Category: Thought and Opinion

Jamie Dimon: What does it mean to hold someone accountable?

An excellent reminder from Jamie Dimon on what it means to hold someone accountable.

Thank you, Chancellor Cantor… Syracuse faculty, proud parents and family members and, above all, graduates.

It is a privilege to be with you here today celebrating this important step in your lives. One that I am sure is also a moment of relief and joy for all of you… particularly the parents who are here today.

Graduating today means that you are through with final exams… and through submitting term papers…

All that nervousness… the cold sweats… the sleepless nights … preparing to answer seemingly impossible questions…

That’s a feeling we banking executives know pretty well these days… We call it… “testifying before Congress.”

I am honored to be here today, but I also know that some of your fellow students have raised questions about my being your commencement speaker.

When I heard about those protests, I wanted to understand what was behind them – so I called one of the students leading that movement and we had a good conversation.

I heard her concerns about me, about our nation’s banking system and about capitalism itself—some I thought were legitimate, others I disagreed with.

But whether I agreed with her or not—I say: good for her. I am proud of her for speaking up.

In fact, it is completely appropriate to hold me accountable for those things that I am responsible for.

We all should be held accountable.

But what does it mean to hold someone accountable? And how do you make yourself accountable?

Today, I will talk about what it takes to be accountable in the hope that it will be of some value to you in the years to come.

And in sharing my views with you I do not mean to imply that I did it all right—I did not. Many of the lessons I’ve learned… I’ve learned by making mistakes.

It takes courage to be accountable.

Throughout my life and throughout the crisis of the past few years, I have seen people embarrass themselves by failing to stand up, being mealy-mouthed and acting like lemmings by simply going along with the pack. But I also saw plenty of people under enormous pressure who consistently did the right thing.

Graduates, you will soon leave the wonderful university community and venture into a new world… to get ready for new jobs, new opportunities and new lives.

Along the way you will face a lot of pressure… pressure to go along to get along… to toe the line… to look the other way when you see things you know aren’t right… and pressure to do things simply because everybody else is doing them.

Never give in to that pressure. Have the fortitude to do the right thing… not the easy thing. Don’t be somebody’s lap dog or sycophant.

Have the courage to speak the truth even when it is hard, even when it is unpopular.
And have the courage to put yourself on the line… to strive for something meaningful… and even to risk what could be an embarrassing failure.

I think President Theodore Roosevelt understood this nearly a century ago when he said, and I quote:

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man (or woman) who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

It takes knowledge to be accountable.

Having the ability to speak up is important, but it isn’t sufficient. If you have the guts to take a stand—what you think is a principled stand—then have the brains to base it on facts and analysis as well as deliberate and critical thinking.

In some cases, it’s immediately clear what the right thing to do is. And in other situations, it is much more complex.

There is a temptation to come up with simple and binary answers… especially when they couldn’t possibly apply. We should remember what Einstein once said, “Be as simple as possible, but no simpler.”

Acquiring knowledge must be a life-long pursuit—it should never end. You learn by reading—read everything, all the time—and by talking to and watching other people. And you especially learn by listening to the arguments on the other side.

It’s your job to constantly learn and develop informed opinions as you move forward in your lives. There are some very thoughtful people out there, and reading their views and analysis will help educate you.

If you think you are a socialist, read Milton Friedman. If you think you are a capitalist, read Karl Marx. If you think you are a Republican, listen to the Democrats, and vice versa. Look for the kernels of truth in what they have to say… don’t reject all of it out-of-hand. And be willing to change your mind.

Don’t fall into the trap of being rigid and simplistic. It’s OK for all of us, at times, to blame and to be dissatisfied with others and to hold them responsible, but it’s not OK to oversimplify and paint everyone with the same brush. It should not be acceptable to denigrate entire groups… not all companies, not all CEOs, not all politicians, not all media, and not all students.

Among these groups, there are some terrific people and among these groups there are some terrible people. To categorically and indiscriminately judge them is simply another form of prejudice and ignorance. It is not fair… it is not just… it is simply wrong.

One must be honest with oneself to be accountable. Shakespeare said it best, “To thine own self be true.”

There is already a book being written on each of you… and people add to it each day… if I wanted to know all about you, all I would need to do is to talk to your teachers, friends, colleagues, fellow students and parents.

Then I would know if you are trustworthy, hard working, empathic, ethical and if you deliver on your commitments… or if you are lazy and let people down.

It’s up to you to determine how you want that book to be written—it’s a choice—don’t let others write it for you.

So, be the person you want to be. Set your own high standards—for both integrity and performance.

If you want to be a winner, then compare yourself to the best and acknowledge that it will never happen without hard work.

