Saturday, January 22, 2022

Learning from Obama's decision making

One of the first things I discovered as President of the United States was that no decision that landed on my desk had an easy, tidy answer. The black-and-white questions never made it to me - somebody else on my staff would have already answered them. And while few decisions in life are as complex as the ones you face in the Oval Office, I did walk away from my eight years as president with some thoughts on how to approach tough questions.

In March of 2009, just a couple of months into my presidency, the economy was in freefall. Unemployment was up to 8.5 percent, on its way to ten percent. 800,000 Americans lost their jobs that month, families across the country were losing their homes, a tanking stock market was depleting their 401ks, and a difficult credit market was making it hard for small business owners to take out the loans they needed. To turn around any of this required stabilizing the financial system, and to do that, I had settled on what was the least bad of three lousy options - subjecting the 19 largest banks to "stress tests" to see whether they had the capital to survive an even worse economy.

Nobody was happy about it - not the public, not Wall Street, not me. My own advisors disagreed about the path forward, with some calling for a sharper condemnation of the bankers whose recklessness had gotten us into the mess, and others saying that such gestures might stifle the very market confidence we needed.

To get everybody on the same page, I called a meeting with my economic team. We spent a long, exhausting day hearing from Treasury Secretary Tim Geithner about how the stress tests were going, hashing out various alternatives, and pushing every idea to its logical conclusion to see if it might work. By evening, I left the meeting to have dinner and get a haircut and told my team that I expected a consensus upon my return. But the truth was that, through that gruelling process, I had already reached my decision to let the stress tests bear out. Within six months, the economy would start growing again. And by the next year, the biggest banks had paid back every dime of taxpayer money - plus interest.

But the point is, in just a few short weeks on the job, I had already realized that because every tough decision came down to a probability, then certainty was an impossibility - which could leave me encumbered by the sense that I could never get it quite right. So rather than let myself get paralyzed in the quest for a perfect solution, or succumb to the temptation to just go with my gut every time, I created a sound decision-making process - one where I really listened to the experts, followed the facts, considered my goals and weighed all of that against my principles. Then, no matter how things turned out, I would at least know I had done my level best with the information in front of me.

Of course, that only works if you listen - really listen - to others. For me, that meant asking everybody in a meeting what they thought about the problem at hand. I'd call on folks in the back row, including the most junior staffer. That required people to come prepared to share their views.

But, like every leader, I had my blind spots. Late in my first year, Valerie Jarrett reported that some of the senior women on staff were experiencing a culture where the men on the team interrupted them, dismissed their ideas before adopting them as their own, and generally made them feel diminished - to the point where some of the women had altogether stopped talking in meetings. These were some of my most important advisors, so I convened them over dinner to hear more. Listening to their stories, I considered the degree to which my own tolerance for machismo behaviour had contributed to their discomfort and, inadvertently, stifled their important contributions. We didn't resolve everything in one night - but being aware was a start. The men, I later discovered, had been oblivious - and were appropriately mortified. They promised to do better, and a few months later, Valerie said she noticed some improvement.

One of the earliest decisions I had to make about the war in Afghanistan was one that had been pending since before I took office. Although we were planning to revamp our entire strategy, the commander on the ground was requesting an immediate deployment of an additional 30,000 troops. That's how I found myself in the Situation Room, two days after inauguration, discussing the issue with the principal members of the National Security Council - people like the Chairman of the Joint Chiefs of Staff and the Director of the CIA. Almost everyone in the group was inclined to support the troop deployment.

Except for my Vice President, Joe Biden. He made the case to delay deployment until we had a clearer strategy. It wasn't easy. Speaking up exposed him to criticism. But Joe's willingness to go against the grain and ask tough questions was invaluable - and it would continue to be a trait I relied on throughout my eight years. Because one of the risks of soliciting views from a large group is that a current way of thinking can quickly take shape and move everybody in the same direction. Having at least one contrarian in the room pushed us all to think harder - and, frankly, everyone was a bit freer with their opinions when that contrarian wasn't me.
You also want to create space to think. Remember that dinner and haircut break I took during that marathon economic session? That mattered, too. That was part of making the decision. Even in situations where you have to act relatively quickly, as was frequently the case during the financial crisis, it helps to build in time to let your thoughts marinate.

