Management and the art of satire…

For those of a certain “maturity”, and who remember watching the event “live”, it is a sobering thought that in a year’s time we shall be celebrating the 50th anniversary of the first manned landing on our Moon. Perhaps less noticed, will be the 50th anniversary of a book that was supposed to be satire, but then created a term of art- The Peter Principle by Laurence Peter (an academic) and Raymond Hull (a playwright), with Hull the primary author using Peter’s research.

The Principle states: “In a hierarchy every employee tends to rise to his [or her] level of incompetence.” In other words, at the heart of organizational management lies a paradox: people who are perceived as the best in a particular role tend to be promoted until they no longer perform well in a subsequent role- at which point they become stuck (in their Final Placement, having reached Peter’s Plateau). Less often quoted is Peter’s Corollary: “In time, every post tends to be occupied by an employee who is incompetent in carrying out its duties.” One can see the consequences of such an eventuality!

What was not expected to be taken too seriously has become (albeit sotto voce) almost dogma in certain quarters. Any laughter will have an edge of knowing acceptance. However, like dogma, belief is not the same as evidence. In reality, the heart of the issue is the extent to which skills which engender success in one particular role or function are transferable and applicable further up the hierarchy (and most large, complex organizations are hierarchies)- can specialists become managers?

The authors also created other terms. How about “percussive sublimation” (a.k.a. being “kicked upstairs”) or a “lateral arabesque” (being moved “out of the way” and given a longer job title- or perhaps, in the current age, a meaningless one); or “hierarchical exfoliation”- a fate destined to befall those who are either super-incompetent or super-competent- who are fired. Such actions are clearly intended to preserve an organization’s Bell Curve of mediocrity!

So, when 3 researchers (economists Alan Benson, Danielle Li and Kelly Shue) recently published the results from a study of 53,000 employees working in sales environments, across 214 companies, and involving over 1,500 promotions, the key question was whether or not their research would confirm the thesis of the original book.

In short, it did.

The best sales people were likely to be promoted to managerial roles; yet, once they became managers, the teams they were managing performed more poorly. All this begs the question of how to stop the rot and how to design processes that are not counter-productive. One approach posited by the study’s authors would be to reward those who are excellent in their existing roles with greater pay, rather than promotion. Another, as at Microsoft, for example, would be to create dual tracks (with equal compensation potential and prestige) for technical and managerial roles. Of course, the classic corporate progression (at least in Western managerial practice), for those deemed to have “potential”, is to move them from role to role with increasing levels of responsibility until finally they realize that “potential”. However, more rarely is this combined with “up or out”. As Peter and Hull predicted, people become “stuck”, creating bottlenecks. Even fewer organizations appear to practice an approach in which promotion followed by “failure” is followed by a suggested re-assignment to the prior role in which competence was demonstrable.

Interestingly, in “the old days”, a number of financial institutions actively to try to develop individuals who would become “general managers”, running the institution as part of a team. Such an approach appears to have fallen victim to the rise of the hyper-specialist.

Where does all this leave the art (science still smacks of far too much “certainty”) of management? Perhaps at the start of a cycle of deciding that was old is new again! After all, we have not even mentioned the management consultants…!

The Awbury Team

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Seems like only yesterday I left my mind behind…

The fact that just over 2 years have now passed since the shock outcome of the UK’s Brexit Referendum emerged, brought to mind the above-quoted line from the Bob Dylan song (performed iconically by Joan Baez) “Love is just a four letter word”. After all, the island of Great Britain and “the Continent” have had an unsettled relationship for much of recorded history, with the current imbroglio being yet another iteration of “will they, won’t they?”

So, it is worth taking stock and asking: “Where are we now?”

Frankly, seemingly not much further on in terms of progress towards resolving the numerous key (let alone mundane) issues that will make the difference between a rational “divorce” with continuing amity, and the semi-scorched earth policy of a “hard Brexit”, especially in light of the recent tumult in the ministerial ranks of the Conservative Government and repeated sparring in Parliament, in which the government has to wonder whether and by whom it will be ambushed next in votes related to Brexit, compounded by mixed signals during President Trump’s recent visit over the attitude of the US Administration. And don’t even mention the mental gymnastics required to solve the “Northern Island Border Question”!

Such uncertainty matters, and is increasingly weighing upon the perceptions, decisions and actions of major sectors of the UK economy, as well as causing concern amongst the UK’s interlocutors in the EC/EU.

