Too Big to Fail? How About Too Big to Exist?

Too Big to Fail? How About Too Big to Exist?

by Duncan WattsIn 1996 a single power-line failure in Oregon led to a massive cascade of power outages that spread across all the states west of the Rocky Mountains, leaving tens of millions of people without electricity. Over the past year we have experienced a different kind of cascade in the financial system, which has produced the equivalent of a global blackout. Having studied the dynamics of cascades in complex systems, I suspect that the most damaging ones are impossible to anticipate with any confidence. The solution may therefore be to make the system less complex to start with, in order to reduce the chance that any one part can trigger a catastrophic chain of events. In the financial system, this means limiting how big companies are allowed to become.

As governments struggle to fix the crisis, plenty of experts have weighed in on its causes, from excess leverage to lax oversight to faulty compensation structures. These explanations can account for how individual banks, hedge funds, and so on got themselves into trouble, but they gloss over the larger question of how all these institutions, acting independently, managed collectively to put trillions of dollars at risk without being detected.

This risk was invisible because it was systemic—it resulted from the unpredictable interplay of myriad parts in the system. Think about power grids again. Engineers can reliably assess the risk that any single power generator in the network will fail under some given set of conditions. But once a cascade starts, they can no longer know what those conditions will be for each generator—because conditions could change dramatically depending on what else happens in the network. The result is that systemic risk, which can cause the system as a whole to fail, is not related in any simple way to the risk profiles of the system’s parts.

Financial systems are arguably far more complex than power grids, but the fundamental problem of systemic risk is the same: Risk managers are only able to assess their own institutions’ exposure on the assumption that conditions in the rest of the financial world remain predictable, but in a crisis these conditions change unpredictably. No one anticipated that an investment bank the size of Lehman Brothers could collapse as suddenly as it did, so no risk managers built that contingency into their models.

How do we reduce the risk of cascades in the financial system? One approach builds on the way regulators currently make judgments about systemic risk, in particular when they decide that some institutions are too big to fail. There are lots of problems with these judgments, as the Lehman Brothers fiasco revealed, but the most serious is that they are made after a crisis emerges, at which point only drastic responses are available. A better approach, therefore, would be for regulators to routinely review firms and ask: “Is this company too big to fail?” If yes, the firm could be required to downsize or shed business lines until regulators were satisfied that its failure would no longer pose a risk to the whole system. Correspondingly, proposed mergers and acquisitions could be reviewed for their potential to create an entity that would be too big to fail.

Governments telling firms what they can and can’t do sounds like dangerous meddling in free markets. But antitrust law already permits regulators to prevent firms from growing in ways that stifle competition, and somehow our free market has survived. The current crisis has demonstrated that markets do not automatically control systemic risk, any more than they automatically create competition. Pragmatically speaking, therefore, government intervention is required to prevent markets from destroying themselves, and the relevant question is what kind of intervention is effective. The answer will be complicated, but it should include this simple principle: Firms should not be allowed to grow too big to fail in the first place.

Copyright © 2009 Harvard Business School Publishing Corporation. All rights reserved.

QUOTES

Some people fear seeing or feeling anything about which there is no general agreement. For others, it is thrilling to be aware of innuendo, shading, complexity. For those who do not wish to step away from consensus, the creative is useless at best; at worst, it is dangerous. But for those who are intrigued by the multiplicity of reality and the unique possibilities of their own vision, the creative is the path they must pursue."
—Deena Metzger

"It is change, continuing change, inevitable change, that is the dominant factor in society today. No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be."
—Isaac Asimov

Make the Commitment to Be a Learning Organization

http://www.pegasuscom.com/levpoints/commit.html

Make the Commitment to Be a Learning Organization
by Ken Blanchard

from LEVERAGE, No. 9 

Copyright © 1998 Pegasus Communications, Inc. (www.pegasuscom.com). All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from Pegasus Communications, Inc. If you wish to distribute copies of this article, please contact our Permissions Department at 781-398-9700 or permissions@pegasuscom.com.

