People like to play to their strengths. But sometimes those strengths can cause problems. You may have heard of the “Peter Principle”—that managers rise to the level of their incompetence. They get promoted because they do a good job, and if they succeed they get promoted again, until they don’t excel any more—at which point they stay put.
This is the failure of success: people keep doing what they are good at, rather than what the new job needs. An example of this might be Jon Corzine of MF Global. By all accounts Corzine was an excellent trader. He rose through the ranks at Goldman Sachs because he knew how to recognize a market opportunity. But success at Goldman didn’t prepare him for managing an upstart brokerage. He tried to trade MF Global into prosperity, and didn’t expect his bank lines to be pulled due to market-to-market issues. Those things didn’t happen at Goldman!
Indeed, the Financial Crisis showed that ex-traders can make poor managers. CEOs Jimmy Cayne of Bear Stearns and Dick Fuld of Lehman were rewarded when they took big risks on the trading desk, but that didn’t work out for them as executives. Sometimes the smartest person in the room doesn’t turn out to be so wise, strategically.
You can see it in other industries as well: outstanding teachers and professors who make poor administrators; brilliant programmers and engineers who become imperious managers. Sometimes technical expertise is what’s needed at the top, but more often an organization needs a leader who can rise above the day-to-day challenges and see the bigger picture.
Smart people may know what needs to be done, but wise leadership will understand how to get there. Management is doing things right, but leadership is doing the right things.
Douglas R. Tengdin, CFA
Chief Investment Officer