Best Buy and Organizational Rationality

 Richard Schulze, the founder and largest shareholder of Best Buy, the “big box” electronic retailer, has announced his intention to buy back the firm by leading a leveraged buyout (LBO). Analysts are skeptical that he can attract the necessary venture capital. He is offering about $25 a share, but the stock is currently trading at about $18. It is unclear why investors would want to pay such a premium. Should he succeed, the company would have to take on an additional $7 billion in debt. If successful, the leveraged buy-out would mean that costs would have to be cut significantly. Moreover, Best Buy is in trouble. While its chief competitor, Circuit City, went bankrupt at the beginning of the Great Recession, it now faces competition from Amazon with its online sales capability, and Apple with its boutique retail outlets. It lost $1.7 billion in the first quarter of this year.

The proximate stimulus for Schulze’s leveraged buyout offer was his forced resignation as the chairman of the board. As the New York Times notes, “Late last year, Mr. Schulze, now 71, received a written statement from an employee “containing specific allegations about a possible inappropriate relationship” between Brian J. Dunn, the 51-year-old chief executive, and a 29-year-old female employee, according to a report by the company’s audit committee. Mr. Schulze confronted Mr. Dunn, who “adamantly denied any inappropriate conduct or romantic relationship with respect to the female employee.” Mr. Schulze accepted his word and viewed the matter as settled. He did not tell any of his fellow board members as was required by the company policy.”  In addition, he told Dunn who had filed the written statement.

The audit committee of the board, commissioned an investigation of Dunn’s behavior. The report concluded that, “The CEO violated Company policy by engaging in an extremely close personal relationship with a female employee that negatively impacted the work environment. He also violated Company policy by soliciting from a vendor a complimentary ticket for the female employee. His relationship with the female employee demonstrated extremely poor judgment and a lack of professionalism, but the inquiry revealed no misuse of Company resources… In addition, as part of the investigation, it was determined that the Chairman of the Board of Directors (the “Chairman”) acted inappropriately when he failed to bring the matter to the Audit Committee of the Board of Directors in December 2011, when the allegations were first raised with him.”

It is worth asking why the board took the extreme step of dismissing its chair and founder. He was the architect of the firm’s success, had appointed every prior CEO, was the major shareholder and, as his plan for the LBO suggests, he could create trouble. Indeed, one analyst described the board’s action as a “palace coup.” One hypothesis is that the board’s decision about Schulze was colored by the nature of Dunn’s faulty decision, namely, a decision to conduct a "close personal" relationship that “negatively impacted the work environment.”

The use of the term “close personal” is suggestive. I want to propose that the foundation for a psychologically secure work setting is paradoxically impersonal. In such a setting, a person is only as good as his or her past effectiveness, and should it prove wanting, the organization can fire the person. The organization is obligated to meet customers’ needs, not employees’ needs. To be sure, organizations should not be brutal. But this ethic of impersonality means that there is an element of indifference that shapes the psychological climate of the modern performance organization.

How can such an ethic possibly create a sense of psychological security? Because it also means that supervisors cannot “play favorites” based on personal preference, and people in authority cannot act arbitrarily in allocating tasks and rewards. Personnel decisions should be based only on what contributes best to the organization’s performance People experience such an organizational climate as rational, and this rationality is a partial compensation for the indifference. The climate may be challenging and the setting unkind, but it is not arbitrary. The organization’s rationality is the analogue of civil society’s “rule of law.”

This is an ideal of course. Informal social networks, through which people provide advantages to others who share the same social background, shape organizational life. Personal preferences can matter. But it is a measure of some progress that executives in authority are held accountable for minimizing the impacts of such preferences. This is the basis for most human-resources policies, and for anti-discrimination laws. When a discrimination claim leads to a legal suit, the rule of law and the ideal of organizational rationality are joined.

Yet, there is no reported evidence that Dunn favored the woman with career opportunities or company resources. Moreover, office romances are strikingly common. As one survey of 7,800 workers reports, “Nearly 40 percent of employees say they’ve dated someone at work, and of those almost 30 percent say they’ve hooked up with someone above them in company rank.”

This suggests that there was something egregious or unseemly about Dunn’s behavior. What could that be? The audit committee's report notes that Dunn and the unidentified woman had numerous private meetings and exchanged “hundreds of text messages and phone calls.” Moreover, as the audit committee’s report notes, he had asked a vendor to provide the woman with a free ticket for a concert. One explanation, buttressed by the report, is that what was unseemly was not simply or only his behavior, but his obvious lack of discretion and poor judgment. After all, as the audit committee’s report suggests, people knew about the pair’s relationship, and it is likely that some people observed moments when the couple sought out a setting for a private meeting. Perhaps what upset people the most is that Dunn allowed a sexual attraction, which is never reasoned and is always arbitrary, to undermine his good judgment.  

Why is this upsetting, why does it create a negative work environment? According to this line of thinking people did not imagine that the woman was being favored. Rather, they saw the CEO succumb to sexual impulses, strong enough that they ruled out discretion. As a result he became a poor representative of organizational rationality. As the saying goes, he “fell head over heels.” Of course, there are many times when a CEO may give way to his or her impulses, for example in fits of anger. But these instances are often linked to the tensions of the work itself. In this sense they can be explained, even if they are unreasonable. Succumbing to a sexual attraction has no such explanation. 

This account provides a plausible explanation for the board’s willingness to be so bold as to stage a “palace coup.” They saw Dunn’s behavior and Schulze’s behavior as cut from the same cloth, as part of a single episode.  Just as Dunn failed to represent organizational rationality, Schulze violated it. He did not follow company policies and board rules. Instead, he failed to report the complaint against Dunn to the audit committee, and told Dunn the name of the employee who had lodged the complaint. It is a cardinal rule of organizational rationality that people who lodge complaints against senior executives have the right to remain anonymous. Otherwise they might be punished for their truth telling. Dunn’s poor judgment and lack of impulse control colored the board’s estimation of Schulze’s behavior, which in other circumstances they might have forgiven with a reprimand.  

In this context it is no accident that Schulze wants to take the company private. As a private company Schulze would be less shackled by the “rule of law.” The company would become his private domain. It is also likely that his decision to attempt an LBO has some of the same impulsive qualities that shaped Dunn’s behavior. After all analysts are very skeptical he can succeed. Moreover, taking on too much debt could jeopardize Best Buy, just when it has to restructure its entire operation to remain competitive.  Schulze may be trying “to get even,” a sorry basis for a rational investment decision. One wonders if board members experienced Schulze as increasingly impulsive even prior to the Dunn affair.

