Perspective on Risk - Feb. 2, 2024 (Leadership & Management)
RTO/Remote Work/WFH; Culture; Slaying Projects (Prioritizing); Attribution Error; Hiring (again); Incentives; Probabilistic Thinking; Bayesian Updating; PPT Sucks; Listening to WKRP's Dr. Johnny Fever
CRE problems are beginning to come home to roost, but that’s for another day. For some of my audience, my digression into leadership and management is the most valued part of my writings. Go figure.
TL;DR
Staff is more positive on remote work than managers; effect on productivity is uncertain; remote work is attractive for hiring and retention.
Firms need to be more systematic about killing zombie projects.
When explaining others' behaviors, achievements, and failures, it is common for people to attribute too much influence to disposition and too little influence to structural and situational factors. The results suggest that decision-makers take high nominal performance as evidence of high ability and do not discount it by the ease with which it was achieved.
Structured interviews have the highest success rate at identifying talent
In decision-making, mistakes are more likely to be persistent when they are driven by incorrect mental models that miss or misrepresent important aspects of the environment.
Presenting trend, rather than static, information has a greater effect on getting people to update their Bayesian priors.
Powerpoint is destructive. PPT presentations typically violate eight psychological principles for encoding, imprinting and integrating information. There are a number of other behavioral issues that arise as well.
Dr. Johnny Fever spun some solid rock.
There is also some interesting nits on culture and incentives.
Return To Office / Remote Work / WFH
Some conflicting results.
Service sector firms would prefer about a 10% increase in full-time, onsite work.
Companies believe that workplace culture, cohesiveness, communication, and training and mentoring of employees has been harmed, but positive impacts of remote work on employee retention, and recruiting.
The effect on employee productivity is uncertain
Some Scholarly Background
The Evolution of Work from Home (Journal of Economic Perspectives)
Much of this seems obvious, but let’s review:
While 59 percent of full-time employees work onsite each workday, only 33 percent of contractors and gig workers do so, and only 25 percent of other self-employed persons do so.
Working arrangements differ by employer size … Hybrid arrangements are most common in firms with 500 to 4,999 employees, and fully remote jobs are most common in firms with 5,000 or more.
The Information sector has the highest work-from-home rate at 2.6 days per week among employees who work at least five days a week.
There are also some striking differences in work-from-home rates across employers in the same industry. … work-from-home intensity is an outcome of choices about job design, managerial practices, and workplace culture [and] ... the variety of working arrangements on offer has exploded in the wake of the pandemic.
the work-from-home rate rises strongly with population density.
Work-from-home intensity rises steeply with education
… work-from-home intensity varies by age in the United States. It is lowest among people in their early 20s and peaks among those in their 30s. … In short, the timing of children over the life cycle partly explains the pattern. … American women work from home at only modestly greater rates than men.
There is also evidence that quit rates and turnover costs fall when a firm lets its employees adopt hybrid working arrangements (Bloom, Han, and Liang 2023).
The productivity implications of the big shift to work from home have sparked vigorous debate among business leaders, researchers, and pundits.
Disagreements about the productivity effects of work from home turn partly on what counts as productivity. Workers regard commute time-savings as a source of productivity gains, while managers do not. Workers may be blind to the managerial challenges of remote work. Managers, especially senior ones, are probably more concerned about its implications for workplace culture. Remote work may let seasoned employees accomplish more in the near term while, at the same time, detracting from the transmission of their knowledge to younger coworkers—with detrimental effects on the organization’s productivity over the longer term.
Businesses Expect Current Amount of Remote Work to Persist into Next Year
From the Empire State Manufacturing Survey - Supplement:
On average, service firms reported that 68 percent of their employees worked in-person only, while 13 percent were fully remote. An average of 19 percent of service workers were in a hybrid arrangement, working remotely for an average of 2.2 days per week (out of a five-day workweek).
Service sector firms said they would prefer 77 percent of their workers to be fully onsite, or 9 percentage points higher than the current share. In addition, they would ideally like 14 percent of workers to be hybrid, 5 percentage points lower than the current share, and 9 percent to be fully remote, 4 percentage points lower than the current share.