There is a lot of talk today about the learning organization. To me, this talk is quite refreshing. It suggests that the classroom and the workplace have at long last merged, and that business is quickly moving from being a place of rules and regulations to one that focuses on personal and collective growth and improvement.

Peter Senge, author of The Fifth Discipline, defines learning as "the expansion of one's capacity to produce results." On an individual level, people gain new insights and modify their behaviors, actions, and perspectives about the world as a result. The same is true for a group of individuals who collectively build upon their shared knowledge.

There are many aspects that contribute to an effective learning environment. To me, three of the most important are openness, recall, and objectivity.

Openness
Probably the key to establishing an effective learning environment is to have an institutionalized acceptance of "openness," in which bringing up questions is encouraged. When the environment is truly open, an individual can express concerns without fear of retribution; hidden agendas do not exist; and people say the same things in a business meeting that they would after work. At a different level, managers also need to encourage and pick up on suggestions made by employees—often championing other people's ideas through to completion.

Recall
In order to learn constantly, you have to have good recall of what you already know and can build upon. This "memory" is harder to achieve in an organization than in an individual. When addressing a new issue, problem, or decision, we try to start by collectively remembering what we know about the issue at hand or about related issues from our past experience. In our company, we've found that we have to systemically capture learning situations as they occur and then document them as widely as is necessary. Thus, when we come to a consensus on an issue in a meeting, we record it in the minutes with its relevant rationale. Anyone not at the meeting gets a copy of those decisions, which are often also summarized in the company's newsletter if they pertain to the entire organization.

Objectivity
Just as important as being open and having good recall is trying to be objective; that is, seeking the best answer to a question based on available data, logic, and pre-established criteria. In our company, we seek objectivity by first clarifying our purpose and then imagining what a good solution would look like. Then, especially on important or emotional decisions, we systematically ask a set of questions about the issue or decision, including:
• What are we excited about?
• What are we nervous about?
• What is likely to go wrong?
• How could we make it work? We find that these specific questions allow the group to better focus on the overall best solution to the problem.

One of our five core, explicitly stated values is "learning." We view ourselves as a learning laboratory and, as a result, constantly have experiments in progress. This value, for us, has three operational parts: constantly thriving to innovate, continually refining our products and services, and applying knowledge in new ways to develop people and organizations.

Keeping Organizations Vibrant and Alive

http://www.pegasuscom.com/levpoints/kimint2.html

Keeping Organizations Vibrant and Alive: An Interview with Daniel H. Kim
by Janice Molloy

from Leverage Points Issue 63

Copyright © 2005 Pegasus Communications, Inc. (www.pegasuscom.com). All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from Pegasus Communications, Inc. If you wish to distribute copies of this article, please contact our Permissions Department at 781-398-9700 or permissions@pegasuscom.com.

Daniel H. Kim is a renowned organizational consultant, management thinker, facilitator, teacher, and public speaker committed to helping problem-solving organizations transform into learning organizations. We are delighted that he will be sharing his passion and expertise in a keynote presentation at the 2005 Pegasus Conference, Embracing Interdependence: Effective and Responsible Action in Our Organizations and the World (learn more). In the following interview, Daniel talks about the importance to organizations of maintaining a strong sense of purpose supported by a clear set of core values-and the dangers that await those that fail to do so.

What does it take for organizations to continually renew themselves and remain vibrant and alive? As a consultant, Daniel H. Kim has spent much of his career addressing this question. In his work with companies, governmental agencies, educators' groups, and nonprofits around the world, he has witnessed organizations that have been able to succeed and stay at the top of their game through many generations of leaders, as well as those that have atrophied and died. What accounts for the difference? According to Daniel, "Too often, organizations become driven by individual egos or greed, rather than by organizational purpose. That's always dangerous."