You can't always plan a well-timed break or predict how it might clarify your thinking. One evening in March of 2011, my national security advisors and I were engaged in a stressful discussion about whether to intervene in the ongoing conflict in Libya. At some point, I had to step out for a dinner with the U.S. military combatant commanders and their spouses.

Seated next to a young Marine who had lost both his legs to an IED in Afghanistan, I couldn't help but think about the decision that awaited me about whether to send more young men like him off to the battlefield. We sat just a stone's throw away from the airless Situation Room - but the space and perspective that dinner afforded helped refine my thinking. And by the time they cleared dessert, I had reached a decision.
In my first year, I would sometimes walk over to the small pool house by the Oval Office and have a cigarette (or two), savouring a quieter moment and letting my thoughts wander and deepen. After signing the Affordable Care Act into law, I finally quit smoking for good - but took pains to maintain other outlets, other rituals, that helped preserve some boundaries, however tenuous, between life and work. My morning workout, an evening walk on the South Lawn, after-dinner pool games with our dear friend and family chef Sam Kass. Whatever decision I might be carrying would breathe a little - and so would I.

Those rituals included leaving the Oval Office at six-thirty each night so that I could have dinner with my family. There was nothing more refreshing than spending that time with the three most important people in my life - listening to Malia and Sasha narrate their days, ask questions and tease me to no end. Afterwards, Michelle and I might get a few extra minutes alone to catch up. I always found myself replenished, as though my family had decluttered my mind and restored my equilibrium.

Many of us tend to work relentlessly - whether it's at our jobs or taking care of our families. It can feel like there just aren't enough hours in the day to take time out. But it's actually vital. One thing I learned as president was that the decisions I had to make were so weighty and consequential, the pace so unyielding, that it was easy to feel almost removed from myself. But the time I spent away from my desk, especially with my wife and kids - whether coaching Sasha's basketball team or date night with Michelle - was a crucial, daily reminder of who I fundamentally was as a person. This was so important, because we bring our whole selves to the decisions we make. And those decisions, in turn, both reflect and determine who we are.

That was something my mother made sure I understood. Once, she found out that I had been part of a group teasing a kid at school. She sat me down and told me that there were two kinds of people in the world: Those who only think about themselves and tear others down to make themselves feel important. And those who think about how others feel and avoid doing things that might hurt them. "So," she asked me, "Which kind of person do you want to be?"

All these years later, her question still helps guide my decisions. On an official visit to Japan, I met with the Emperor and his wife, and instinctively made a little bow. To me, it was the most obvious, natural thing to do - a sign of respect in a different culture. I later learned that conservative commentators threw a fit, with one calling my bow "treasonous." Rather than anticipating and fearing the right wing's bizarre insecurity about my carrying out a culturally appropriate greeting to my elderly hosts, I followed my own basic humanity and sense of decency.

Everything I learned about making impossible decisions during the first two years of my presidency culminated in one of the toughest choices I had to make: whether to authorize the raid to take out Osama bin Laden. It was an operation rife with uncertainty and risk. So, I ran a tight process. I trusted my team. I listened to every voice in the room. I gave myself space to think. And then I made a decision that reflected my own personal sense of what was right.

While I couldn't guarantee the outcome, I was confident in making the decision.

Looking back, the number of complex situations I had to adjudicate seems remarkable - that's the job of the President of the United States. But the truth is that, even as regular Americans going through our days, we face countless decisions - a reality made even more acute by the pandemic. We're constantly assessing how to act and what to do, carefully weighing the safety of each choice. It can be exhausting.

The best we can do is find a framework that helps us consider our choices, knowing that there may not be one perfect answer. That way, we can rest a little easier knowing that did the best we could in the circumstances, come what may.

It's not always clean and straightforward. But as my mother would say to me, "The world is complicated, Bar. That's why it's interesting."

Source -

Sunday, January 9, 2022

The model locker room

I have played on a lot of teams in my life. Along the way, there have been a number of winning seasons, but just a few that ended with a championship. The winning seasons were nearly always a matter of talent. If we had more of it, we typically won more than we lost. If we had less, we did not. Since talent tends to be the defining factor in most competitive pursuits, this should not come as a surprise. What is less obvious, however, is what drove those special championship seasons.