There has been a tendency in management literature to poo-poo organizational rationality, as if it were an ideological description of the organization that bears no relationship to real organizations.  Of course there is much irrationality in organization life, as this very case suggests. But that does not mean that the ideal of rationality, when conceived of as the “rule of law,” should be dispensed with.

Romney's choice of Ryan as his running mate: A psychodynamic look.

Presidential candidate Mitt Romney has chosen Paul Ryan as his vice presidential candidate. Journalists and bloggers consider the choice to be a bold one since it links his candidacy to the most conservative wing of the Republican Party, and therefore risks losing voters in the center who may still be undecided. Ryan stands for fiscal astringency, reducing social welfare programs, privatizing elements of Medicare and Social Security, all joined to a stout opposition to abortion rights, gun-laws and same-sex marriage. The decision is bold presumably because Romney can now draw a clear line of demarcation between himself and Obama, rather than arguing that he is better able than Obama to pull the economy out of the “Great Recession.” Romney in this sense has “drawn the line in the sand,” highlighting, to the greatest degree possible, his differences with Obama.

There is of course a political discourse to consider in assessing Romney’s choice. For example, does Romney risk losing undecided voters even as he invigorates his base. But I want to propose that we can also look at this decision from a psychodynamic point of view, as a case of how emotions shape executive level of decisions.

Perhaps the most important issue to ask is, to what degree, by selecting Ryan, does Romney now depend on him to define his own place on the political spectrum? The day after the announcement a member of Romney's campaign staff saw fit to tell reporters that the ticket is “Romney/Ryan, not Ryan/Romany.” Similarly, one journalist wondered if, by choosing Ryan for the reasons he did, Romney has to some degree diminished his own stature. It is common for presidential candidates to choose their running mate on the basis of the latter’s distinctive strengths. One is reminded here of Kennedy’s choice of Lyndon Baines Johnson as his running mate. The latter had a political base in the South that Kennedy lacked. But it is less common for a presidential candidate to choose his running mate based on his own weakness or limitations.

I am drawn to a “slip of the tongue” Romney made when first introducing Ryan as his running mate in front of an enthusiastic crowd. Describing Ryan before he joined Romney on the dais, Romney called Ryan, "The Next president of the United States!” The psychoanalytic perspective presumes that slips of the tongue such as this one have meaning, that is, they are motivated rather than random.

Now one simple explanation for this slip is that Romney had imagined hearing, in a kind of daydream or fantasy, the phrase, “The next president of the United States,” over the course of his campaigning. This fantasy would be a simple way of anticipating the relish he would feel upon being introduced in this way after his victory. His slip is simply a way of expressing this relish. Indeed, Obama made the very same slip when introducing Biden as his running mate in 2008. But there was a difference between the two slips. Obama corrected himself immediately, as most people do after a slip, saying “the next president, uh vice president..” Romney corrected himself only after he had left the dais, and returned– to interrupt Ryan - clearly having been coached by aides who let him know what he had said. 

In looking at such a slip are we making a “mountain out of a molehill?” Freud spoke of the "psychopathology of everyday life" to describe how moments of emotional gravity can be revealed in apparently trivial ways.  It is useful in this context, to think how psychoanalysis parses such “Freudian slips.” The slip is the intrusion of an idea or wish that the person considers unacceptable, that is, something you would not acknowledge in public, but that nonetheless is a source of considerable gratification. For example, I recently spoke with a practicing physician, who in describing the outcome of a clinical trial he was conducting for a drug company, referred to its “secondary income.” A slip such as this is funny because the unacceptable idea, in this case he was making extra money by working for a drug company, rides on the back of the acceptable idea, his research had an outcome. In this case, the word “in” sneaks past and displaces the word, “out.”

One hypothesis about slips is that the longer it takes the person to correct the slip, if he ever does, the more powerful is the gratifying idea or wish. The ego, which monitors one’s self-presentation constantly, can’t resist the intensity of the wish. It fails as a censor. But the pleasant day-dream of hearing the phrase, “The next president of the United States,” is an unlikely candidate for such a powerful wish, particularly for a man like Romney who has great self control and tremendous discipline. So if we proceed along this line of argument we are led to speculate about what wish could be powerful enough to escape an ego’s ability to censor it. What wish is gratifying enough for Romney to imagine Ryan, rather than himself as president? 

I am drawn here to Mitt Romney’s very close relationship to his father, George Romney. He regarded him as his mentor and guide and it appears that they had a loving relationship. George Romney was a great success in business, as was Romney, was the governor of a state, as was Romney, and like Romney, campaigned in the 1968 Republican primaries to be the party’s presidential candidate. Though a fiscal conservative, he was a firm supporter of civil rights for African-Americans and therefore opposed Barry Goldwater’s bid for the Republican nomination in 1964. At the time, Mormon Church-doctrine held that African-Americans were inferior, and one church leader wrote George Romney a personal letter warning him of his failure to support church teachings. While he endorsed many “law and order” measures and believed that crime was the result of moral decay, as governor, he also introduced Michigan’s first state income tax. In addition, “he held a series of governor's conferences, which sought to find new ideas from public services professionals and community activists who attended. He opened his office in the Michigan State Capitol to visitors, spending five minutes with every citizen who wanted to speak with him on Thursday mornings, and was always sure to shake the hands of schoolchildren visiting the capitol.  He almost always eschewed political activities on Sunday, the Mormon Sabbath.” Upon withdrawing from the primaries and ceding victory to Richard Nixon, he wrote to Mitt, then a missionary in France, "Your mother and I are not personally distressed. As a matter of fact, we are relieved. We went into this not because we aspired to the office, but simply because we felt that under the circumstances we would not feel right if we did not offer our service. As I have said on many occasions, I aspired, and though I achieved not, I am satisfied."

The picture one gets is of a man who lived on a moral plane, who believed in his own agency, as well as his obligation to serve, who took his religion seriously, had a dramatic conception of his life, and took up the complexities and contradictions of his own background and experience with zest and commitment

There is reason to believe that Mitt shares many of these features, that he has indeed followed in his father’s footsteps. He is a devout Mormon, by all accounts personally very generous, pragmatic, focused on social justice, but also committed to the idea of personal responsibility. These characteristics certainly shaped his attention and commitment to health care insurance reform in Massachusetts. Poor people needed help, but everyone had to contribute. If you were uninsured but used hospital services when sick, you were irresponsible.

