two forces collide and hope that you come out ahead. However, the best organizations feature a continual cycle of clear-eyed assessments, the consideration of a range of alternative possibilities and views, and the willingness to make hard choices no matter whose egos might get bruised.

Does yours?