On Managerial Challenges

The recent events at Satyam have been quite shocking, starting from the Maytas announcement to today's startling confession. The letter itself is a must read. It has been well crafted and one almost feels sympathy for Ramalingam Raju. I suppose the ensuing events will be avidly watched. However, the events set me on another line of thinking. The musings below are related to the incident but are in no way my views on Satyam as a company.

I use the word "He" for the manager. I understand it is completely inappropriate given the times, but I am used to writing like that, so Mea Culpa.

I have an agenda for writing this. Up till now, being a student, it was easy to blame the world, pour scorn on authority, blame it on the old people. Now, that I am about to pass out (and possibly never return to student life) I experience the occasional bout of nostalgia. As a graduate of two premier institutions, I suppose I have been trained for those very authority positions that I once happily poured scorn on. Those fancy degrees carry some responsibility, no two ways about that. Being a student is in a way... seductive. Crib without responsibilities, sleep whenever you want, eat whatever you like, dress however you like. Is it worth leaving all this! Should not be tough to kill time as a grad student somewhere else, I suppose. Then I remember exams and CGPA and the cloud clears. Let me at 'em :P

*******************************************************************************

The Problem of Yes-Men

There is the recurring phenomenon of perfectly good top managements bungling up in a large scale that smacks of stupidity. This is obviously perplexing. The worrying thing is if it can happen to people who thought themselves to be smart, could it also happen to us? (:)) Often people rationalize that by saying that it happened to that company maybe because their performance appraisal mechanisms were not good to begin with. Possibly the HR systems were flawed. But it won't happen to us. Possible. That is the first point of check.

However, I would contend that even companies that had perfectly good HR processes are prone to fall into this trap, despite the best intentions. Note the Italics. I am not saying that all companies are doomed. I am just saying that the effects of management are felt in a very subtle and nuanced manner and it is easy to see the effect but very tough to trace the causes.

Note that I am talking about senior executives - upper management and the top layer of middle management maybe. (NOT about freshers :)) As people start moving up the corporate ladder, I argue that it is very easy for them to get stuck in clubs, cloistered circles, groups. Remember that though senior executives have lots of people indirectly reporting to them, ("under them") they repeatedly talk only to a few executives for critical decision making inputs.

Given two equally good subordinates, senior executives will be more likely to pick those with whom they have a good working relationship. And this is where the problem and subjectivity comes. Why does the senior manager pick the subordinate with whom he has a better relationship? Is he irrational/evil/dishonest? Not necessarily. Given that both candidates have similar calibre, working with someone with whom you have a good chemistry can really zoom productivity. It is extremely expedient. For example, in IIM, after a point, group formation falls into a steady state and when teams have to form in 2nd year, usually there is a core group of 3/4 that always sticks together. Even if the output is not mindblowing atleast you would have had fun working this group, so you stick to it. It is a perfectly sensible thing to do.

Of course, the basis of the excellent working chemistry can be random. It could be linguistic similarity (that old complaint in every IIT fest coord selection ;)), similarity in outlook, similarity in movie tastes, anything! Of course, it could also just be sucking up and the manager could be dumb not to see that, but remember we are talking of "good managers".

Hence, these perfectly rational managers have a predisposition to taking people with similar viewpoints. I argue that this phenomenon to make things more efficient also leads to biased information flow. How does that happen?

To understand this, one must always bear in mind this axiom: "Human Beings Respond To Incentives"!

A lot of situations in life are inherently ambiguous, maddeningly ambiguous. When you look at the data in one way, you can say one thing. When you look at it in another way, you can say the completely opposite thing! I am sure people who have worked in any sort of data crunching exercise would testify to this. But say, you had to take a stand. How would you respond?

In the real world, often the subordinate has an estimation of the boss. (Even the geekiest of them) Given that you are faced with the unenviable task of coming up with a recommendation in an ambiguous situation and have to recommend something. You have twisted and turned data every which way, but it refuses to throw insights. Deadline is nearing. What do you do, sport?

You have two options. Most probably, you know your boss' bias. Most probably, you have an estimation of what his decision would be like. If you give a recommendation that drastically differs from his view and he takes it and it goes kaput, then the penalty is likely to be high. If it goes well, then the reward is also likely to be high.

On the other hand, if you concur with him, if it goes wrong, he is not likely to blame you too much. (Because he was thinking that anyway) And if it goes right, he is likely to be happy for seconding his "intuition".

If you are a risk averse rational individual what do you do?

Most probably you would recommend what you think that your boss was thinking, but you may add a rider here or there for the contrary view. (:D)

What?! Aren't you being dishonest? Shouldn't you fight for your cause, you worm! But the beauty is, the situation is so ambiguous even you do not know what cause you are fighting. It is better to do the safe thing. Once this becomes a habit, your boss' world view starts becoming your own because that is the "tie-breaker" you use to resolve data ambiguities. Soon, an information filter steps in.