Growing Up

When I played little league baseball, football, and hockey growing up, the gap between the best and the worst players was enormous. Some kids could barely swing a bat, throw a ball, or skate, while other kids could hit a curveball, throw a perfect spiral, and/or skate backwards with ease. As I got older though, the gap narrowed….a lot. Many of the weaker players quit and some of the best players regressed, but the biggest difference was that the competition increased dramatically as those who kept playing got better and a crop of talented younger players kept emerging. This pattern happens in nearly every sport and each generation. Just look at U.S. swimming legend Michael Phelps. At his peak, he held close to 30 world records. Today, just a decade later, that number is down to 4, including just 1 individual record. I did not give this dynamic much consideration when I was younger, but it is something I think about a lot as an adult.

As we age, it becomes increasingly clear that talent only gets us so far. Whether it is in sports, school, business, investing, or countless other competitive pursuits, the increase in the concentration of talent makes it more difficult to differentiate ourselves on talent alone. Look no further than Harvard’s class of 2024 class. Among its 29,000 applicants, it included 8,500 perfect GPAs, 3,500 perfect SAT math scores, and 2,700 perfect SAT verbal scores, despite the fact that Harvard only accepted ~1,700 students. Or at the fact that there are over 12,000 college football players in a given year who are all heavier, faster, and stronger than the vast majority of the players that came before them, yet still only ~200 will be drafted into the NFL (~1.6%). Intelligence and athleticism at the highest levels are no longer enough.

This creates an interesting dilemma. While someone may be improving on an absolute basis, they are often getting worse relative to their competition. Michael Mauboussin refers to this concept as the “Paradox of Skill”, which simply means that even though people may becoming more skilled at a certain pursuit, it is often more difficult for them to succeed because their competition is also becoming more skilled. This means that eventually the most talented people end up competing against one another, making it very difficult to become a bonafide superstar. Hence the paradox.

Given this reality, what should talented people in competitive industries do? Mauboussin suggests they should “pursue easier games”. Intuitively, this advice makes a lot of sense. If you seek out less talented people to compete against, your chances of success should increase. But what if there are no easier games to play? Or, what if you are not able to or want to play a different game? If I told one of my sons to quit playing soccer, lacrosse, or flag football and go play tiddlywinks because they would have a better chance of being a star, they would tell me to go pound sand. The same goes for public equity investors. Sure, there might be less competition selling residential real estatecoaching football, or investing in private companies in more remote parts of the world, but are these types of options realistic or desirable? For many, I would guess not.

So, if either my sons or a public equity investor were to recognize that talent alone may not be enough, easier games are not a realistic option, and/or they want to keep playing their current games despite the challenge, what would I tell them? I would advise them to keep pursuing what they love, but to seek out teams with great “locker rooms” to pursue them with. Doing so will give them a long lasting edge that isn’t talked about nearly enough.

A Team’s Composition

Many U.S. sports fans agree that the greatest victory in this country’s history was when a group of unknown college kids, led by head coach Herb Brooks, stunned the Soviets 4-3 in the 1980 Winter Olympics and went on to win the gold medal in ice hockey.

When asked how he assembled the team, as well as his University of Minnesota hockey teams (Brooks had taken Minnesota from a perpetual doormat to winning three Division 1 National Championships in 7 years), Brooks responded,

“The key to my recruiting was that I looked for people first, athletes second. I wanted people with sound value systems because you cannot buy values. You are only as good as your values. I learned early on that you do not put greatness into people…but somehow try to pull it out.”

If you have ever played athletics, you know exactly what Brooks is talking about. A great locker room brings out the best in people. It elevates the true leaders, convinces those with selfish streaks to put them aside, and enables a team to play beyond their talent level. Most importantly, when things are not going well, a strong locker room is what allows you to look each other in the eye and know you are going to turn things around.

When you are in one of these locker rooms, it is obvious. You can feel it. However, the trouble is that if you are not, you cannot.

