High performing investment teams : how to achieve best practices of top firms

242 Pages·2006·0.77 MB·English

by  Jim Ware

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High Performing
Investment Teams
How to Achieve Best
Practices of Top Firms
Jim Ware and Jim Dethmer
With Jamie Ziegler and Fran Skinner
John Wiley & Sons, Inc.
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High Performing
Investment Teams
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High Performing
Investment Teams
How to Achieve Best
Practices of Top Firms
Jim Ware and Jim Dethmer
With Jamie Ziegler and Fran Skinner
John Wiley & Sons, Inc.
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Copyright © 2006 by Focus Consulting Group. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any
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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best
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racy or completeness of the contents of this book and specifically disclaim any implied warranties
of merchantability or fitness for a particular purpose. No warranty may be created or extended by
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Library of Congress Cataloging-in-Publication Data
Ware, Jim, 1954-
High performing investment teams : how to achieve best practices of top firms / by Jim Ware
and Jim Dethmer With Jamie Ziegler and Fran Skinner ; foreword by Michael J. Mauboussin ;
afterword by Kate Ludeman and Eddie Erlandson.
p. cm.
Includes bibliographical references.
ISBN-13 978-0-471-77078-7 (cloth)
ISBN-10 0-471-77078-7 (cloth)
1. Investment advisors. 2. Teams in the workplace. 3. Leadership. I. Dethmer, Jim.
II. Title.
HG4621.W36 2006
658.15'2—dc22
2005029718
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
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Contents
Foreword vii
Preface xi
Acknowledgments xiii
About the Authors xvii
Introduction: The Elements of Greatness 1
Chapter 1 Investment Leadership: Building a
Winning Culture for Long-Term Success 15
Chapter 2 Curiosity: Learning How to Learn 33
Chapter 3 Accountability Part 1: Taking Responsibility 45
Chapter 4 Accountability Part 2: Making and
Keeping Agreements 67
Chapter 5 Candor: Revealing, Not Concealing 93
Chapter 6 Authenticity: Eliminating Drama 105
Chapter 7 Awareness: Using Emotional
and Intuitional Intelligence 119
Chapter 8 Genius: Maximizing Your Contribution 139
Chapter 9 Appreciation: Shifting from Entitlement 159
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vi Contents
Chapter 10 Fit: Investment Personalities
and the Seven Behaviors 181
Chapter 11 Decision Rights: Establishing and
Clarifying the Rules 197
Concluding Thoughts: Measurement, Behavioral
Finance, Integrity, and an Invitation for More 203
Afterword 207
Endnotes 209
Index 213
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Foreword
Michael J. Mauboussin
S
hortly after his retirement, Jack Welch, the legendary CEO of
General Electric, spoke to a group of 5,000 human resources (HR)
executives and delivered a message he was sure they would appreci-
ate: The head of HR should be the second most important person in any organ-
ization. Anticipating some audience adulation, he was surprised when a
strange hush filled the room. Prodding, he asked how many of the partic-
ipants worked for firms where the CEO treated the head of HR and the
CFO with equal respect. Only 50 hands went up.
Welch was astounded. Ninety-nine percent of these companies em-
phasized finance over people! “If you managed a baseball team,” he asked,
“would you listen more closely to the team accountant or the director of
player personnel?” Put this way, the lack of focus on people and their
behavior seems absurd, yet this is how most executives manage their com-
panies today.
If the only lesson you learn from High Performing Investment Teams is
that people are crucial to long-term success, you will be ahead of the game
and your competition. Still, this book offers much more than that seem-
ingly simple lesson. The Focus team deftly guides you through both the
theory and the practice of what makes investment firms thrive, and pro-
vides you with concrete cases and tools to improve individual and team
behavior.
Psychologists find that people tend to attribute actions more to an
individual’s character than to the social context, or the situation, in
which the individual operates. Studies show, though, that social context
has an extremely powerful influence on behavior. Researchers have con-
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viii Foreword
sistently noted that when good people discover themselves in bad situa-
tions, their behavior changes for the worse. Thus, even if the need is not
obvious or intuitive, creating a favorable social context is vital to any in-
vestment organization that wants to sustain above-average performance.
Even as star money managers (including my esteemed colleague Bill
Miller) adorn investment magazine covers, academic research shows that
a substantial majority of fund results are attributable to the investment
firm, not a particular individual. No doubt there are super-talented
money managers out there, but performance starts and stops with them
unless they create an enduring, high-performing organization.
Mastering the seven behaviors of high-performing teams is a chal-
lenge for any business. Investment professionals may have an even more
difficult time adopting these behaviors than people in most industries,
aside from the personality issues the Focus team correctly considers.
Specifically, investment managers face three hurdles to organizational
development. The best firms work hard to clear all three.
The first challenge is the probabilistic nature of markets. Like a coin
toss, you never know for sure what’s going to happen next. As a result, the
link between process (how an organization makes a decision) and out-
come (the result of that decision) is weak in the short to medium term.
This is crucial because an investment firm may employ a poor process and
still enjoy favorable short- to medium-term outcomes by sheer chance.
These results invariably lead executives to overlook process and leave
well enough alone. Only after the performance wheels come off (which is
inevitable) will a firm reassess its process and people. By then, it’s often
too late.
Saying it somewhat differently, the feedback loop is not very tight in
financial markets. As a result, investment results do not always provide
management with an accurate picture of investment team performance.
This means that organizational problems can fester undetected for longer
than they should, and the efforts and methods of high-performing teams
may not appear fruitful for uncomfortably long stretches of time.
This leads to the second challenge: Markets evolve. Investors fre-
quently look to the past when trying to divine the future, hoping that past
patterns will repeat themselves. The hard truth is that the past applies
only when the conditions (for example, interest rates, inflation, tax pol-
icy) have not changed much. When lots of change occurs, all bets are off.