One hypothesis is that because politics is now polarized, Romney has been unable to express the complexity of his own political and personal makeup. Political discourse is too black and white. Moreover, the electorate may not tolerate a man motivated by his Mormon beliefs.  This may explain why Romney has appeared stiff and uncomfortable in public and why his candidacy lacks a certain passion. He cannot be wholly himself. By choosing Ryan, he borrows the latter’s single-mindedness and the zeal of the conservatives who see Ryan as their representative. In this sense, we could say that choosing Ryan was not bold, and indeed may have been made out of fear. In this way of thinking, to act courageously, he has to be fully himself in all his complexity, and take the risk that a polarized electorate might reject him. Indeed, it appears that Romney father’s lived out this choice, and this was one reason for his own political defeat. If Romney experiences his father as an ideal, then it makes sense that his own choice, to be evasive and withdrawn, is an act of bad faith and a disappointment to the “father in his mind.”

This line of thinking may shed some light on his slip of the tongue. In describing Ryan, many have noted that, with the difference in Romney’s and Ryan’s age, Ryan could be Romney’s son. Journalists have also commented on how Romney often likes to surround himself with young hard-working men. In other words, he thrives in settings where he is a father figure to sons. Perhaps his slip expresses the wish that he is no longer in the position of a son who needs to follow the example of a father, but that he is now the father whose primary obligation is to support and nurture a son. This wish, to be the father rather than the son, relieves him of the bad faith he feels in not following in his father’s footsteps, since he forgoes his own striving. The more he idealizes his father, the more powerful would this wish be. Perhaps this helps explain why he made his slip of the tongue and did not correct it. It also lends a psychological truth to some observers’ conception that the ticket is Ryan-Romney rather than Romney-Ryan. If this analysis is sound, it suggests that Romney’s choice, even if it were politically astute, was in some degree psychologically compromised.  

My skeptical readers may look askance at this kind of speculation. But I want to emphasize that many observers use an unexamined psychology, we can call it “common sense” psychology, to understand political figures. For example, political figures are regularly presumed to be ambitious, fearful, self-interested, generous, crafty etc. I call it common sense psychology because we often see no reason to justify our inferences. But since we cannot observe any of these traits, only people’s actions, it is fair to say that this kind of psychology is speculative as well.  What is discomfiting about a psychoanalytic psychology is that, as a depth psychology, it presumes that motives are many sided, that people can express contradictory feelings, that family influences on a person are formative but often out of awareness, and that actions, like a slip of the tongue, are unconsciously motivated. So the issue is not whether or not we can speculate, but on what grounds and through what methods we come to our conclusions. I would be interested to hear what people think of this kind of reasoning about political figures.

Joe Paterno, Penn State and the sexual abuse scandal

 The news from Pennsylvania State University (Penn State) has been riveting. For those who have not been following this story closely, a onetime football coach, Jerry Sandusky, has been convicted of molesting young boys in the showers and locker rooms of the university’s gymnasium facilities. One glaring and controversial issue is why university officials, including the famed head-football coach Joe Paterno, now deceased, as well as the President of the University, Graham Spanier, withheld the information they had about Sandusky’s crimes from as early as 1998, thus exposing more boys to potential harm.

The NCAA, the association that oversees collegiate sports, imposed extraordinarily heavy penalties on the university for this lapse. They fined Penn State $60 million, instituted a four-year ban on bowl game appearances, took away scholarships, and forced the university to forfeit victories going back to 1998. Many observers regarded the penalty, particularly its last part, as too severe. Why deprive all past football players of the record of their wins because a single coach had molested children. Moreover, as one newspaper editorial suggested, the courts had only charged two of the actors, a coach, Tim Curley and an assistant vice president, Gary Schultz, with endangering a child by failing to report. They had not yet convicted them. Could the NCAA act as the judge and the executioner before the courts established guilt or innocence? 

There were other anomalies. As one reporter noted, “Many officials in law enforcement and child-welfare organizations can’t name instances of charges being brought against individuals who failed to report a crime relating to child abuse.” Why were Curley’s and Schultz’s failures treated with such unusual severity? Finally, Paterno was a university hero. He had built the football team into a national powerhouse, had catapulted the university into the ranks of great institutions, and had helped raise millions of dollars for its academic programs.  In 2001 the university had in fact erected a statue of him in his honor, cast in bronze. But after Sandusky's crimes were revealed, the university pulled down the statute, in a gesture that was one step away from burning him in effigy. The king was dead and it seemed, deservedly so.  Paterno in fact had actually died some six months before.

In addition, some observers were puzzled by what they interpreted to be the NCAA’s “holier than thou” stance. The NCAA imposed its penalty in the context of a particular narrative. As the narrative goes, the reason that top Penn State officials had taken no action, was that they were protecting the football program from embarrassment, and perhaps disgrace. This showed, the NCAA suggested, that the football program was too revered, that people acted as if football were more important than such values as integrity and decency, values core to university life. Yet, as many observers also noted, the NCAA as a vehicle of the universities themselves, had done more than any other body to elevate the role of college sports as universities’ moneymaker.

The proximate stimulant for the NCAA's decision was the Freeh report, a report commissioned by the University’s board of trustees and written by Louis Freeh, an ex-FBI director. Yet a careful reading of the report reveals considerable ambiguities. The report highlights two incidents, the first in 1998 and the second in 2002. In the first incident, a boy’s mother told university officials, as well as the local police, that Sandusky had showered with her son in a university locker room. The police referred the case to the Department of Public Welfare (DPW) whose expert, John Seasock, found that Sandusky was not in fact a pedophile. In addition, the district attorney decided that there was insufficient evidence to charge Sandusky with a crime.  Moreover, there is a very little evidence in the Freeh report about Paterno's involvement in the events surrounding this first incident. There are simply two emails in which others reference the “coach.” Paterno’s family insists that he had no knowledge of the first event. The Freeh report provides very limited and only indirect evidence that he did.  Indeed, it notes that, “After Curley's initial updates to Paterno,” [inferred from emails written by Curley to Schultz- LH], “the available record is not clear as to how the conclusion of the Sandusky investigation was conveyed to Paterno.”

The second incident in 2002 was more complicated. It is important to note that it took place when Sandusky was no longer a university employee, but did have access to the sports facilities. A graduate student, Michael McQueary, saw Sandusky and a boy, through their reflections in a mirror, in a shower room. They were engaged in what appeared to be sexual activity. Sandusky had his arms around the boy’s waist and the boy, with his back to Sandusky, had his hands pressed against the wall. McQueary did not see "insertion" nor did he observe any signs or sounds suggesting coercion. When McQueary slammed a locker door to make noise, Sandusky and the boy separated and looked directly at McQueary, who then left the locker room.  