The recent UK government White Paper was an attempt to provide a framework for negotiating an “exit” and a transition period before the invocation of Article 50 causes the UK to crash out of the EU at 11pm on March 29, 2019. As we have written before, negotiations of such complexity and consequence usually take years, not months; and the timeline is, in reality, even more truncated because of the need to obtain the necessary approvals from both sides of the negotiations before the witching hour.

Every day that passes without clear progress increases the risk of an un-negotiated “hard” Brexit, with financial regulators in the UK chastising their charges for inadequate contingency planning and preparation for such an eventuality. It is perhaps not surprising that one gets the sense of a significant level of denial in many quarters that the worst could happen, leading to decision-avoidance and paralysis.

In the (re)insurance realm, firms that need to be able to conduct business across the EU and the UK have, of course, taken steps, through the establishment of subsidiaries where necessary in jurisdictions outside the UK, to ensure continuity of business; but the question of business transacted between the post-Brexit UK and the EU remains unresolved, with the only clarity being that the Government is not currently seeking to remain in the “single market” for services and so, once the UK exits the EU, “passporting” will end. Not surprisingly, few in the industry are happy with this because of the level of uncertainty it creates (including on matters such as contract continuity) and even those who profess to be supportive are probably whistling past the graveyard.

Of course, all the current Sturm und Drang may be the prelude, finally, to rational negotiation this autumn, as both parties realize that a “hard” Brexit is in neither side’s interests.

At Awbury, we continue to review the spectrum of possible outcomes, including the worst cases, because that has to be at the core of any effective risk management. One can hope for and expect the best; but should always be prepared for the worst.

The Awbury Team

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If you ain’t got talent, diversity, reputation and relationships, you ain’t got nothing…

We had the pleasure of attending ABIR’s recent 25th anniversary celebration seminar, and of hearing from many of the pioneers and current leaders of the Bermudian (re)insurance community on a range of relevant topics.

In listening to and thinking about what we heard, we believe there are a number of key points that were made and should form the basis of any thoughtful and well-informed analysis of how to maintain Bermuda’s pre-eminent status. None is unexpected, but they are often forgotten, overlooked or downplayed.

Firstly, to thrive, any business needs to attract and retain the most talented people, because in a world in which the value of whole industries is based upon intangible rather than tangible assets (such as intellectual property), the differentiator between businesses which are able to adapt and those which wither and disappear will be the intellectual capacity which they can deploy. As one speaker said: capital does not attract talent; rather talent attracts capital and then more talent. The development of the Bermuda (re)insurance industry is a classic example of that truism, with the pioneers of the industry able build businesses around themselves and the teams they recruited, matching and melding both local and global talent.

Secondly, the idea that focusing on the recruitment of one particular “type” of individual can sustain a business over the long term is misguided and increasingly untenable. The more diverse a talent pool is, the greater the likelihood (provided it is effectively managed) that it will be able to create new intellectual capital and be open to new ideas. “Groupthink” by a collection of individuals who all fit the same basic profile is one reason why both risks and opportunities are missed, with unfortunate consequences. Apart from questions of fairness and equity, recruiting from a narrow base is simple wasteful of human potential.

Thirdly, one can have talent and capital in abundance, but still be shunned; not because of one’s own reputation, but because of the environment in which one is perceived to operate. Several ABIR speakers made the point that the reputation of the Bermuda market has been hard won through a conscious effort by the industry, government and regulators to hold themselves publicly to the highest standards, after the debacle suffered in the 1980s. As Warren Buffett said: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

Fourthly, relationships matter. We are supposed to live in a world in which more and more interactions can be and are “de-materialized”; and, clearly, the (re)insurance business as now constituted could not function without the efficiencies and economies of scale afforded by modern technologies and telecommunications. Nevertheless, the (re)insurance business remains one in which direct personal relationships between a relatively small cohort of individuals are fundamental to the completion of large, complex transactions, because the parties involved know, trust and respect each other. In the case of Bermuda, its small size enhances the ability to create and maintain such essential relationships, with the proviso that the talent pool has to be high quality, diverse and constantly replenished.

And we could not close this post, without mentioning another factor that makes Bermuda such an effective forum for global (re)insurance business: the quality and openness of its regulatory framework; and that the fact that one can have a direct relationship with the BMA team and obtain quick and responsive decisions and guidance. This is a key competitive advantage for any regulated business.

The Awbury Team

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