(Stupid example, but one that illustrates the point. Imagine, you were at a Roulette table and your boss forced you to pick a number for him. You know that he is predisposed to 10 say. The sensible thing would be to just say that. Similarly, lots of decisions in life can be akin to taking the blind guess, even after all the analysis.)

Remember, all these people were perfectly sincere, perfectly rational people. What is the solution? I don't know. Maybe there is some HBR article which looks into it in detail. My solution to everything is just to be aware that this could be a problem and factor that into practice. That is all. There are no magic solutions. When you see some things are consistently not adding up, just break out of your routine for the heck of it. Talk to people who may have previously annoyed you, just for the heck of it.

***********************************************************************************

Why is integrity so tough?

When I was in school, I used to get bewildered when certain personalities were praised as men of impeccable honesty, integrity and character. I used to wonder what was so great in that. After all, they were just honest. As a kid, being honest is not really a big thing. And even dishonesty is mostly mischief. (Note that I have used the words "mostly mischief". Kids can be more sophisticated in their emotions than adults give them credit for) So I never understood what was the big deal in being honest. Now, of course, we understand that honesty is the basis of the social contract that society must revolve on.

But that is the problem! It is naive to think that crime does not pay. The truth is... it does, it must, otherwise why will so many intelligent people do these things. (Madoff was NASDAQ chairman!) The truth is there are lots of dishonest people who are doing quite well. Every reader can name a few. This raises a few questions.

Are all these dishonest people the product of some genetic orientation?
Laughable. But there are lots of well educated people who harbour these views and let them out only when drunk or in amenable company.

Are kids born in a certain type of environment prone to more dishonesty than others?
Possible, very possible. HOWEVER, the determinant of that environment is not wealth. There could be suitable logical arguments to state that people from a poorer environment are prone to be more dishonest. I would qualify that and state that "Perhaps people from a poorer environment may have compelling reasons to be more dishonest than the average, but the maginitude of the dishonesty is rarely large." Perhaps the dishonesty is to get a few 100 rupees but it is rarely more harmful than that. Then what could that factor be? I don't know.

The seeds of one man's dishonesty are almost always sowed by the succesful act of dishonesty of another man. And in the case of corporates, one act of dishonesty by a competitor is enough to justify it amongst managers and make some other dishonest act acceptable. In this case, all the other IT companies appear to have carried themselves well, so this idea may not hold. From the point of view of incentives however, this would be a logical proposition.

Extending this idea, one may well speculate that the idea to fudge the balance sheet would not have occurred to the promoter on his own. The person who would have advised Raju may have told him that he has done this kind of thing earlier. Or there may be stories of other companies which must have done this and gotten away. That could have tempted Ramalingam Raju. Of course, I may just be wrong, in which case he was just foolhardy.

But the point that I am trying to make is that despite all the Panchatantra tales and Bibles, there is something that draws humans to commit crimes, every time thinking that they can beat the odds. What gives them that feeling? That feeling will repeatedly arise only if there are odds to begin with. That is, if people were sure to be punished then they would not play the odds. However, due to physical limitations every crime cannot possibly be punished with utmost fairness. Hence when there is atleast one instance when a breach of law is not punished immediately, some individuals are emboldened to play the odds.

Of course, I am not advocating crime. The humiliation that is caused to people around you is just not worth it. I am merely speculating on the processes that lead to these behaviours.

I think this much is obvious. Most people would immediately walk out from a company that was indulging in dishonest things. But that is the beauty. No company will ask you to do something that is blatantly illegal. Similar to the data problem, the ethical dilemma may arise because looking at the problem from one way, it will be right and looking at it from another way it will be wrong. HOWEVER, unlike the data problem, if there is an ethical confusion, invariably there is something fishy about it. There is rarely an ethical ambiguity.

But let us address a common justification. Say the macro environment is itself corruption ridden and organizations justify unethical acts on the basis of that. While no one may do illegal things, people may even take pride in going the extra step to "help the company in operational matters". Imagine the dilemma of a high integrity individual who quits whenever he encounters unethical practices. Quitting the first two jobs on grounds of integrity may be okay. But after that it does not look good on the resume. By the third or fourth job the individual is left with no option to turn a blind eye. How does one resolve it?

Ideally, it is good to work for a ruthlessly scrupulous organization. By that argument, it may appear that there may be a handful of companies that we believe to be scrupulously honest. Then are the rest of the high integrity individuals left with no option but to become teachers and rant and rave against the immoral world from the safe confines of academia? Of course, one can also become an entrepreneur and create a high ethics institution.

I must admit I have no real solutions. I must resort to a traditional recommendation that there is no such thing as moral ambiguity. If confronted with such situations and if one cannot walk away from the company, the nest best course of action would be to design a creative and ethical work around. If that also does not work, I suppose the best thing would be to distance oneself from it. Of course, there will be professional consequences, but over time (hopefully) one will make back these losses in form of a premium for a name that inspires trust.

********************************************************************************