Four areas were consistently reported as having been negatively affected: workplace culture, cohesiveness, communication, and training and mentoring of employees. … Roughly 60-70 percent of respondents across both service and manufacturing firms reported negative impacts of remote work in these areas …
By contrast, 68 percent of service firms and 57 percent of manufacturers reported positive impacts of remote work on employee retention, and roughly half noted that offering remote work helped with recruiting. Firms were split as to whether remote work has increased employee productivity: around 30 percent of respondents reported positive effects, while 40 percent reported negative effects.
On average, service firms reported a 41 percent reduction in space, whereas the average expansion was by about 20 percent. … Looking ahead, a slightly smaller share of firms said they expect reductions in the next few years, and a slightly larger share expect expansions.
Companies That Allow Remote Work Are Hiring More Staff
Need to Hire Workers in a Hot Job Market? Let Them Do Some Remote Work (WSJ)
Companies that allow at least one day of remote work each week increased staffing at nearly twice the rate in the year ended in May than those with full-time office requirements....
Managers Use “Remote” As A Scapegoat For Poor Performance
… managers [are] using RTO mandates to reassert control over employees and blame employees as a scapegoat for bad firm performance.
… Results of our determinant analyses are consistent with managers using RTO mandates to reassert control over employees and blame employees as a scapegoat for bad firm performance. Also, our findings do not support the argument that managers impose mandate because they believe RTO increases firm values.
Further, our difference in differences tests report significant declines in employees’ job satisfactions mandates but no significant changes in financial performance or firm values after RTO mandates. In summary, our research contributes to the ongoing debate over RTO versus working from home and has important implications for practitioners.
Culture
Credit Suisse
Behind Credit Suisse’s Fall: A Chairman’s Lasting Mark on the Culture (WSJ)
… insiders and investors combing over the wreckage say that Credit Suisse’s board, headed by Rohner, was ultimately responsible. It was the bearer of a flawed culture that led the bank into a series of calamities.
“It was clear that the chairman and other board members did not have the right skill set,” said David Samra, founding partner of the Artisan Partners International Value Team, which briefly invested in Credit Suisse after Rohner’s departure.
Federal Reserve
Shamed at my former colleagues.
Report of Investigation on the Closing of 22-0030-I Reserve Bank Trading Activity
Kaplan … did not have the time to complete the revisions
In 2021, however, Board Ethics sent an email to the then FRB Dallas general counsel recommending that Mr. Kaplan list the specific transaction dates
In response to the Board’s request, on August 16, 2021, the then FRB Dallas general counsel responded in a voicemail that she spoke to Mr. Kaplan, who stated that he wanted to keep his Form A as it was because he did not have the time to complete the revisions by the due date.
Ester Crawford on Twitter/X Company Culture
Ester Crawford, has a long tweet, and a video at the end, that addresses Twitter/Xs culture. Ms. Crawford was the person who infamously slept on the floor at Twitter to get a project done. Fun from a purely purulent perspective'; I am in no way endorsing this. But do click through and either read or listen to her story.
Just a few quotes:
Up close it was both amazing and terrible, like so many other companies and things in life.
Most people were good at their jobs but it was nearly impossible to fire poor performers — instead they got shuffled around to other teams because few managers had the will or resources to figure out how to get them out.
Twitter often felt like a place that kept squandering its own potential, which was sad and frustrating to see.
In person Elon is oddly charming and he’s genuinely funny. … The challenge is his personality and demeanor can turn on a dime going from excited to angry.
At times it felt like the inner circle was too zealous and fanatical in their unwavering support of everything he said. … At times it seemed he trusted random feedback more than the people in the room who spent their lives dedicated to tackling the problem at hand.
Slaying Projects
Several times in my career I’ve had to play the roll of Abraham Lincoln (Zombie Slayer). Early on at AIG there were way too many priorities and too few managers dedicated to the projects full time. How to slay zombie research projects and move on
Be ruthless. Enlist a ‘no committee’ to help.
Give yourself a reward for clearing undead projects. Allow for ‘zombie amnesty’, and make it not only acceptable but desirable to let go of unpromising projects.
Tackle one project at a time. Piecemeal progress on many projects is probably one reason that the projects lingered in the first place.
