Getting Personal with CIOs: What Are They Really Thinking?
The folks at Institutional Investor have created an interesting forum for discovering what is truly on the minds of investment leaders: a number of high-level meetings, or roundtables, where CEOs, CIOs, and other senior investment leaders discuss the newest thinking on managerial and investment issues. These roundtables allow for unusual candor through the use of anonymous, electronic voting devices. Specifically, a presenter asks a question of the group, the attendees key in their answers, and the results are instantly tallied and shown on a large screen.
I posed the following set of questions to 50 CIOs of leading investment firms during the CIO Roundtable in San Francisco in January. Some of the answers were surprising.
Does “herding cats” accurately describe your management challenge?
Yes: 57%
No: 43%
Most of you have seen the Super Bowl ad where the tough ranchers furiously herd a bunch of rowdy cats. It’s a funny and remarkably accurate description of the CIO’s role. Investment professionals are independent, skeptical, curious, resistant to authority, and very bright; managing them is demanding because most of them don’t want to be “managed” in the first place. (I’ve never heard an asset manager say, “I wish my job had more structure and direction.” Are you kidding!?) Instead, they want a respectful partnership, in which the leader gives them resources and clear performance goals and then turns them loose.
One of the best leaders that we know is Steve Kneeley, formerly with Turner Investments. Steve understands that most investment professionals will do a pretty good job of managing themselves if given the appropriate incentives (read: compensation) and made it his business to stay out of the way of his investment team. In fact, his year-end bonus was based on how effectively he did this. Each time he pulled analysts away from their work, his bonus was docked.
Do you enjoy managing your investment staff?
Yes: 85%
No: 15%
This question genuinely interested me. Do the people who have to manage these “cats” enjoy the task? CIOs tend to be INTJs on the Myers-Briggs personality indicator, types who enjoy using their minds to complete tasks more than they enjoy human interactions. To put it another way, there are three types of people in the world: those who like ideas, those who like things, and those who like people. CIOs like ideas. So, I assumed that nearly all the CIOs would answer, “No.”
In conversations after the roundtable, several of the CIOs said that they really enjoyed the intellectual discussions and debates with their analysts and PMs. In my mind, that is different from “managing” them. So, I think I still may be right … how’s that for not losing gracefully?
Do you wish anyone on your senior staff would resign?
Yes: 46%
No: 54%
This is a question we ask of all CEOs or CIOs when we start an engagement. We want to know if a leader has the right people on the bus. If not, the first order of business is to make a “fix it or fold it” decision. The former usually involves some coaching and possibly a change in responsibilities. The latter involves a judgment call that the targeted individual will never be a good fit. In our experience, the best solution is when both parties − the leader and the targeted individual − reach a mutual decision to separate. Invariably, six months later, both are much happier. Because nearly half of our assignments lead to one or more team members relocating, I was not surprised by these results.
Would you rather have a star performer who doesn’t embrace the company’s values or a good performer who lives the values?
Star Performer: 3%
Good Performer and Culture Fit: 97%
We all know that the politically correct response is the latter. I was interested in what these CIOs would say under the “truth serum” of anonymity, as the industry lends itself to a star mentality. Who do you think of when you think of Legg Mason or Fidelity in the ’80s or Wellington? You probably don’t think of the CEO or of a team effort. You think of the PMs who made these funds famous. I don’t even need to mention their names; you know them that well. And consultants and clients reinforce the star system by insisting that an investment firm name the key decision maker − all this despite evidence that only 30% of a fund’s success is attributable to the “star” while 70% is attributable to the team surrounding the star. So, weighing the above, my guess was a 50/50 split on this one.
Have you personally worked with an executive coach?
Yes: 41%
No: 59%
For some professionals, coaching still carries with it a sense of shame. One of the reasons is the strong sense of independence and self reliance exhibited by investment pros. Most of them are hard-wired with an “I can do it myself” attitude. That attitude, combined with the “I am the smartest guy in the room” syndrome, makes for an unlikely coaching candidate. This state of affairs is changing, however. As more similarities are drawn between pro sports and pro investing, a compelling case can be made for coaching. Pro golfers and tennis players have coaches. Olympic athletes have coaches. All teams have coaches. A good coach can see blindspots that a leader might never see on his or her own.
Does your senior team have any blindspots?
Yes: 72%
Yes: 28%
This question got a laugh when it flashed on the screen. Obviously it reveals our bias towards leaders and their teams. Of course they have blindspots. Every person and every team does. The real question is, “How serious are the blindspots?”
Relative to others in this room, are you winning the talent wars?
Yes: 79%
No: 21%
Uncanny, isn’t it? Experts tell us that if you ask a question like this
to a large enough group, you will invariably get an 80/20 result. This
question is a bit like the Lake Wobegone joke that all the children in
Lake Woebegone are above average − obviously everyone can’t be winning
the war for the best people. We were curious how this group of CEOs would
see themselves, and if they would follow the familiar pattern of being
overly optimistic about their own abilities.
Talent and culture are the key ingredients for winning the investment game. Firms that do this well − Dodge & Cox, Brandes, Ariel, William Blair, Capital Group − create a formula for sustainable success through good and bad times. Interestingly, two breakout groups at this conference dealt with compensation − one on pay-for-performance, the other on long-term incentives — and both returned to the larger group to report that culture is more important than either. We see this all the time. Top firms know that creating a great culture is your best strategy for attracting and retaining top talent. No candidate from the University of Chicago MBA program has ever turned down a job offer from Ariel. The perception is: If you get a job offer from Ariel, you take it!
When you think of compensation issues, do you want a drink?
Yes: 39%
Make mine a double: 61%
The final question was provided mostly for levity. We don’t know of any firm that has an easy time with compensation. (Well, that’s not true. One start-up firm we work with has 18 employees and is making a ton of money. I asked the CEO if they have a good comp plan and he laughed and said, “No, we just overpay everyone! For now, it’s working!”) But for most firms, comp is a headache, as you can see from these numbers.
So what do these answers tell us?
In conclusion, CIOs are taking more seriously the idea that
successful investment firms must focus on both the hard issues of
performance and risk assessment as well as the soft issues of teamwork
and culture.