McQueary, on the advice of his father reported the incident to Paterno, but as one reporter notes, “out of respect for Paterno, he did not reveal the details of what he saw.” He did not use the terms “sodomy” or “anal intercourse,” even though he believed intercourse had occurred. Paterno told him, “You’ve done the right thing. I know it is probably tough for you to come here and tell me this, but you've done the absolutely right thing.” When McQueary later described what he saw to Curley and Schultz, “He again refrained from describing all of the lurid details.”

As the reference to McQueary’s less than full description suggests, what happened next, is that the story of what he saw, was transformed from one about intercourse to one about wrestling, horseplay and fondling. The most important question is whether or not this transformation was motivated, to cover up what happened, or was the result of the discomfort, or more strongly the disgust people felt in considering the scene McQueary described. Clearly, McQueary felt the details were as he notes “lurid,” and that he omitted them to protect his listeners. When Schultz testified to the grand jury he remembered McQueary describing, “some kind of wrestling around and maybe Jerry might have grabbed the boy’s genitals.” Paterno remembered McQueary as describing that Sandusky, “Had fondled the boy.” 

One possible source of discomfort, and what may have made the scene lurid to McQueary, was that that he was observing a homosexual act. Sociologists refer to the culture of male sports as “homosocial.” This means that athletes touch each other a lot to express both affection and aggression, but that at the same time this touching, wrestling and embracing must reinforce a strong taboo against expressing sexual desire, even if desire is stimulated. The touching signifies, that in this case, touching does not signify, desire.  This is a tricky boundary and it is no accident that a predator such as Sandusky would use a sports setting to satisfy his sexual compulsions. Indeed, Schultz described Sandusky as a physical person. “He always touched folks, young and old during conversations. He frequently put friends in headlocks, slapped them on the back, grabbed arms and other body parts, in physical displays of affection.”

Social taboos operate by promoting disgust, for example, a religious Jew or Muslim finds pork disgusting, and it is likely that McQueary’s story stimulated a similar disgust.  One hypothesis is that the disgust, and the anxiety this feeling created, helped transform the story from one of sexual penetration into one of wrestling, horseplay and at the most, some fondling.

As the Freeh report suggests, Paterno’s involvement in this second incident was limited, after he told Curley and Schultz what McQuery had reported. The latter two met twice with Sandusky who denied he was engaged in sexual activity. Influenced partly by the 1998 expert’s report, Sandusky’s denials, their view of the event as closer to horseplay than to intercourse, and perhaps by the fact that Sandusky was no longer an employee, they did not report this event to the police. Instead, they forbad Sandusky from bringing boys into the Sports facilities in the future. They also reported McQueary’s story to the board chair of Second Mile, an organization Sandusky helped found, which gave opportunities to disadvantaged and at risk children. He had remained active in Second Mile after his retirement from Penn State.  

The Freeh report castigates Penn state officials for not recognizing, that by failing to report a predator to the police, they were putting boys in danger. But many adults do not really understand the possible psychological impacts of sexual relationships between adults and children. Long ago the famous psychoanalyst Sandor Ferenczi described sexual relationships between adults and children as shaped by the “confusion of tongues.” In this confusion,  adults assume that a child’s ignorance protects him from experiencing sexual gestures as in fact sexual. This same confusion leads the adult to confuse the child’s submissiveness as a token of the child’s love. Moreover, the famous “Rind report,” (http://www.mhamic.org/rind/), a controversial “meta-analysis” of 59 studies of the impact of sexual abuse on children, which passed the test of peer review, noted that the impact of sexual abuse on children is in fact variable.  Girls suffer more than boys, some children find the experience positive, and the degree of coercion matters. The authors of the study concluded that the legal term, “child sexual abuse” was far too imprecise. Moreover, Pennsylvania state law mandates that certain professionals, such as teachers, physicians, social workers, child-care workers and camp counselors, are required to report an incident of child abuse. College level coaches are not explicitly mentioned in the law, and it is highly unlikely that Penn State officials ever considered themselves to be “mandatory reporters.”  By the same token, it is highly unlikely that they had any formal training on what to observe and how to report. Indeed, these last two facts may very well lead to Schultz’s and Curley’s acquittal on this charge.

There is the old saying, “There but for the grace of God go I.” It represents folklore’s counsel that we need to mitigate our tendencies to judge the wrongdoing of others by acknowledging our own potential for wrongdoing. This counsel also suggests that we judge each other too harshly when we fail to acknowledge the likelihood that we too could have made the wrong decision. Many people responded with disgust to the story of Penn State’s failures to stop Sandusky, but this disgust may protect them from acknowledging their own potential vulnerability, their own penchant for not reporting and sending a colleague to jail based on ambiguous evidence. 

Thinking organizationally, it is proper to hold leaders accountable for violations of the law, or failures of judgment. But to prevent future failures we should also understand the failure as the result of a human process, in which culture and group dynamics, also play a role. This is now the common wisdom for understanding why industrial accidents happen, or why patients are harmed in hospitals. Decisions makers are accountable, but they make decisions in a context they don't control. 

The Freeh report recommended that Penn State implement improvements to prevent future child abuse, such as appointing an ethics officer, improving background checks of prospective hires, and appointing a chief compliance officer. The problem with these suggestions, however commonsensical they may be, is that they paint the picture of organizations as machines without regard to the human processes of judgment, feelings and social ties that undergird them. The latter are the true engines of success as well as failure. One hypothesis is that even if  the Freeh report’s recommendations had been implemented prior to Sandusky’s crimes, the psychological and cultural issues that shaped peoples’ responses, would have remained the same.

We face one last question. In light of these ambiguities and complexities, what explains the rage against Paterno, as if he rather than Sandusky were the sexual abuser, so much so that we had to topple his statue? What gave the NCAA license to judge the culture of athletics at Penn State as lacking, when it was itself partly responsible for “big time football’s” corruption of academia? One is tempted to conclude, following the work of my colleague Howard Schwartz, that we take pleasure in what psychoanalysts call the symbolic, “killing of the father.” (see, Society against itself: Political Correctness and Organizational Destruction, http://www.karnacbooks.com/Product.asp?PID=28569). Perhaps, Paterno, even though his guilt was partial, had become the symbol of the corrupt father whose claim on resources and our attention results entirely from his abusiveness, rather from his achievements. 

There is in the air, a picture of society built on this kind of corruption. This picture may help us explain to ourselves why our own accomplishments may be limited, while others’ appear extraordinary.  The latter’s claims, from this point of view, are illegitimate, because they have stolen our resources and our talents.  In that sense, killing the father expresses and relieves us of our envy. There is of course corruption in society, and as the history of the recent financial crisis suggests, we have decision makers and business leaders who are undoubtedly guilty of malfeasance. But we are at risk of undermining our society’s accomplishments, of being self-destructive, if that is all we see.

