Body Snatchers

Continuing on the Management Frameworks post, I'd like to think that I have a good eye for evaluating employee potential. Of course, in interview situations I side with Google in that I, like most managers, haven't much of a clue how the employee could turn out. However, in the day-to-day grind in a collaborative work environment, I am pretty good at looking past what most consider glaring flaws and evaluating characteristics that drive value. A principal reason for this is that I've been considered at various points in my careers as someone with glaring flaws. For example, two complaints I have received in the past are that I talk too fast and do not possess enough gravitas, Nevertheless, I was able to demonstrate this to others as a strength as I deconstructed a potential decision into the assumptions underpinning the framework. I could then not only make recommendations based on data and assumptions, but also point out critical weaknesses where the decision could come crashing down if certain events did not go as planned. The management decision could be made (make vs. buy, acquire vs. divest, expand vs. contract) together with parallel decisions to contain the risks of taking that action. I am now better at talking slower, assuming the listener is less familiar with the issue than I am, and even, perhaps, letting my dulcet baritone voice lend to my gravitas. Over time I gained a reputation for structured decision making and providing a clear framework for my direct reports. Perhaps because I have gone through an experience like this, I've learned to ignore a little better my natural biases (e.g., He's tall, dark, and handsome; he must be leader!) and look for underlying traits that drive value creation. I have my mental checklist to check off as I'm working with colleagues: understands quickly and asks questions when they do not understand, takes a holistic approach on the impact to the company, does not "write off" colleagues and does not take criticisms as a personal affront, etc.

About two years ago I stole a "low value" employee from another team with little protest. He was performing glorified data entry/adjustments for account reconciliations. He was very young (23) and a bit rough around the edges in some areas, but he definitely possessed nearly all of the primary characteristics of a dream candidate. I would certainly score him as higher potential in the critical attributes than I was at his age. A year later he was considered one of the highest potential employees. Two years later he was rotating through teams, mostly independently of my work, and doing the same restructuring and optimization that I had done for the last two years. He was slated to move into a mid-management position in 2015, with a target of senior management within four years. Then the other shoe drops. A competitor swoops in, based on the recommendation of a former employee who was let go and jumped to the competitor, and makes an offer for a very solid mid-management position at a great salary. He isn't quite ready for the position, but I know that after some missteps and learning, six months from now he will be doing fine. The position accelerates his career and will probably be more entertaining than his current path. All I could say to him was good luck. This was the first time that one of the high value employees that I have grabbed and groomed has jumped ship.

Some would make the argument, "what's the point of developing them if they are only going to head to another company?" I would answer that I had 15 months of stellar performance from an employee, and if I can't develop other employees to perform similarly I am not much of a manager or leader.

Mixed Messages in Housing Policy

In the school of hard knocks, you graduate either through class participation or observation. However, some never seem to graduate.

In 2009 there was a rare moment of consensus between Main Street, Wall Street, K Street, and every street in between: over-leveraged individuals, companies, commercial banks, and investment banks create an unstable system, even if you really really think this time is different and this nifty model says so right here. On the mortgage side of the equation, the Boston Fed released a landmark study:

"The empirical evidence on the role of negative equity in causing foreclosures is overwhelming and incontrovertible. Household-level studies show that the foreclosure hazard for homeowners with positive equity is extremely small but rises rapidly as equity approaches and falls below zero. This estimated relationship holds both over time and across localities, as well as within localities and time-periods, suggesting that it cannot result from the effect of foreclosures on local-level house prices." (emphasis mine)

Two years later, mainstream opinion writers like Felix Salmon (among many others) were still pointing out that, "If you take one group of loans with a 20-25% down payment, and a second group of loans with a 15-20% downpayment, then the second group, on these numbers will have a delinquency rate 56% higher than the first."

But five years later... well, a lot can change in five years. And, if it cannot change, at least it can be forgotten. This past week the director of the Federal Housing Finance Agency (the US agency that regulates Fannie Mae and Freddie Mac) announced:
"As I said earlier, there are creditworthy borrowers in today’s market who have the income to afford monthly mortgage payments but do not have the money to make a large down payment and pay closing costs. Purchase guidelines that allow for 3 percent down payments will provide an opportunity for access to credit for some of these borrowers."

Yes, the majority are creditworthy borrowers, but a large interconnected and securitized financial system cannot be sustained if 20% of the borrowers default during the next downturn. Let us hope that this time truly is different.