As Abe Lincoln used to say: “Good things may come to those who wait, but it’s only those things left by those who hustle.”

If you want to be a leader, then act like a leader.

If you want to be trusted and respected, then demonstrate that you deserve respect… by earning it every day.

If you want to be known as honest, then not telling lies is not sufficient… don’t even shave the truth.

Also, make sure you have friends and colleagues who will always bring you back to earth when you—like we all do at times — are deceiving yourself.

In business and in life, it is very important to both be a truth-teller for others and to surround yourself with those who will be truth-tellers for you.

It takes knowing how to deal with failure to be accountable.

The world is complex and challenging.

And yes, the economy is getting better. But you will still be entering the job market at a tough time.

In fact, throughout your lives you are going to have to face tough times and failure—both personally and professionally—and I’m sure some of you already have. But how you deal with failure may be the most important thing in whether you succeed.

Some of the greatest people of all times…I’m thinking of Nelson Mandela, Indira Gandhi and many others… have faced enormous setbacks and have persevered, often against seemingly impossible odds.

As you all know, over the past two years, we have gone through the worst financial crisis since the Great Depression.

A lot of attention has been paid to the mistakes made by those who helped bring on this crisis. The first step to dealing with mistakes is to actually acknowledge them… and it is true that many in this crisis denied any responsibility.

But in this crisis, I also saw many take real responsibility and show real resiliency.

At the darkest moments, when it seemed like the whole system was unraveling I saw men and women in my company, at other companies and in government—who took action in extraordinary ways. They didn’t whine or complain and when they got knocked down, they got up and did something about it.

They worked for days, for weeks on end without much sleep… sacrificing time with their friends and families… all so that the crisis could be contained—and all the while knowing that they may fail.

They weren’t driving themselves so hard just for the money… or to score points with the boss… they understood that the well-being of millions of people depended on getting the situation under control.

They didn’t lose their nerve when things seemed bleak. They showed the fortitude that is necessary to handle a tough situation and to deal with life’s inevitable setbacks.

That is a lesson I have had to learn in my own professional life.

Before I became CEO of JPMorgan Chase, I was President at Citigroup. And one day, I went to work and I was surprised when I was fired from that job by a man who I had worked with for over 15 years…

I remember going home to explain what had happened to my wife and three young daughters.

They were naturally scared about what it meant for our family for me to have lost my job…

My youngest daughter, who was six at the time, asked if it meant that we would be out on the street… I said, “Of course not, darling.”

My middle daughter, who always had looked forward to going to college, asked if we would still be able to afford to send her… I said, “Of course.”

And my oldest daughter… she asked if she could have my cell phone since I wouldn’t be needing it anymore… she quickly recovered and showed resiliency!

So make no mistake, setbacks will happen… and when they do, it’s OK to get depressed or blame others… for a while… but eventually you have to get up, dust yourself off, learn from it and move on.

It takes humility and humanity to be accountable.

We all stand on the shoulders of those who came before us. Humility is the realization that those who came before you paved the way. Never fool yourself into thinking that your success is just your own.

Your success is the result of your parents and family who sacrificed to give you a better life, your professors and administrators who helped you through your time here at Syracuse, your friends and neighbors who looked out for you and encouraged you.

In fact, this wonderful country whose bounties we benefit from, was built by so many people who made endless and often the ultimate sacrifices… before we were even born.

It is important to respect what they have done and to be grateful for it…
And while I told you that you should hold others accountable, we all need to have the strength of character to hold ourselves accountable, too… in every aspect of our lives.

As graduates of this world class University, you each have what it takes to lead meaningful lives and to contribute to the lives of others.

If you continue to be successful and go on to become a leader of people, that is the time when it becomes about them and not you. Leadership is an honor, and a privilege and a deep obligation.

Throughout your lives you will meet people who may not be as smart, talented and skilled as you. They may not have had all of the benefits that you have had. But many are doing the best they can possibly do… and they take great pride in doing their part well.

Being accountable to them requires a grace and generosity of spirit… it requires compassion and treating all with respect… from CEO to clerks… and it requires giving back.

And to me that is humanity’s highest form of accountability. Our survival and success depends on it.

In the words of the poem that I love by Rudyard Kipling:

If you can keep your head when all about you are losing theirs and blaming it on you. If you can talk with crowds and keep your virtue, or walk with Kings— nor lose the common touch… yours is the Earth and everything that’s in it.

Conclusion
And so, it takes courage, knowledge, a strong sense of self, a capacity to overcome failure and a healthy amount of humility and humanity to be truly accountable.

These qualities are at the heart of our success as a nation. I’d like you to keep one concluding thought in mind: America’s success as a nation is not a god-given right. It is something that we all must work hard to achieve. If you have studied history, you have seen nations and empires rise and fall.