Barclays Bank, Robert Diamond and the LIBOR scandal

The recent revelations that Barclays bank lied about the rate at which it could borrow money from other banks, “the LIBOR scandal,” raises interesting questions about executive decision making and the political imagination. The Bank of England (BOE) asked Barclays’ CEO, Robert Diamond to resign, several days after Great Britain’s Financial Services Authority (FSA) had agreed to settle the charges against the Bank. While the FSA had fined Barclays some $450 million dollars, it had expressed support for Diamond to remain in his role. 

The Wall Street Journal describes the details of Diamond’s firing. On July 2, the Bank of England's governor, Sir Mervyn King, “summoned Mr. Agius, [Barclay’s board chair] and Mr. Rake, [a board member], to a meeting that evening. The two directors didn't know why. At 6 p.m., Messrs. Agius and Rake sat down with Mr. King in a private reception room at the central bank's headquarters. ‘Bob [Diamond] has lost the confidence of regulators,’ Mr. King told them. He said Mr. Diamond should be gone within 24 hours and told them that the U.K. Treasury chief, Mr. Osborne, also agreed, according to a person familiar with the meeting.

Messrs. Agius and Rake were taken aback by the extraordinary dictate from the central bank's governor. They protested that the FSA hadn't objected to Mr. Diamond keeping his job and that his removal would be destabilizing to the bank, given Mr. Agius's [prior] decision to step down [as chair]. Mr. King said the matter wasn't up for discussion. The meeting was over in less than 30 minutes, the person familiar with the meeting said.

Outside the Bank of England building, Mr. Agius's Mercedes was waiting. He and Mr. Rake drove to a Barclays' office in London's Mayfair district and convened a conference call of the bank's non-executive directors. The board decided to ask for Mr. Diamond's resignation.

Then Messrs. Agius and Rake drove the few miles to Mr. Diamond's rented town house in the posh Chelsea neighborhood. They arrived after 10 p.m. Mr. Diamond was alone; his wife and children were in the U.S. for the Fourth of July holiday. Mr. Agius told Mr. Diamond about Mr. King's demand and the board's decision. Mr. Diamond responded with "stunned silence," according to a person familiar with the meeting. He told the two directors that he needed time to think and talk with his wife. He promised to call them later that night.

The directors left after about 15 minutes. Within hours, Mr. Diamond's lawyers had negotiated the terms of his exit, which included deferred bonuses that could be worth more than $30 million. Days later, he relinquished the payout amid a continued public uproar that shows no signs of abating.”

Three questions are; why was Agius taken aback; why was Diamond stunned; and why did the Bank of England (BOE) make such an extraordinary request?  The reporter’s text gives one obvious answer to the first two questions. Both the chair and the CEO believed that the bank and its CEO had the full support of the FSA. What upended that understanding, and might the answer to this question help explain the BOE’s extraordinary request? 

I want to suggest that Diamond and Agius were stunned because they lacked what we can call a “political imagination.” They believed quite reasonably that their explanation of the Bank’s malfeasance was entirely sensible and put to rest charges that the bank’s senior management had been reckless, unethical or self-serving. And from a logical point of view they are entirely right. 

In a report the Bank published the day before Diamond was scheduled to testify before a parliamentary committee, but one day after his surprised firing, Barclays highlights the following.  

There were two separate incidents of LIBOR manipulation, one in 2005 and one in 2008, during the financial crisis. In the first, lower level traders asked their peers, who submitted the bank’s rate to the LIBOR committee, to increase or decrease their submission a bit, so that particular traders’ financial positions would be enhanced. For example, if the bank paid a counterparty LIBOR plus 2%, a lower LIBOR could reduce the trader’s obligations. It should be noted however, that no bank can significantly distort the final reported LIBOR rate, since the latter is calculated as a “trimmed average” of the rates submitted by 16 banks. Banks, whose submitted rates fall within either the top or bottom quartiles, are simply excluded from the calculation. The traders and submitters at Barclays thus had limited influence on the outcome. 

In October of 2008 during the financial crisis, the situation was entirely different. Bank runs threatened many banks, and a bank’s reported LIBOR became a measure of its solvency. If other banks would lend money to a particular bank at only high rates, then how sound could the bank itself be? Indeed, while Barclays reported higher LIBOR rates than most of its peers, its senior executives believed that other banks were under-reporting their rates to look good. Since Barclays never needed a bailout, this interpretation seems reasonable. 

Indeed, in that same month, in 2008, the Wall Street Journal estimated that of the 16 banks in the LIBOR panel, Citigroup, Germany's WestLB, the United Kingdom's HBOS, J.P. Morgan Chase & Co. and Switzerland's UBS, were most likely to be under-reporting. Moreover, Barclay’s concern, that its reported rates could lead to unwarranted concerns about its solvency, was sound. For example, Bloomberg published an article entitled “Barclays takes a money market beating” on September 3, 2007. It noted that Barclays’ LIBOR submissions in three-month sterling, euro and US dollars were the highest of all banks contributing LIBOR submissions. The article posed the question, “What the hell is happening at Barclays and its Barclays Capital securities unit that is prompting its peers to charge it premium interest rates in the money market?”

Finally, Barclays raised the issue of under-reporting to the FSA, the Bank of England and the Federal Reserve Bank. Indeed, as the New York Times reports, in 2008 Barclays informed the New York Fed that it was submitting artificially low rates! “The concerns were passed on to Timothy F. Geithner, then the chief executive of the regulatory body. But the New York Fed did not tell other authorities in the United States or Europe about the specific problems at Barclays. Instead, it proposed changes to the rate-setting process.”

So what forced Diamond’s firing? 

Barclays report reproduces a note Diamond wrote after a call he had with Paul Tucker, the Bank of England’s executive director for markets. The call was on October 29^th 2008.  “By Diamond's account, Mr. Tucker told him that he had "received calls from a number of senior figures within Whitehall to question why Barclays was always toward the top end of the LIBOR pricing." 

After Mr. Diamond explained the bank's pricing, he says, Mr. Tucker reiterated that the calls he was receiving from the government were ‘senior’ and added that ‘while [Mr. Tucker] was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.’”

When Diamond reported this call to his subordinate, Mr. Jerry del Missier, the latter interpreted the call as an instruction from the bank of England to lower its LIBOR submissions. And he complied. Diamond later denied that this was the note’s meaning.