Schedule time for zombie-killing. Maybe at the New Year or just before a job performance review. Tidying takes time, which is also a reason not to let undead projects accumulate
Attribution Error
Inflated Applicants: Attribution Errors in Performance Evaluation by Professionals
When explaining others' behaviors, achievements, and failures, it is common for people to attribute too much influence to disposition and too little influence to structural and situational factors. We examine whether this tendency leads even experienced professionals to make systematic mistakes in their selection decisions, favoring alumni from academic institutions with high grade distributions and employees from forgiving business environments. We find that candidates benefiting from favorable situations are more likely to be admitted and promoted than their equivalently skilled peers. The results suggest that decision-makers take high nominal performance as evidence of high ability and do not discount it by the ease with which it was achieved. These results clarify our understanding of the correspondence bias using evidence from both archival studies and experiments with experienced professionals. We discuss implications for both admissions and personnel selection practices.
Hiring (AGAIN)
Structured Interviews Are Superior For Identifying Talent
Revisiting prior meta-analytic conclusions produces revised validity estimates. Key findings are that most of the same selection procedures that ranked high in prior summaries remain high in rank, but with mean validity estimates reduced by .10–.20 points. Structured interviews emerged as the top-ranked selection procedure. We also pair validity estimates with information about mean Black–White subgroup differences per selection procedure, providing information about validity–diversity tradeoffs. We conclude that our selection procedures remain useful, but selection predictor–criterion relationships are considerably lower than previously thought.
AI Can Help Bridge Qualitative vs Quantitative Evaluation
Conducting Qualitative Interviews with AI
Qualitative interviews are one of the fundamental tools of empirical social science research and give individuals the opportunity to explain how they understand and interpret the world, allowing researchers to capture detailed and nuanced insights into complex phenomena. However, qualitative interviews are seldom used in economics and other disciplines inclined toward quantitative data analysis, likely due to concerns about limited scalability, high costs, and low generalizability.
In this paper, we introduce an AI-assisted method to conduct semi-structured interviews. This approach retains the depth of traditional qualitative research while enabling large-scale, cost-effective data collection suitable for quantitative analysis. … We also demonstrate high interviewee satisfaction with the AI-assisted interviews. In fact, a majority of respondents indicate a strict preference for AI-assisted interviews over human-led interviews.
CALPERS
CalPERS next CIO: 55 applications so far and counting (Top 1000 Funds)
A specially convened CIO selection sub-committee went through the long list of skills the role requires, top of which sits relevant investment experience.
But in a reflection of both the deeply political organisation and the strategic role of many CIOs, a wish-list of other accomplishments comes swiftly on the heels of investment expertise.
I would probably fail the “doesn’t cause a furor” test.
Japanese Style Thinking
Incentives
Probably preaching to the audience here. A classic paper from 1995 by Steven Kerr: On the folly of rewarding A, while hoping for B.
Thinking Probabilistically
In Thinking Probabilistically; Thinking Pragmatically, Brad Delong shares his takeaways from Robert Rubin’s In The Yellow Pad: Making Better Decisions in an Uncertain World.
In my career, I have been able to take five things from Rubin that have been very, very useful indeed:
At the end of every meeting, make sure you think—and ask—what a week from now, a month from now, a year from now, two years from now, ten years from now, will we wish we had just decided to do?
Every time things have gone well, make sure to ask and think hard about: were we smart, or were we just lucky—and how could we have been even smarter?
Every time things have gone badly, make sure to ask and think hard about: were we dumb, or were we just unlucky—and how could we have arranged things so that being unlucky would not have mattered?
The real boss move is to say: I don’t know enough about this to have the best perspective and opinion, but I know that X does know enough, and I trust them, and they think Y. I don’t need to take credit and would rather give it is the best way to go through life.
Without compelling need, deciding to do X or not-X is usually not the best move: the best move is to wait for more information to arrive, and to meanwhile take time and energy to get better information.
I’ve had bosses, including some of you (!) who were good at one or two of these, but never one good at all five. Tim Geithner was the master of the last - to the point where we often felt he kept options open for too long some times.
Bayesian Updating
Mistakes Persistent In Presence Of Feedback
The first step any true Bayesian takes when trying to make a decision is to understand the base-rate probabilities.