The United States and our world has always faced many challenges… some tougher than the ones we face today. And I am confident that we all will recover in the short term. But in the long run, you—the next generation—must continue to confront and conquer the challenges we face.

We must confront our health and education systems—it is not acceptable that in the United States of America only 50% of our inner city school kids graduate high school;

We must develop a real, substantive energy and environmental policy—we have had three major energy crises and it is not acceptable to have a fourth;

We must build the infrastructure for the future. And we must continue to welcome the best and the brightest from around the world to our nation.

These are all serious issues, but if we work together, we can fix them.

You all have the ability to carry the responsibilities you will face in life. In so many ways, all of us in this stadium are truly blessed.

We are very lucky to live in this country and to have the opportunities we have been given— but that brings obligations, too.

As you go about your life, remember your country. And regardless of what you do and what you achieve in life… try to leave everything and everyone that you touch a bit better than they were.

Just continue to be true to yourself and your values. Be resilient. Be honest. Be humble. And never stop holding yourself and others accountable. And you will not only have the kind of life you wish for and deserve—and you will also do your part to make this country and the world a better place for the generations yet to come.

Congratulations Class of 2010… you did it! Good luck and Godspeed.

Source JPMorgan

Hiring and the Mismatch Problem

“We want to cling to these incredibly outdated and simplistic measures of ability.”
Malcolm Gladwell

***

Hiring is difficult and we tend to fall back on antiquated tools that give us a number (something, anything) to help us evaluate potential employees. This creates what Malcolm Gladwell calls “mismatch problems” — when the criteria for evaluating job candidates is out of step with the reality of the job demands.

Of course, we never think our criteria is out of step.

The mismatch problem shows itself all over the sports world. Although the study below was released in 2008, Gladwell has long illustrated the point that sports combines (events professional sports leagues hold for scouts to evaluate potential draftees based on a battery of ‘tests’) don’t work.

Gladwell’s results echo what Michael Lewis talks about in Moneyball: Combines are a poor predictor of determining ultimate success. Mismatch problems transcend the sports world.

Teachers are another example. While we tend to evaluate teachers based on high test scores, the number of degrees and other credentials, that makes little difference in how well people actually teach.

Some companies, like Google, are trying to attack this problem. Google tried to find correlations between ‘great’ existing employees. When they find correlations, say like most people who score 9/10 on performance reviews, own a dog, they try to work that into their hiring. By constantly evaluating the actual results of their hiring, rethinking how they hire, and removing questions and evaluations that show no bearing on actual performance they are taking steps to try to eliminate the mismatch problem.

Google also knows hiring lacks certainty; they are just trying to continuously improve and refine the process. Interestingly, very few workforces are so evidence-based. Rather the argument becomes hiring works because it has always ‘worked’…

So why do mismatch problems exist?

Because we desire certainty. We want to impose certainty on something that is not, by nature, certain. The increase in complexity doesn’t help either.

“The craving for that physics-style precision does nothing but get you in terrible trouble.”

See the video here.

Interested in learning more? Check out measurements that mislead.

Malcolm Gladwell is the New York Times bestselling author of Blink:The Power of Thinking Without ThinkingThe Tipping Point: How Little Things Can Make a Big DifferenceOutliers:The Story of Success, and What the Dog Saw: And Other Adventures.

Taleb: The Fooled by Randomness Effect and the Internet Diet?

In this brief article Nassim Taleb (of Black Swan fame) touches on information, complexity, the randomness effect, over-confidence, and signal and noise.

THE DEGRADATION OF PREDICTABILITY — AND KNOWLEDGE

I used to think that the problem of information is that it turns homo sapiens into fools — we gain disproportionately in confidence, particularly in domains where information is wrapped in a high degree of noise (say, epidemiology, genetics, economics, etc.). So we end up thinking that we know more than we do, which, in economic life, causes foolish risk taking. When I started trading, I went on a news diet and I saw things with more clarity. I also saw how people built too many theories based on sterile news, the fooled by randomness effect. But things are a lot worse. Now I think that, in addition, the supply and spread of information turns the world into Extremistan (a world I describe as one in which random variables are dominated by extremes, with Black Swans playing a large role in them). The Internet, by spreading information, causes an increase in interdependence, the exacerbation of fads (bestsellers like Harry Potter and runs on the banks become planetary). Such world is more “complex”, more moody, much less predictable.

So consider the explosive situation: more information (particularly thanks to the Internet) causes more confidence and illusions of knowledge while degrading predictability.