Diamond’s transmission of his note and its subsequent impact highlights a familiar process. Senior executives and government leaders in politically delicate situations often speak in coded terms. By convention, the higher ups need protection, they represent the franchise, so that it is up to those lower down to interpret the code, in ways that protect the higher ups and the organization. This also reflects a fundamental survival principle in any organizational hierarchy; “make your boss look good.” Misseir’s interpretation and subsequent action in this sense appears entirely reasonable, even if unethical. He believed he was receiving an instruction from the Bank of England. Diamond’s later denial of the note’s meaning is consistent with the idea that the purpose of coded language is in fact to facilitate deniability. 

However the note’s inclusion in Barclays report raises a more fundamental issue. If the note had no salient meaning, as Diamond later argued, why was Barclays including it in the report?  One obvious explanation is that the bank was protecting its reputation by declaring that it rigged its LIBOR submission in response to a request from the Bank of England!  While the report was published the day after Diamond’s resignation, it clearly had been in preparation for some time and in all likelihood, the BOE governor, Sir Mervyn King had advance notice of the report’s content. It seems reasonable to conclude that this is what triggered the BOE’s decision to make its extraordinary request that Diamond be fired. Indeed, a former director at the FSA, Lindsay Thomas, noted that “suggestions that the Bank of England had condoned the rate-rigging practice would have been 'a Rubicon' that would have led Sir Mervyn to demand Mr. Diamond be forced to quit. He told BBC Radio 4's World at One: 'They would have been livid. I would think that the Governor would have called up Barclays and made it plain that that's what they expected to happen.’”

One question is why Diamond and his peers had been so obtuse as to include the note in the report? Indeed, as the Wall street Journal reports, while some of Diamond’s subordinates believed the note underlined Barclays’ innocence, others worried that it would launch a war against the regulators. Moreover, in 2007, “Mr. King delivered a series of speeches attacking what he described as overpaid London bankers, an apparent reference to Mr. Diamond, who was one of London's highest paid.” The regulators had declared war 5 years ago!

One hypothesis is that Diamond’s decision to include the note in the report reflected a profound lack of political imagination. The political imagination is based on two frames of reference; understanding the role of symbols and their relationship to emotions in shaping reasoning, and understanding the “games” of self-interest in which for example, “the enemy of my enemy is my friend.”

These frames of reference make contradictions look reasonable.  For example, because Barclays cooperated extensively with the authorities in Britain and the U.S.- in the words of the Department of Justice, “the nature and value of Barclays cooperation has exceeded what other entities have provided in the course of this investigation,” --it was the first to settle and therefore the first to be exposed.  But as the first, it then became the ready symbol of the “bad bank” responsible for the financial crisis a reprise of Sir Mervyn King’s earlier attack on overpaid bankers. Similarly, Ed Milliband, the head of the Labor party called for a criminal investigation of bankers who broke the law by rigging the LIBOR rates. In effect, he was siding with the Bank of England, an institution on the other side of the class divide, because the former opposed Barclays, a symbol of the “bad bank.”

Both of these understandings point to the limits of what some call “technical rationality,” that is, the logical delineation of the relationships between means and ends based on facts and data. It is likely that Diamond, a man schooled in technical rationality by virtue of his expertise in finance, was seduced by the reasonableness of his own case. He could not see beyond the logic of cause and effect which rules out contradictions, to contradiction’s reasonableness when seen through the prism of the political imagination. In addition, a person of Diamond’s stature and standing may lose site of his political vulnerability. After all, as the story of the call from the Bank of England suggests, Diamond’s subordinates protected him. His experience of being protected may have weakened his ability to exercise his political imagination. This may ultimately be why he was stunned when asked to resign. It was simply not logical.

CNN's reporting mistake

Several days ago, the U.S. Supreme Court ruled that President Obama’s signature legislative accomplishment, the Patient Protection and Affordability Act, (Health care reform), was constitutional. But embarrassingly, within minutes of the Court’s release of its decision, Fox and CNN first reported that the act had been declared unconstitutional. In retrospect the reason for the error was readily apparent. The Court had decreed that the mandate to buy insurance was coercive and thus not constitutional, but it was constitutional as a tax. Reporters who hurriedly flipped through the text, read the mandate argument first and the tax argument only later. Fox corrected itself within two minutes, but it took CNN a full seven minutes, after its announcement had circulated on the web and through its tweets. As one report notes, this error “was particularly embarrassing for CNN, which has suffered through one of its worst ratings quarters in several years, primarily due to a paucity of big news. The network eagerly awaited the court's decision, scheduled for 10 a.m., running a "countdown clock" on its screen for hours.”

In reporting on the mistake is the press making a “mountain out of a molehill?” Maybe, but a Buzzfeed report notes that CNN employees themselves were very upset. A half-dozen top on-air reporters and producers were “furious at what they see as yet another embarrassment to a network stuck in third place in the cable news race. ‘We had a chance to cover it right. And some people in here don’t get what a big deal getting it wrong is. Morons.’ ‘Shameful,’ another long-time correspondent told BuzzFeed. ‘It's outrageous and embarrassing,’ a third CNN staffer vented. ‘Maybe this will shake the company into understanding that CNN has not been the 'most trusted name in news' for a very long time.’” In an internal memo, CNN promised an investigation into the mistake. “Today we failed to adhere to our own standard; namely it’s better to be right than to be first. We take mistakes seriously, especially mistakes on such important stories. We are looking into exactly what happened and we will learn from it.”

At one level, an investigation hardly seems necessary. It seems clear what happened. The reporter, Jeffrey Toobin, who first got hold of the Supreme Court decision while inside the court, first read that the mandate had been ruled unconstitutional, and instead of reading on, reported this fact to Kate Bolduan, CNN’s congressional reporter. Everyone was primed to believe that should the mandate be declared unconstitutional the entire act would be ruled out of order. The pressure to be first with the news was great, so Toobin instead of urging caution until he read, however hastily, through the entire text, presumed that the legislation was dead.

Perhaps we can learn more from CNN’s response to the mistake than from the mistake itself. I suggest that the mistake stirred emotions that are stimulated by what we can call “extreme environments.” An environment is extreme when participants feel that the viability of the organization to which they belong is not secure and moreover, never will be. This feeling is linked to objective conditions, most importantly, hyper-competition. Witness for example the failure of Palm, the likely failure of Research in Motion (of Blackberry fame), and Yahoo’s stagnation; all companies, which not so long ago, symbolized the internet revolution and seemed on their way to becoming institutions.  

As we noted in an earlier post, CNN has been losing market share and standing as viewers have come to prefer news tinged by political bias, with Fox attracting viewers on the right, and MSNBC, viewers on the left. CNN’s reputation can therefore only be based on accuracy and timeliness. But viewers care less about the first, and the World Wide Web provides the second. This suggests that CNN lacks what marketers call a “unique selling proposition.” Instead, CNN makes money largely because it is included in the price of cable packages. Should cable companies “unbundle” their offerings, who will buy CNN? This is why it looks fragile, however many resources its reporters have presently at their command.

