It's the incentives.

In today's special Dealbook section on BigLaw, there's a great article about the culture of firms like Cravath (here).  What I found especially interesting was the notion that taking out the eat-what-you-kill types of incentives, as well as the "if we don't pay them a lot of money, they'll leave" instincts, leads to a firm where people aren't necessarily cutthroat and still get to do very interesting work.

Not a big surprise.  After all, people work to fulfill the incentives given to them.  The people who focus on salary (see "anchoring effect"), at least after they reach the "comfortable living" threshold, seem to me to be among the most unhappy people.  I've had colleagues at every place I work whose mission in life seems to be to ferret out everyone else's salary and then sulk if they're not at the tippy-top of the list.  (They also tend to taunt the higher-paid among their colleagues.)

So when folks are paid in lockstep, they have to find their self-worth in other areas, such as the quality of the work they're getting, or the opportunities to do new and interesting work. 

Folks who head up organizations should take note.  It cannot be true that people need to be at the top of the pay scale to be happy.  And, because we don't live in Lake Wobegone, not everyone can be at the top of the pay scale.  Giving people opportunities and--when the money is there--raises is important.  Placing people into ordinal rank by salaries alone isn't.

My value as a director of a public board.

Recently, I was asked by a wonderful executive search firm to consider, well, being considered for a director position on a corporate board.  Those positions are hard to come by for folks like me, who serve on several non-profit boards but haven't broken into the ranks of public boards. 

So why my hesitancy?  The company was looking to diversity (no problem there),* but it wanted someone who could serve on the audit committee.  That's not in my wheelhouse, as they say.  Clint Eastwood said it best:  Man's got to know his limitations.

I'm smart.  But I don't have the background or education to do justice to an audit committee's work.  I know my limitations.

What would I be good at doing?  Risk management?  Check.  Board dynamics?  Check.  Compensation?  Check, check, check.

So I'm waiting, and with a lot of luck and some great friends, maybe another public board will consider me for things for which I actually can add value.

* Re diversity:  That's a tricky issue for me.  I know that some of my experiences as a woman are different from those of my male colleagues.  But many (most?) of them aren't.  Being a woman, by itself, doesn't automatically add the type of diversity that boards need.  (The fact, though, that precious few boards have any women or minorities on them is a problem.  When everyone on a board has the same background, then there's no one there to look at things from a different perspective.)  My diversity may come in part from being a woman (and that's likely the diversity factor that put me under consideration in the first place), but it's also from being an academic who studies governance and the mistakes that smart people often make.  It comes from my having had to lead some businesses in the past (two law schools before, and one now as an interim dean).  I know what paying attention to budgets means, and I know how important it is to have a strong team and talented colleagues.  I know I can add value, but only to a company that understands what I bring to the table.

A very smart op-ed about executive pay.

By Gretchen Morgenson, whose columns I always like.  Here.

Neil Armstrong on what constitutes a good work ethic.

Here.  And my favorite quote in this Wall Street Journal piece?

I can only attribute that to the fact that every guy in the project, every guy at the bench building something, every assembler, every inspector, every guy that's setting up the tests, cranking the torque wrench, and so on, is saying, man or woman, "If anything goes wrong here, it's not going to be my fault, because my part is going to be better than I have to make it." And when you have hundreds of thousands of people all doing their job a little better than they have to, you get an improvement in performance.

R.I.P., Neil Armstrong. 

Frank Partnoy on the lawyers involved in the Standard Chartered scandal.

Here.  He said it perfectly.  My favorite part of his Financial Times piece?

We know bankers can be ruthless when pursuing profits. But bank lawyers are not supposed to think like bankers. Decades ago, the general counsel of a bank thought more about ethics than efficiency. But today’s in-house counsel are often profit centres, fonts of wisdom on how to avoid accounting rules, cut taxes and maintain the secrecy of dubious practices. One reason for the recent wave of abuses at big banks is that their in-house lawyers have been more focused on speed and profit than on right and wrong.

And that's why it's important to focus on more than the bottom line.

What's the right balance of "talent" and "luck" that accounts for someone's accomplishments?

See Lucy Kellaway's column (here if you subscribe to the Financial Times; here if you don't) and Michael Lewis on his Princeton commencement speech (here).

Is stealing worse than lying?

The NYT's Dealb%k* feature is one of my favorite parts of the newspaper, and this morning's column (here) was no exception.  In today's column, the very smart Steven Davidoff makes an interesting argument that Jeff Skilling may have been less culpable than Bernie Madoff and should therefore have his sentence reduced.  His argument is a perfect demonstration of the principle that reasonable people can disagree.  I disagree with his rank-ordering of stealing and lying.

Here's a key paragraph from today's column:

But if Mr. Skilling did lie, as the jury found, that does not make his sentence right. It all boils down to whether there is a difference between lying — that is, telling an untruth — and stealing, or taking something that does not belong to you. Some may argue that they are equally bad, but the difference comes out in comparing Mr. Skilling with other recent financial criminals.

Professor Davidoff and I part ways when it comes to this comparison.  Had Jeff Skilling merely been negligent in his management, his negligence would have been awful, but it wouldn't have been intentional, the way that outright lying is intentional.  Even if Enron did disclose what it was doing (albeit in vague footnotes in its SEC filings), and even if all of the warning signs about Enron were out there (which they were), there's still a problem with Enron's intentional misrepresentations about the financial health of the company.  Those half-truths and sneaky partial disclosures may not have fooled sophisticated financial folks, but they fooled most normal people.  Fooling folks meant that the market had nowhere near the "perfect information"** that Enron investors wanted, and that led in part to the losses that Enron investors incurred.

Lying prevents the non-specialist from being able to make intelligent decisions.  Let's say that my car has some sort of a hiccup going on, and I take it to my mechanic.  The mechanic will see all sorts of things going on with my car that are obvious to him but not at all obvious to me.  He can make a better decision about what to do than I can, even though we have equal access to the information.  Let's say that he lies to me about the severity of a particular problem, saying that the cost to fix the problem is several times higher than it should be.***  I'm likely to follow his recommendation about what to do, even though it'll be more expensive than it should be. 

Lying makes the already opaque market worse, which in turn causes people to make worse investment decisions.  That's why lying and stealing are equally bad, in my view.

Sorry, Professor Davidoff.  But I still love your work.





*  The column's name is Deal%k, with the "%" sign in the name.  I could've written "Dealb[oo]k," but "Dealb%k" is just a much better name.

**  I've yet to see a market that has perfect information, but it'd be nice to see one with truthful information all the way down the line.

*** Note to my mechanic:  I'm talking about a hypothetical mechanic, not you.  You wouldn't lie to me.