For many of us, purpose seems like an abstraction, an elegantly worded phrase that sounds inspiring as part of a mission statement but that has no practical effect on our day-to-day activities. Nevertheless, a true sense of purpose—supported by a clear set of core values—is vital to ensuring that everyone knows the organization's overall reason for being and the principles that guide all actions. The resulting sense of alignment leads people to work together for the good of the whole and to make wise decisions when faced with tough choices.

Organizational Parasites
When a sense of direction and guidance are missing, enterprises can quickly fall prey to what Kim refers to as "organizational parasites," a term originally coined by Arie de Geus. Daniel explains, "An organizational parasite is a person who joins an organization and holds their own agenda or purpose primary and that of the organization secondary. It's not that we can't and shouldn't have our own personal purpose, but it has to come second to the organization's. The organizational parasite enters an organization from the perspective of 'What can I get from this host?'"

Daniel cites Arthur Andersen as a dramatic case of a business that lost sight of its original purpose. "The firm went from being the benchmark, the symbol of integrity, to being all about greed. The purpose was for the partners to make more money for themselves. Period." He continues, "If you read Final Accounting: Ambition, Greed, and the Fall of Arthur Andersen by Barbara Ley Toffler with Jennifer Reingold (Broadway, 2003) and see what happened to Arthur Andersen, it was overrun by parasites at the very top level of the organization. There were a lot of good people in the lower parts of the organization doing what they were supposed to do, being coerced into doing things they weren't supposed to do, but the company collapsed quickly because the rotting began at the top."

Change "Enzymes"
Unfortunately, as evidenced by the scandals that rocked corporate America a few years ago, this kind of ethical crisis is all too common. How can an organization that has drifted get back on the right path? Daniel notes that, in extreme cases like at Tyco in the aftermath of the abuses by former CEO Dennis Kozlowski, a new leader has to come in and clean house. To his credit, the company's new CEO, Edward D. Breen, fired most of the top management and removed many of the board members who had hired him.

But changing personnel usually isn't enough. As Kim points out, "Ninety percent of parasitic infestation is management failure, not the individual. It's the host that creates an environment that is conducive to the parasite." In other words, unless the organization as a whole becomes clear about what it's about, it will inevitably foster parasitic relationships, regardless of the best intentions of the people working in the organization.

To begin focusing on who you are as a company and then performing based on that knowledge, Kim suggests using the framework found in Good to Great: Why Some Companies Make the Leap . . . and Others Don't (HarperCollins, 2001) by management consultant Jim Collins. By responding to three questions—What is it that we can be the best in the world at? What are we most passionate about? And what drives our economic engine?—groups can begin to coordinate their efforts in support of new goals and strategies.

Additionally, those who are leading the revitalization effort need to identify ways in which they themselves have to change. Daniel notes, "Everyone is trying to change everyone else. But unless the change becomes personal, starting with whoever is at the top level of that change effort, the change effort is doomed to fail. As consultant Fred Kofman notes, people need to shift from thinking of themselves as change catalysts—elements that initiate but remain unchanged by a chemical reaction—to change enzymes—elements that initiate and are in turn altered by the interaction." For many leaders, the process begins with shifting away from ruling by fear to building trust, listening, and collaborating with others. "It's an inward journey," according to Kim, who recommends books such as Presence: Human Purpose and the Field of the Future (SoL, 2004) to support the transformation.

Corporate Mortality Rate
In many cases, the alternative to change is corporate death. Kim says, "The average lifespan of a corporation is 40 to 50 years. As Arie de Geus once commented, that's a high 'infant' mortality rate, when one considers that the oldest living corporation is over 750 years old (the Swedish company Stora). This isn't about propping up companies that should not stay around, just for the sake of keeping them going. But are we as a global society standing by and just accepting a very 'infant' high mortality rate? That's a provocative way of thinking about it."

Perhaps even more provocative are Daniel's thoughts about the future of U.S. businesses. "It doesn't appear that many organizations fully grasp what the emergence of China and India is going to do. Between the two of them, they have about one-third of the world's population, around 2.2 billion people. With the rates that they're growing and the way they run things, we could become their hand servants. We could be the generation that ends up losing what was built over the last generation or two." That prospect alone might spur a rash of organizational renewal efforts.