Look at this current economic crisis that started in 2008: there are about a million persons on the planet who identify themselves in the field of economics. Yet just a handful realized the possibility and depth of what could have taken place and protected themselves from the consequences. At no time in the history of mankind have we lived under so much ignorance (easily measured in terms of forecast errors) coupled with so much intellectual hubris. At no point have we had central bankers missing elementary risk metrics, like debt levels, that even the Babylonians understood well.

I recently talked to a scholar of rare wisdom and erudition, Jon Elster, who upon exploring themes from social science, integrates insights from all authors in the corpus of the past 2500 years, from Cicero and Seneca, to Montaigne and Proust. He showed me how Seneca had a very sophisticated understanding of loss aversion. I felt guilty for the time I spent on the Internet. Upon getting home I found in my mail a volume of posthumous essays by bishop Pierre-Daniel Huet called Huetiana, put together by his admirers c. 1722. It is so saddening to realize that, being born close to four centuries after Huet, and having done most of my reading with material written after his death, I am not much more advanced in wisdom than he was — moderns at the upper end are no wiser than their equivalent among the ancients; if anything, much less refined.

So I am now on an Internet diet, in order to understand the world a bit better — and make another bet on horrendous mistakes by economic policy makers. I am not entirely deprived of the Internet; this is just a severe diet, with strict rationing. True, technologies are the greatest things in the world, but they have way too monstrous side effects — and ones rarely seen ahead of time. And since spending time in the silence of my library, with little informational pollution, I can feel harmony with my genes; I feel I am growing again.

Related: Noise Vs. Signal

Source

Taleb: The Risk Externalities of Too Big to Fail

Too Big to Fail” is a dilemma that has plagued economists, policy makers and the public at large. In Nassim Taleb’s lastest paper (with co-author Charles S. Tapiero) he takes a look.

Abstract

This paper examines the risk externalities stemming from the size of institutions. Assuming (conservatively) that a firm risk exposure is limited to its capital while its external (and random) losses are unbounded we establish a condition for a firm to be too big to fail. In particular, expected risk externalities’ losses conditions for positive first and second derivatives with respect to the firm capital are derived. Examples and analytical results are obtained based on firms’ random effects on their external losses (their risk externalities) and policy implications are drawn that assess both the effects of “too big to fail firms” and their regulation.

The conclusion is worth reading even if you don’t read the paper — a small tease

However, the non- transparent bonuses that CEOs of large banks apply to themselves while not a factor in banks failure is a violation of the trust signaled by the incentives that banks have created to maintain the payments they distribute to themselves. For these reasons, too big too fail banks may entail too large too bear risk externalities. The result we have obtained indicate that this is a fact when banks internal risks have an extreme probability distribution (as this is often the case in VaR studies) and when external risks are an unbounded Pareto distribution.

Paper

Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-Assessments

We tend to feel we’re more able and smarter than we really are. We think we’re above average drivers, we’re above average investors, and we make better decisions than everyone else.

According to a recent study, this occurs, in part, because we “suffer a dual burden: Not only do these people reach erroneous conclusions and make unfortunate choices, but their incompetence robs them of the metacognitive ability to realize it.”

“Ignorance more frequently begets confidence than does knowledge.”

The study goes on to make several key points:

  • In many domains in life, success and satisfaction depend on knowledge, wisdom, or savvy in knowing which rules to follow and which strategies to pursue.
  • People differ widely in the knowledge and strategies they apply in these domains with varying levels of success. Some of the knowledge and theories that people apply to their actions are sound and meet with favorable results.
  • When people are incompetent in the strategies they adopt to achieve success and satisfaction, they suffer a dual burden: Not only do they reach erroneous conclusions and make unfortunate choices, but their incompetence robs them of the ability to realize it.

The authors come to the conclusions that the skills we need to have competence in any domain are often the same skills we need to accurately evaluate competence. The better we are at something, the better we’re able to judge ourselves. Because of this, incompetent individuals often exaggerate their ability more than competent ones.

The Mis-Match Problem

In this video, Malcolm Gladwell speaks on the challenge of hiring in the modern world.

One of those challenges, the mis-match problem, happens when we use criteria to judge someone for a job that is radically out of step with the actual demands of the job itself. Despite our best intentions we do this all of the time. Gladwell says “we want to cling to these incredibly outdated and simplistic measures of ability.”

Why do mis-match problems exist?
1. Our desire for certainty — the desire to impose certainty on something that is not certain.
2. Increase in complexity in professions.

“The craving for that physics-style precision does nothing but get you in terrible trouble.”

See more on the mis-match problem.

Malcolm Gladwell is a staff writer at the New Yorker and the author of The Tipping Point: How Little Things Make a Big Difference, Blink, Outliers and most recently, What the Dog Saw.