It seems straightforward that facing time pressure and competition people can make serious errors. The situation can create anxiety, clouding peoples’ judgment. But if the organization is experienced as fragile, the people who sustain it feel that the organization’s setting is unforgiving. One result is that errors feel more consequential than they might seem to outsiders. This may be why CNN staffers reacted so harshly to the mistake.

Thomas Kolditz a retired brigadier general, who led the Department of Behavioral Sciences and Leadership at the U.S. Military Academy, West Point, for 12 years, has written about leadership in extreme situations. He suggests that in such situations, where for example soldiers make life and death decisions, there can be “too much motivation.” People do not need to be revved up.  Paradoxically, because the situation is so demanding in itself, additional emotional arousal can be detrimental. One is reminded here of the calm tone pilots sustain when, in facing flight emergencies, they collaborate with another and ground controllers to land a plane safely.

One question Kolditz’s work raises, is whether or not the investigation into a mistake should itself be conducted in an emotional context of low arousal that is, with dispassion. If so, what are the “design criteria” for such an investigation? For example, one criterion, might be that no single person is to blame. It is presumed that the total situation, which demanded everyone’s participation, is the source of the error. Another, might be that the most senior people take responsibility for what was the organization’s total response to the situation. It would be useful to imagine what other criteria would apply. 

But dispassion may prove difficult. Psychoanalysts speak of "persecutory anxiety" to describe a person who feels chronically under attack.  Extreme environments may induce this kind of anxiety.  One lesson we have learned from psychoanalysis is that when this anxiety predominates people may become punishing and unforgiving towards each other just at the moment when they need each other the most.

The firing of the president at the University of Virginia

People have been scratching their heads, trying to understand why and how the University of Virginia’s (UVA) board fired its president, Teresa Sullivan, for what appeared to be arbitrary reasons, and with little consideration for process. For those who have not been following the story, the board’s Rector, Helen Dragas, polled each board member by phone to assess if they would support firing Sullivan, who had been in the role for only two years. When Dragas found that a majority would, she called Sullivan and asked for her resignation, telling her that she had lost the board’s support. Faculty and students responded with considerable anger to what looked like an arbitrary and imperious decision.

Needless to say, the board’s process was exceedingly clumsy. Faculty members and students felt blindsided, and for several days the board could provide no clear rationale to any of its publics for why its members had dismissed Sullivan so suddenly. The earliest report of the firing, published in the Chronicle of Higher Education, suggested that the board wanted a president who could lead with the spirit of “strategic dynamism,” a phrase that certainly lacks precision and led people to think that the board was foolish enough to be influenced by business fads.

As the story unfolded it became clear that the board worried that Sullivan was too much the “incrementalist.” She had spent her first two years developing a new budgeting process for the university, while board members thought the university needed a transformational leader who, most importantly, could take them into the world of online learning. Hence the term “strategic dynamism.” We are left with two questions; why they “really” fired Sullivan, and why in such a clumsy and almost self-defeating manner? One hypothesis is that the answers to both of these questions are one and the same.

Prior to the firing, there was much reporting in the general press about the “breakout” of online learning from what was once a curiosity, relegated to for profit-universities looking to make money, to one embraced by elite institutions; namely MIT, Harvard and Stanford. Most dramatically, this past March, Stanford engineering professors, Peter Nerving and Jennifer Widom, offered two online courses in machine learning and artificial intelligence, both of which attracted between them over a quarter of million students around the world. The students in Widom’s class collectively viewed 290,000 videos, took 10,000 tests, asked 224 questions and gave 2000 replies. As one journalist wrote, “although the students do not get Stanford credit for their work, they gain access to faculty and Stanford Engineering’s most popular computer science courses.” Subsequent to this breakout event, MIT and Harvard committed $60 million to develop and offer free online courses. In addition, two other Stanford professors who helped develop the computer platform used for the university’s online courses, formed a company called Corsera.

One hypothesis is that this flurry of activity in online learning constitutes a “sentinel event.” This kind of event concatenates several long-term trends that heretofore have operated below the social radar. The event crystallizes the potential meaning of these trends when taken together, and highlights how they might disrupt organizations, status hierarchies and marketplaces The trends themselves appear obvious in retrospect; for example, in this case, the proliferation of high speed internet connections, the ability to process and manage large scale data bases, years of experimenting in online learning, the rise of the middle class throughout much of the developing world, and an entrepreneurial culture which is reshaping university life. We knew about all of these when considered separately. We just did not appreciate their power to change our situation when taken together.

The meaning of a sentinel event is invariably linked to both feelings of excitement and anxiety. Stanford’s online courses excited observers because they suggested that students everywhere have access to the best pedagogical materials, regardless of social class, ethnic group or geography. But they also created substantial anxiety because they suggested that the universities and colleges could be “dis-intermediated.” Might students in the future pursue certificates of competence in particular skills or subjects rather than degrees from institutions; particularly if elite institutions backed these certificates, and guaranteed that they were using the best pedagogy and assessment methods?

This mixture of anxiety and excitement shapes our response to the sentinel event. But when anxiety predominates, for example we feel unprepared to cope with developments the event portends, the event may stimulate apocalyptic thinking; the experience that, “the world as we know it is changing.” Many decades ago Alvin Toffler, in his classic text, characterized this experience as “future shock.”

One question is, how does future shock shape executive decision-making? The term “shock” is suggestive. A shock overwhelms our senses, and in response we become desensitized or numb. When we are desensitized our thinking becomes imprecise and impressionistic, and we lose sight of some of the commonsense connections between cause and effect -- a process that psychologists call dissociation. This is similar to the hysteric’s thought process, and of course it makes sense that when we succumb to apocalyptic thinking, we become something like hysterical. 

So one hypothesis is that UVA board members were gripped by apocalyptic thinking; that the sentinel event stimulated in them the belief that the world, as they knew it, was changing, and that they responded hysterically. This could account for both the conviction they felt that Sullivan had to be dismissed -- they still refuse to back down despite the protests-- as well as for the clumsy way in which they fired her. This hypothesis gains some additional credence when we consider that some of those who protested her firing responded hysterically as well. Thus for example, in protesting the dismissal, the university’s provost said, “I know I find myself at a defining moment, confronting and questioning whether honor, integrity and trust are truly the foundational pillars of life at the University of Virginia.”