QUOTES ON EDUCATION

"A system of education is not one thing, nor does it have a single definite object, nor is it a mere matter of schools. Education is that whole system of human training within and without the schoolhouse walls, which molds and develops us."
—James Baldwin

"I came to believe . . . that it is vital to transform the world by changing the way people treat each other, and by modeling that kind of changed behavior ourselves."
—Anne Firth Murray

“Whole” Approach to Public Speaking : An Interview with Carla Kimball

A “Whole” Approach to Public Speaking : An Interview with Carla Kimball
by Vicky Schubert

from Leverage Points Issue 102

Copyright © 2008 Pegasus Communications, Inc. (www.pegasuscom.com). All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from Pegasus Communications, Inc. If you wish to distribute copies of this article, please contact our Permissions Department at 781-398-9700 or permissions@pegasuscom.com.

CARLA KIMBALL is a speaking presence coach whose approach reflects her experience as a dancer, yoga teacher, and tai chipractitioner. She believes that some of the learnings from these disciplines can help people overcome fear, project more confidence, and cultivate the type of leadership presence so essential in today’s world. She recently spoke withLeverage Points about what she refers to as “public speaking presence.”


We are hearing a lot about “presence” these days. In the book by that name, authors Peter Senge, Otto Scharmer, Joseph Jaworski, and Betty Sue Flowers identify presence as a concept borrowed from the natural world that suggests the whole is entirely present in any of its parts. Scharmer also talks about presence as the capacity to connect to the deepest source of self and will to allow the future to emerge from the whole rather than from a smaller part or from a special interest. For Carla Kimball in her work with public speakers, presence is about slowing down internally so as to enter into a shared space with one’s listeners.

In all of these cases, the idea of connecting to a larger whole—with the goal of inspiring transformational change—is paramount.

What Is Public Speaking Presence?
“I think of presence as being something that we embody,” Kimball explains. “And it comes from being truly present in the moment” Noting that the opposite of presence is absence, Carla observes that we are absent when we are distracted by our internal chatter and by whatever pulls our attention away from simply being here. She contends that presence in public speaking requires slowing down and becoming quiet inside, because when you are multi-tasking and your thoughts are racing in a kind of “adrenaline soup,” it’s impossible to effectively deliver your message.

Presence is also about establishing a relationship with your audience and creating a shared space that you enter into together. Effective speakers create an experience of presence by making a priority of connecting with everybody in the room.

Hillary Clinton embodied presence, Carla notes, during her recent speech at the Democratic National Convention. “You could see it in the way she carried herself,” she says, “even as she walked on stage there was this sense that she was fully occupying herself spiritually, physically, emotionally, and mentally. It was clear that she was connecting with people as individuals and she seemed to speak directly to the individuals she was looking at.”

Kimball works to help people minimize the feeling of being separate from their audience, because that separateness causes fear. Conversely, when they have a sense that they are in community with others, they no longer feel as though they’re standing out there by themselves with everybody shooting arrows at them. They’re much more a part of a whole.

To illustrate, Kimball offers the analogy of a goldfish pond contained by rocks all the way around the perimeter. Each individual rock is crucial, because if one of the rocks were to be removed, the water would flow out and the pond would no longer exist. But when we look at a pond, what draws our focus is the pond as a whole, not the individual rocks. “As a speaker,” she says, “I’m like one of those rocks, and the people in the audience are the other rocks. Together, we create a focus that’s not about any of us individually.”

Cultivating Presence When You Speak
Perhaps most fundamental among the strategies Carla calls the “Seven Crown Jewels of Public Speaking Presence” (see the complete list below), is drawn from Eastern philosophy: “Where you put your attention, that’s where your energy goes.” People terrified of speaking often find it difficult to think about anything other than how they’re going to mess up and how the people in the room will judge them. As a speaker focuses her attention on the mental chatter going on in her head, her energy goes there, and she creates more and more anxiety for herself and distance from her audience.

