Moving On Up: Business Culture Going Above the Line
“People react to fear, not love − they don’t teach that in Sunday school, but it’s true.”
Richard Nixon
So, if you want to run a top-notch money management firm, do you scare people or hug them? When we review investment firm cultures, that’s one of the big factors for evaluation: Whether a firm operates, as we call it, above or below the line. And while the perception seems to follow Nixon in the belief that successful firms operate below the line, we’ve found that not only do both strategies work, but above the line culture is on the rise as an indicator of firm success.
Definitions
Above the line behavior is characterized by an attitude of
curiosity and openness, while below the line behavior is defensive and
closed. The former emphasizes learning, and is a trust-based culture,
while the latter accentuates being correct and is fear-based.
Above the line cultures:
- Choose curiosity over defensiveness
- Choose taking responsibility over blaming others
- Choose playfulness and fun over taking themselves too seriously
- Demonstrate trust in one another
- Are empowered and creative
- Exhibit high energy
- Are highly engaged in their work
- Demonstrate candor or openness
Below the line cultures:
- Have a serious life-or-death attitude
- Follow intimidating leaders, getting results by coercion or threats
- Tend to gossip
- React with defensiveness
- Point the finger, blame
- Are fear-based
- Use a victim mentality
- Display guarded behavior (“let me shut my door while we talk”)
- Employ an entitlement attitude
The distinction between these two cultures often turns into a discussion of “tough minded, bottom-line operators” versus “touchy-feely,” “Kumbaya-singing hippies.” This distinction is misleading. Operating above the line has virtually nothing to do with “touchy-feely” behavior. In fact, one of the benefits of operating above the line is that it reduces the amount of emotion in the workplace.
For example, in my judgment Warren Buffett and Charlie Munger operate almost exclusively above the line. They constantly talk about their trust for one another and for the leaders they work with in their acquired companies. Buffett has said that he won’t work with people he doesn’t like and trust. Anyone familiar with Buffett and Munger would never choose the term “touchy-feely” to describe them; they are two of the least sentimental people you could meet. Above the line culture has everything to do with trust, curiosity, openness, creativity, and clarity of thought, and nothing to do with being soft, cushy, or maudlin.
The Trend
My prediction is that more firms will begin to embrace the idea
of operating above the line. They won’t do it for moral reasons, or
because it makes for good public relations. They’ll do it because it
makes good business sense, for the following reasons.
Reason One: Sustainability
Above and below the line strategies can each be effective.
Sometimes firms confuse our message and think we are saying that the
intimidation strategies don’t work. Heavens no! History is full of
examples of just the opposite. The real question is: What are the
long-term consequences of each approach? As in the case of Enron,
below-the-line firms tend to have shorter life spans. Fear doesn’t have
the sustainability of trust.
Reason Two: The War for Talent
Young people coming into the work force today realize that they
have choice. They don’t have to work for intimidating bosses who are only
interested in lining their own pockets. There are genuine options today,
in which professionals can find an enjoyable environment that supports
their best work effort. The bosses who threaten staff with, “If you don’t
like it here, then go elsewhere” are finding that talented employees do
go elsewhere. There are greener pastures, and the greener pastures tend
to be characterized by above the line, trust-based cultures.
Reason Three: A Good Environment for Decision
Making
World-class thinking can only take place in an environment that
supports creative problem solving. Our experience with countless
investment firms tells us that the best thinking occurs above the line.
In fact, our rule of thumb is that very little constructive thinking
occurs below the line. Why? Because below the line is driven by fear and
fear constricts the mind. We do not think as clearly or creatively when
we’re anxious. Below the line is the land of black-and-white thinking.
When you consider the difficulty of winning in the financial markets, you realize quickly that you need to do whatever it takes to foster world-class decision making. Top-notch thinking involves careful consideration of all the data and teasing out the nuances of different choices. Strong emotions − like fear − don’t encourage careful and precise thinking. And while it may be useful for a football coach to get his team lathered up for the big game, I have yet to hear of a CIO who wants the investment staff to be highly emotional as they make key investment decisions. In fact, many of our consulting assignments involve reducing the drama that is present in investment shops. CIOs want their staffs to be calm and focused, not carried away by a wave of emotion.
Reason Four: Loyalty
Employees don’t develop loyalty for intimidators. Often intimidation can
backfire, causing a firm to lose its valued staff. For instance, a large
investment firm that runs insurance money just offered an attractive
early retirement package to the investment staff. A significant number of
people took the package. When asked by us, “How would you characterize
the talent level of the people who took the package?” the overriding
response was, “The most talented people took it because they can get
another job easily.” Increasingly, the burden is on senior management of
investment firms to create a positive environment that allows staff to
realize their talent without having to go elsewhere.
Conclusion
As our firm continues to collect data on the cultures of
successful firms, we see clear correlations between superior fund
performance and high trust levels. If we had accurate trust data on the
cultures of all the publicly traded asset management stocks, we would be
long the high trust cultures and short the low trust cultures. That’s a
bet I could make and sleep peacefully at night!