We are naturally led to ask if these hysterical responses are arbitrary or unfounded. The answer depends on two factors, is the sentinel event really a sentinel, and if it is, is the institution vulnerable?  I am inclined to answer yes to both, that the hysteria, while unhelpful is not arbitrary, and that UVA is vulnerable. While some commentators have suggested that the issue of online learning is trivial, “an individual professor’s hobby,” “other universities offering a few online course for free,” the fact is that the MIT Open Courseware Initiative has published instructional resources online for 2,000 courses since 2001. Similarly, 41 million users visited the online site, “Kahn Academy,” in the last 18 months. The site houses a library of 3,000 videos providing instruction in a wide array of technical courses such as math, finance and economics. In addition, UVA is quite vulnerable since it has lost the bulk of its state funding and it cannot rely on tuition increases to fund its development costs.

Sullivan defended her record as an “incrementalist” on the sensible grounds that you cannot order faculty around, that you can’t lead “top down.” As she wrote, “Corporate-style, top-down leadership does not work in a great university. Sustained change with buy-in does work." But if you believe in the apocalypse, this argument only reinforces the conviction that the institution is at risk. There is no time for “buy-in.” Sullivan’s defense becomes paradoxically an argument for her dismissal, not against it.

One prediction is that we are in for many more of these “future shocks,” and that our leaders are vulnerable to apocalyptic thinking and thus hysterical decision-making. How can we prepare for the future without succumbing to the anxieties it creates?

Rajat Gupta's trial and conviction

The jury has just convicted Rajat Gupta, once the head of the iconic consulting firm, McKinsey, of insider trading. After his retirement from McKinsey, Mr. Gupta got seats on the boards of Goldman Sachs and Proctor and Gamble. The prosecutors in his trial presented evidence linking his presence at board meetings to phone calls he made to his co-conspirator, the hedge fund head Mr. Rajaratnam, and to trades the latter promptly executed to make money on the inside information Gupta had presumably relayed.

The prosecution presented no wiretaps of Gupta tipping off Rajaratnam. Instead, the jury was persuaded by the circumstantial evidence that when, for example, the Goldman Sachs board, at the depth of the financial crisis, made a decision to accept an investment of $5 billion from Warren Buffet, Gupta, as his cell phone records show, called Rajaratnam immediately after the board meting had adjourned. Within minutes, the latter bought Goldman stock just before the market closed. Needless to say, Goldman stock rose after the news of Buffet’s investment went public. Indeed, Mr. Rajaratnam was himself convicted of insider trading a year ago, based on actual wiretaps of conversations he had with other co-conspirators. He was sentenced to 11 years in prison and fined $93 million.

Absent a wiretap in which Gupta and Rajaratnam are talking about how to profit from the inside information to which Gupta had access, it is impossible to know if Gupta is actually guilty. What is striking however is that Gupta himself made no money from Rajartnam’s trades. In fact, in 2009 he lost money, some news sources suggests as much as $10 million, on a venture capital fund, called Voyager, that he and Rajaratnam had co-founded. Moreover, Gupta had a sterling reputation as an advisor to the most powerful companies and governments in the world. As one of his investment partners described him, “Rajat is sui generis, there’s no one else quite like him on the planet. He’s extremely smart, he has an unbelievable Rolodex. If I went to the South Pole, I could call Rajat, and if he didn’t know someone directly, he’d call someone who did.” His status, his  standing. the sense of his reliability, even generosity,  seemed secure. If he is guilty, we are compelled to ask, “What more could he possibly want?”

I can only speculate. But I am drawn here to the distinction between the management consulting business and world of finance and investment. The big story from the early nineties until the Great Recession is the story of risk, finance and investment. It was the period in which the United States became the “risk society.” The risk society grew up around a methodology for pricing and distributing risk across many asset classes by using derivatives and options. These instruments enabled banks to shield themselves from the vagaries of money markets, increasing their ability to provide millions of dollars of instant liquidity to institutional markets. This propelled the growth of new ventures. Of course, the methodologies for pricing risks could also backfire.  For example, the AAA tranches of mortgage-backed securities were not as safe as was calculated. This mis-pricing unleashed bankruptcies, defaults, and as is evident in Europe, considerable social unrest.  We do live in a risk society.

There are two other distinctive features of the  risk society. First, successful risk taking is disproportionately rewarded. This is one reason that the stock market grew so rapidly until the Great Recession. Second, the risk society gave rise to a culture of entrepreneurship. Talented young people who might have once become doctors, lawyers, accountants and consultants were now eager to start or join start-ups.

This risk society and its associated culture has been on balance a creative one, witness the rise of Google, Facebook, and the second coming of Apple. This may be one reason as the chart below shows, that the US still has the most productive economy in the world, even as it has lost manufacturing jobs, become a service economy, and weathered a housing bust. 

 

One hypothesis is that Gupta felt excluded from the settings and culture of the risk society. Management consulting is a service business. Mckinsey’s brand enabled it to charge for its labor costs plus a markup while relying on a continuing stream of referrals and requests from old and new clients. In other words, it faced minimal market risk, and little execution risk. It was close to a “cost-plus” business. Gupta in this sense was sidelined, away from the action. Indeed, as a management consultant myself, I experienced a period in which business consulting had a certain “glamor.” The best graduates of the top business schools wanted to join the top management-consulting firms. But starting in the mid nineties, the world of entrepreneurship became much more glamorous. 

Facing these developments perhaps Gupta's prior accomplishments seem in retrospect less meaningful to him. This may explain why he started “New Silk Road,” a venture capital fund committed to investing in Indian companies with growth potential. He could join his passion for helping his native country with his desire to play in the world of risk and reward. He was not looking for more money -- there is little indication that he was greedy -- but rather for more meaning.   

Of course this remains speculative. It does not give a complete account of why he might have crossed the line and conspired with a colleague. Perhaps, despite his accomplishments, he may have felt unprepared to compete in the world of risk and so came to rely excessively on a colleague, who prior to his own indictment and jailing, appeared to be one of the most successful hedge managers in the United States.

It is always puzzling to learn that very successful people are unsatisfied with their accomplishments. Psychoanalysis reminds us that a person performs in front of two audiences, one external, our actual friends, colleagues and family members, and the other internal. Freud described the internal audience as the “ego ideal,” This inner voice is the precipitate of the voices of parents and other authority figures, as we have internalized them .The ego ideal is a positive force when it stimulates us to achieve. But it can also be source of shame, when according to our own internal and sometimes overly strict standards, we have failed. This sense of shame implicates our identity, we are no longer sure of who we are. One can imagine how, to avoid feeling this kind of shame,  a person might cross the line. If this is true, we are presented with a case in which Gupta, seeking to avoid the shame from within, shamed himself in front of the people he most valued.