Kimball likes to help these anxious speakers distinguish between “self-consciousness” and “consciousness of self.” “When we are self-conscious, we are looking at ourselves as we think others might be looking at us with a judgmental eye,” she explains. “But if you can shift into more of an embodied consciousness of self, you can expand the focus of your awareness to include your connection to the other people in the room. Placing the emphasis on this connection and on being present with the people in the audience actually steadies you, it calms you down.”

Speakers using PowerPoint have to be especially careful not to create separation between themselves and their audience. “Sometimes,” Carla observes, “you’ll see people with their back to their listeners, having a relationship with their slide presentation instead of with their audience.” But when you put your attention on being present in your body and with your audience, that’s where your energy will go. The flow of energy and information going back and forth between you and your listeners will in turn create a shared space.

Focus on Service
In another strategy for cultivating presence, Carla suggests that speakers ask themselves, “How can I be of service to the people in this room?” Clinton, for example, as she crafted her high-stakes speech for the convention, was likely thinking more about how she could be of service to the country and to her party than about showing how brilliant she could be.

Kimball shares the story of Steve Ryman, a coach in Washington State, whose experience illustrates this principle of service. About three or four years ago, Steve had just graduated from a coaching program, when he traveled to Kufunda, Zimbabwe, on a learning journey with the Berkana Institute. The country was in desperate straits, with 1,200 percent inflation and 30 percent of the population infected with HIV/AIDS. Kufunda is a learning center and model village that helps communities develop self-reliance despite the enormous challenges prevailing in the country at large. Steve wanted to contribute something of value, so he had arranged to stay on for another two weeks after the learning journey ended to offer his assistance as a coach to the community.

During his two-week learning journey, Steve was confronted with the intractable nature of some of the issues facing this community, and he began to realize that he had no special knowledge, expertise, or understanding to offer. So, the morning after the others from the learning journey left, he woke up troubled by this question: “How can I be of any help to these people? I don’t know anything about this. There’s nothing I can do.” Feeling like a fraud, he walked to the top of a small hill. As he watched the sun rise, he resolved to offer to be of service in whatever way the villagers needed him.

When he came down the hill, he went into the kitchen and said, “What can I do? Sweep the floor? Peel potatoes?” The villagers put him to work and, instead of coaching, he stayed, doing whatever he could to be useful. Carla notes, “Steve realized that his purpose there wasn’t about being the expert, but about service. And, in the three years since that time, Steve has contributed greatly to Kufunda both through his work with them locally and by telling their story to others.”

When people are anxious about an important presentation, they can ask themselves, “Why are we meeting? What can I do to be of service here?” That’s a lot less intimidating than: “I’ve really got to show that I know my stuff.”

Tools for Creating Balance
Carla concedes that it’s not always comfortable to reframe the way you have been used to thinking about your public speaking challenges. She notes, “I just completed one of my 12-week courses, and as part of the course evaluation process, one man said to me, ‘You know, after the first two weeks, I almost didn’t come back because it was so weird. I felt like it was so touchy-feely that I wasn’t going to get what I needed. I’m glad I stayed. The course has made a big difference!’”

In Kimball’s group work, most of the first session is done in silence as participants work on developing three simultaneous levels of awareness: being present with themselves, being present with their audience, and being present with the content they’re talking about. “Even if these practices—such as meditation and brief eye-contact exercises—may seem alien to them and not what they expected in a public speaking course,” says Kimball, “I have to make it safe enough for them to trust it and keep going.” Over time, as they add exercises that help them with each of the “seven crown jewels,” people’s comfort levels go up.

Carla’s students also reinforce the disciplines they learn in class in their daily lives. For example, they might practice slowing down by focusing on their breathing when they’re talking on the phone, sitting at the dinner table with their family, standing in line at the grocery store, or walking down the street. She encourages people to practice in non-stressful situations, because that helps them to draw on these skills when the stress levels are turned up. “And what people discover,” she says, “is that these aren’t just public speaking tools, but tools that help them create more balance in every aspect of their personal and professional lives.”