Mental Models and Learning: The Case of Base-Rate Neglect
Are systematic biases in decision making self-corrected in the long run when agents are accumulating feedback informative of optimal behavior? This paper focuses on a canonical updating problem where the dominant deviation from optimal behavior is base-rate neglect.
Using a laboratory experiment, we document persistence of suboptimal behavior in the presence of feedback. Using diagnostic treatments, we study the mechanisms hindering learning from feedback. We investigate the generalizability of these results to other settings by also studying long-run behavior in a voting problem where failure to condition on being pivotal generates suboptimal behavior.
Our findings provide insights on what types of mistakes should be expected to be persistent in the presence of feedback. Our results suggest mistakes are more likely to be persistent when they are driven by incorrect mental models that miss or misrepresent important aspects of the environment. Such models induce confidence in initial answers, limiting engagement with and learning from feedback. These results have implications for how policies should be designed to counteract behavioral biases.
Changing Your Mind
Katy Milkman, the Wharton professor who authored “How To Change” and who publishes the Choiceology podcast, interviews psychologist Robert (Bob) Cialdini, who is the international bestselling author of Influence: The Psychology of Persuasion, in her Substack post Can a small but growing trend change your mind? They discuss the information content of “trending norms.”
If I just tell you the 5% [were going to the gym last month], that reduces the likelihood that you’ll go to the gym because it doesn't seem to be chosen by most people around you. But if I give you evidence that the percentage has changed over however many years or months from 5% to 20%, now you think there's something going on that's likely to continue, and that makes you think that the majority will soon be moving in this direction and taking this action.
It was the perception that the norm would continue to trend in that direction that spurred people to say, “well, I want to get on board with this because this is the future.” We got people who wanted to get on first, they wanted to be part of the vanguard, but we also got people who wanted to be part of the majority when that happens.
The key here is that the static doesn’t lead to a psychology change, it is the trend.
Why Powerpoint Sucks (Ban Powerpoint)
PowerPoint® presentation flaws and failures: a psychological analysis finds that:
eight psychological principles are often violated in PowerPoint® slideshows, and are violated to similar extents across different fields – for example, academic research slideshows generally were no better or worse than business slideshows.
When viewing a sequence of slides, audience members first must encode what they see; if they fail to encode material, it may as well not exist.
After visual patterns are encoded, they must be integrated. In a typical presentation, material must be integrated in working memory over the course of multiple slides, each of which may require multiple eye fixations. This integrating process is a prelude to fully comprehending both individual displays and the entire presentation. The high demands on working memory lead to the following two specific principles.
Encoding information and integrating it appropriately would be useless if the meaning of the material were not extracted. In order to ascribe meaning to stimuli, one must compare them with material previously stored in long-term memory; it is only by retrieving associated information that we comprehend the import of what we see.
The three most-violated principles were Discriminability (because material was too similar to be easily distinguished), Limited Capacity (because too much information was presented), and Informative Change (because changes in how information was presented did not actually reflect changes in the information being conveyed). Even the least-frequently violated principle, Compatibility, was still violated in at least a quarter of the slideshows.
Jeff Bezos on Meetings
The aforementioned study reminded me of this short (5 minute) Jeff Bezos video on meetings. Definitely worth a watch, or a rewatch if you’ve seen it before..
A perfect meeting starts with a crisp document - so the document should be written with such clarity that it is like angels singing from on high.
I like a crisp document and a messy meeting.
A typical meeting will start with a six page narratively structured memo and we do study hall for 30 minutes - we sit there silently, together, in the meeting, and read. Take notes in the margins. And then we discuss.
Power point is really designed to persuade, it is a sales tool, and internally the last thing you want to do is sell.
The other problem with Powerpoint is that it is easy for the author, and hard for the audience. A memo is the opposite. It’s hard to write a good six page memo might take two weeks to write ,,, there are little problems with Powerpoint too - senior executives interrupt with questions
Never did succeed in getting PPT banned at AIG or the Fed.
Listening To Dr. Johnny Fever
Ever wanted to listen to a Dr. Johnny Fever KWRP set list? Now you can - 3 hours of wonderful rock