Every major bank does talent review and succession planning. Here is a quote from John Stumpf of Wells Fargo. It is not meant to denigrate the named individual, it is just to point out the mentality and hubris regarding how corporations select managers. I will debunk the mentality.
“We have a very robust talent review process here,” he (Stumpf) says. “Avid has a wonderful future here and so do a lot of people.”
So let’s examine this. Stumpf makes a congratulatory self declaration. What he says shows the same kind of self certainty that I’m sure he felt when making all those mortgage loans and buying Wachovia Bank over a weekend. Second, he prophesies about the future. Of course a lot of people have a wonderful future at Wells. That is just a function of the bell curve. But to predict that a specific individual has a wonderful future is another matter. That is a thinking error. There is no certainty about any one individual.
Every bank, every corporation, claims to have a robust and effective talent review process. I would argue that it is just the opposite, that their talent review processes cause adverse selection. This paper was recommended by Bill Black. In it, Gintis and Khurana argue that the business educational system detracts from corporate honesty. This should be self evident to us by now. Corporate honesty is an oxymoron. There are exceptions of course, somewhere.
They write that the B-school motivational models are based on mis-application of simplified economic theories that do not necessarily bear on human behavior. Economic theory and behavioral economics are different Arts. We actually have a lot of good information concerning behavioral economics. Unfortunately the current generation of corporate leaders by and large have already been conditioned by faulty assumptions that defy logic. For example, we know that among individuals there are many that place high value on things other than economic incentives. Nevertheless, few corporate leaders factor this into processes. To quote:
In particular, many individuals place high value on such character virtues as honesty and integrity for their own sake, and are more than willing to sacrifice material gain to maintain those values. We suggest business schools develop and teach a professional code of ethics similar to those promoted in law, education, science, and medicine, that the staffing of managerial positions be guided by considerations of moral character and ethical performance, and that a corporate culture based on character virtues, together with the stockholder-managerial relationships predicated in the part on reciprocity and mutual regard, could improve both the moral character of business and the profitability of the corporate enterprise.
Please note that the authors have previously compared the shortcomings of existing B-school ethics approaches and contrasted them with courses taught in the other listed professions.
Even if business schools change their curricula, it is A) too late for current corporate managers and B) new graduates will come into already corrupted cultures and are likely to lose their values before they rise to seniority.
So back to talent review processes. These are founded on alignment of individual incentives to short term shareholder value. The incentives become the proxy for value creation (book profits). There are both carrots and sticks for performance relative to these proxies. The metrics can always be manipulated in many ways including by the natural delay between bad decisions and the corrosive impact of those decisions. The most manipulative and ruthless managers generate the “best” metrics. As we have discussed before, the corporation protects the individual from consequence for such decisions and the externalities foisted on the commons.
To quote again:
…if the health system, scientific research, or higher education were run on the principle that the highest-level decision makers are motivated solely by material reward, and if the training of individuals in these fields stressed that there are no binding ethical rules, and obeying laws should be subject to cost-benefit calculation, there is little doubt but that such systems would fail miserably.
The end result is the managers most sold-out to corporate interests and least wise or humane are the ones promoted higher into management. They play the game to win, and do, and we lose.