The Business Locker Room

In business, a firm’s culture is its locker room and, I would argue, the most important determinant of long term success. Look no further than a discussion AirBnB founder Brian Chesky had with Peter Thiel. Chesky recounted that,

“After we closed our Series C with Peter Thiel in 2012, we invited him to our office. Half way through the conversation, I asked him what was the single most important piece of advice he had for us. He replied, ‘Don’t f*ck up the culture.’“

Thiel is far from alone. Sequoia Capital, widely regarded as the world’s best venture firm, has a section on their website titled “Seven Questions With”, which is a series of interviews with various partners, executives, and investors. In nearly every interview I have read, “culture” is referenced as the most important contributor to a company’s success. Jamie Dimon has mandated that JP Morgan employees return to the office, presumably due to concerns about the work-from-home impact on the firm’s culture. Legendary investor Steve Mandel recently commented that the number one thing his mentor, Julian Robertson, taught him was how important people are, starting with their integrity. Bill Ford of General Atlantic and Orlando Bravo of Thomo Bravo said something similar in recent interviews with Ted Seides on Capital Allocators. Maybe most notably, there appears to be a growing correlation between companies’ stock prices and their Glassdoor reviews.

A Model Locker Room

One of the most difficult parts about determining whether a team, fund, or company has a good culture is that there is no such thing as a model “locker room”. They come in all shapes and sizes. In my experience, some have leaders with the ability to motivate and unite the team, others have strong entrenched cultures created by prior generations, while others fit somewhere else on a vast spectrum of organizations. There is no magic formula.

I meet with a lot of funds and investors as a part of my job. For every one that we choose to partner with, we will often meet with more than 100 others. Almost all are full of talented people with impressive resumes and degrees, so checking the box for talent is relatively easy. This is no surprise given the fact that institutional investing is one of the more competitive careers one can pursue. The hard part is determining what is behind these resumes and track records because this is where a key edge and source of endurance resides.

What to Look For

Since there are no hard and fast rules regarding what defines a strong locker room or a culture, my preference is to keep it simple at the start. I ask everyone I meet with the first time to define the source of their “edge” and “endurance”. I want to hear why they think their fund has an advantage and why this edge is sustainable? More importantly, I want to see if there is consistency or dispersion in the team’s answers.

A few of the positive indications I look for are (a) shared ownership in the business, (b) low employee turnover, (c) diversity of thought, experience, and backgrounds, and (d) an aligned incentive structure. Dig a little deeper though and there are some less obvious indications of a good locker room. Namely:

Mentors – Does the firm prioritize mentorship? Do employees feel like they have advocates within the firm? Do the mentees eventually become the mentors?

Trust – Do people at the firm trust those around and above them? If younger employees look left and right in a meeting, do they admire these people? Do they aspire to be in their bosses’ shoes in the future?

Strategy – Do the “higher ups” value their employees’ opinions? Do they encourage open discussions or do they “steer” the conversation? Do they value differing opinions or just say they do?

Recruiting – What types of qualities does the firm prioritize when hiring? How much emphasis is placed on character versus sheer intellectual horsepower? Where do they recruit from?

Accountability – How has the firm handled disruptive colleagues? Are the most talented colleagues given exceptions or are they held to the same standard? How are good team players acknowledged and rewarded?

In each case, the more examples, the better.

These are not hard and fast rules. There never are. They are just some of the observations I have made after spending considerable time in a wide variety of locker rooms and offices.

A Long Season

Most careers, investing in particular, have plenty of highs, a number of lows, and a lot of mundane moments that fall somewhere in between. The high and mundane periods have a tendency to take care of themselves. The lows are what define you and the relationships you choose. They are the moments you realize how important your locker room is. Or, as Doug Leone, the current managing partner of Sequoia Capital, recently said in response to a question about how and why Sequoia was able to escape the dot com bust with positive numbers, unlike the vast majority of venture firms.

“It was a sense of camaraderie. It was the fact that each one of the cells in our bodies could not do that (walk away from those funds). It had nothing to do with, ‘we have to save our careers, our money, none of that’. It had to do with being a badass and doing what nobody else would do. That’s what it had to do with. Doing the right thing when it’s inconvenient for you.”

The tough times are the ones that make you realize how much you cherish having teammates and partners who are going to get you to the other side because this is what truly adds long term value.

Source –