Wednesday, April 11th, 2012
expert audacity

When Chesley Sullenberger landed Flight 1549 in the Hudson, he was hailed as a hero, but bringing the plane down and getting the passengers off safely was a team effort.  Co-pilot Jeffery Skiles somehow had completed restart attempts on both engines and was also able to run through most of the procedures to ditch the airplane — “something [the crash investigators] found difficult to replicate in simulation.”  And the flight attendants (Shelia Dail, Donna Dent, and Doreen Welsh) ensured that 150 people were able to get out of the two of four exits that were viable, within three minutes.

But Sully got the press, by and large, and America was happy to embrace another man with “the right stuff,” especially since the financial crisis was raging and American exceptionalism seemed to be a thing of the past.

If you read the first part of this series on The Checklist Manifesto,the research puzzle | Links to the postings in this series appear in this PDF. you can guess that its author, Atul Gawande, saw something else at play:  Teamwork and, yes, checklists, which have been drilled into airline personnel for decades now.

Both of those have been lacking in Gawande’s field of medicine, with “its central belief that in situations of high risk and complexity what you want is a kind of expert audacity.”  And that’s true in the world of investments too, where lip service is given to the benefits of teamwork and process, but expert audacity is expected to win the performance derby every time.

As anyone who has spent time around investment stars knows, the kind of culture that is created to support them usually doesn’t lend itself very well to the investment equivalent of landing in the Hudson.  Instead, the environment can be much like that which Gawande has seen in operating rooms, where a head surgeon rules the day and is rarely challenged.  Few are willing to speak up, leading to “a kind of a silent disengagement, the consequence of specialized technicians sticking narrowly to their domains.  ‘That’s not my problem’ is possibly the worst thing people can think,” but it happens all the time (even in the investment world where people tend to be smart and opinionated).

Just imagine those tendencies compounded by an incentive structure that is built upon individual performance and where bonuses can be doled out or heavily influenced by the rock stars with the right stuff.  Well, you don’t have to imagine.  The kind of culture where rewards are chased and concerns aren’t discussed is exactly that which — on the sell-side and the buy-sidethe research puzzle | This posting, about the failure of the buy-side, was part of a series in early 2009 on misaligned incentives in the investment business. — led to the aforementioned financial crisis.

The star system isn’t universal in the business, but it is dominant.  And often one of the stars is also given the title of chief investment officer at some point along the way, a further acknowledgment of their track record — and a position for which most are wholly unprepared.  Oh, the part of it where they are supposed to opine about the market?  That they can do and do well.  But the real work, of creating an organization that builds on an array of talent and a confluence of ideas to meet the needs of clients?  Not so much.

Expert audacity can be found in many professions.  Take architecture, for example, and Frank Lloyd Wright.  His genius gave us the prairie style, which I love.  But along with it came imperiousness, acolytes, and more than a few leaky buildings that were hard to live in.

Contrast that with the process for erecting a skyscraper that Gawande details in the book.  Of course, there are still visionary and imperious architects around (just as there will always be visionary and imperious investment professionals), but their ideas take physical form in a far different way than they did before.

Next up:  What investment organizations can learn from those who build buildings.