The Seven Crown Jewels of Public Speaking Presence

1. Slow down.  Savor the moment....................... Breathe.


2. Become aware of your body: Feel your feet on the ground.


3. Remember: Where you put your attention, that’s where energy goes.


4. Think of it as a conversation, not a presentation.


5. Ask yourself: How can I be of service? Instead of: How can I be perfect and show my expertise?


6. Smile: Both to be kind to yourself and to be open to your audience.


7. Trust the power of silence!

HE KNOWING – DOING GAP

THE KNOWING – DOING GAP

In today’s information age with so much knowledge floating around, companies are plagued with an inertia that comes from knowing too much and doing too little - a phenomenon called the knowing-doing gap. Executives of companies know what is to be done, what actions need to be taken when companies are in trouble but mostly nothing gets done. This can be traced to a basic human propensity to let talk substitute for action, particularly 'smart talk.'

This quality is instilled in young management students’ right from their college days where class participation is the order of the day. Class Participation is the mantra that all our 'revered' kings of RG (Relative Grading) cling to. A substantial part of students' grades is usually based on how much they say and how smart they sound in class. Students spend hours thinking of weird, pointless crap that they can throw up in the guise of fountains of logic. The vagueness of the whole concept stems from the fact that it inspires you to indulge in pointless blabber and still earns you marks. Concern for class participation is heightened by the fact that grades (and First-Year Honors! And McKinsey) depended so heavily on in-class commentary.

Grading students on class participation makes pedagogical sense as it encourages them to think carefully about what they are reading. But telling students that they must sound smart in order to succeed has a pernicious effect as well. They learn that they need only to deliver an intelligent insight -or an intelligent critique of someone else's insight-to impress their professors. The basic idea of getting people to share their experiences, gain from it and basically contribute to value-addition is lost.

There is one famous theory related to this knowing doing gap. It’s called the "babble" or "blabbermouth" theory of leadership. The theory states that people who talk more often and longer-regardless of the quality of their comments-are more likely to emerge as leaders of new groups, to be identified as leaders by observers of the group, to be viewed as influential by both group members and outsiders, and have greater influence on group decisions. By dominating the group's "airtime," they let everyone know who's in charge.

Companies are plagued with the same problem. The teams keep making the same decisions again and again, but they never get around to actually implementing them. As the famous maxim goes "A decision by itself changes nothing. You actually have to put it into action."

Very often companies reward smart talk, not smart action. Witty people with exciting ideas get ahead, not those who did the gritty work of implementation.

It so often happens that people get hired, promoted, and assigned to coveted jobs based on their ability to sound intelligent, and not necessarily on their ability to act that way. The message received is: Don't worry about your accomplishments, just make sure you sound good. That message doesn't inspire people to leap into action-it often has the opposite effect. And thus the knowing-doing gap widens.

This article is not intended to bring an end to conversations, meetings, or presentations or that people should stop trying to sound smart. The right kind of talk can inspire and guide intelligent action. It's just that talk can't be allowed to become a substitute for action. Not all organizations are plagued by the knowing-doing gap. Some have managed to avoid the smart-talk trap. Such organizations reveal five characteristics:

• Leaders who know and do the work
• They have a bias for plain language and simple concepts
• They frame questions by asking 'how,' not just 'why
• They have strong mechanisms that close the loop
• They believe that experience is the best teacher

When looked into the success stories of a few professionals who have climbed the corporate ladder, this quality does not take one very far in life. Infact this is more of a smart talk trap. Managers assume saying intelligent and persuasive things has become central to management work, and that there are so many rewards for smart talk. They forget that words aren't of much use if they don't inspire action. Some managers also forget that if their words aren't credible, they will lose their ability to inspire action.

So before falling into such smart talk traps one must learn the basic philosophy of life "Actions speaks louder than words". By closing the knowing-doing gap one discovers the rewards of action.