To Fight a Financial Crisis: What Should the President Do?

You are the U.S. President. After the hoopla of the inauguration, you settle into your work focused particularly on implementing your policy agenda, on which you were elected. The success of your campaign breeds triumphalism that energizes your work. Then, within weeks of your inauguration, a financial crisis hits. What should you do?

The Miller Center at University of Virginia focuses on the U.S. presidency and is conducting a series of seminars on the President’s first year, for which it has commissioned a range of essays on potential issues. (See: First Year 2017: Where the Next President Begins.) They asked me to write about the possibility of a financial crisis in the first year.

You can read my essay, “Grab hold of the levers,” here and a shorter version on Fortune’s web site, there. I won’t spoil the message by repeating it in this post. Suffice it to say that historical precedents suggest that financial crises and Presidents don’t mix well. And the difficult mixture happens more often than you’d guess. Eight of the 44 Presidents faced a major financial crisis in the first year of their first term, some at or within days of inauguration. Nearly half of the Presidents faced a major domestic financial crisis anywhere within their first term. And almost 60 percent faced a domestic or international crisis in their first term. In short, history suggests that the risk of a financial crisis is material. The President should prepare. My essay is about what it means to prepare.

I’ve blogged previously about the importance of studying history to the development of future leaders (see this and my annual lists of recommended readings, such as this). History is a powerful tool for framing one’s own experience and for anticipating what the future might hold. Confucius said, “Study the past if you would define the future.” Humans are naturally given to reasoning by historical analogy.

Yet reasoning by historical analogy warrants at least two cautions.

First, the historical experience of oneself or one’s community is usually so impressive as to assure that whatever happened WILL happen again (i.e., with high probability). In financial markets, this tendency to project the past into the future is shown to explain why investors tend to overshoot or undershoot in their pricing of assets—and why bubbles and panics occur. Amos Tversky and Daniel Kahneman described a bias or “heuristic” by which people project an outcome (incorrectly) based on a small sample. People tend to see patterns where none actually exist—this is especially true about patterns of prices in financial markets. This representativeness heuristic draws its power from the individual’s observation and past experience. Another phenomenon, conservatism, reflects the fact that people tend to be slow to change their beliefs in the face of conflicting evidence. Representativeness and conservatism can make a potent brew, by which as Andrei Shleifer wrote, people “[underreact] to individual pieces of information, but [overreact] to conspicuous patterns.” [1] Psychological biases are a more or less forgivable error and can be corrected by rigorous assessment of one’s assumptions.

Second, the less forgivable error is to tilt reasoning by historical analogy for some ulterior purpose, such as to justify an unjust war, to exalt a bogus nationality, to validate genocide, or to excuse theft. In her book, Dangerous Games: The Uses and Abuses of History, Margaret MacMillan writes,

Political and other leaders too often get away with misusing or abusing history for their own ends because the rest of us do not know enough to challenge them…Bad history tells only part of complex stories. It claims knowledge that it could not possibly have, as when, for example, it purports to give the unspoken thoughts of its characters…Bad history also makes sweeping generalizations for which there is not adequate evidence and ignores awkward facts that do not fit….Bad history ignores…nuances in favor of tales that belong to morality plays but do not help us to consider the past in all its complexity. The lessons such history teaches are too simple or simply wrong. That is why we need to learn how to evaluate it properly and to treat the claims made in its name with skepticism. [2]

These cautions are especially relevant to us in early 2016. Political candidates are wont to make passionate assertions about the past in support of aspired policies. Leaders in government and the financial services industry appeal to history (especially the recession of 1937-38) in support of various proposals to jump-start growth in the global economy right now. Today’s military tensions are compared to geopolitical pivot points in the past.

My advice: take a deep breath. Reasoning by historical analogy is useful in the way that scenario planning is useful: it illuminates the possibilities and dynamic dependencies; it invites critical evaluation of assumptions; and it can promote preparedness. And as long as you respect the two cautions (about biases and intentions) it can be fun.

Thus I offer my essay about how the President should address a financial crisis in the first year, in the spirit of Margaret MacMillan, who wrote:

History, by giving context and examples, helps when it comes to thinking about the present world. It aids in formulating questions, and without good questions it is difficult to begin to think in a coherent way at all. Knowledge of history suggests what sort of information might be needed to answer those questions. Experience teaches how to assess that information….What happened and why? The historian asks. History demands that we treat evidence seriously, especially when that evidence contradicts assumptions we have already made. Are witnesses telling the truth? How do we weigh one version against another? Have we been asking the right or the only questions? Historians go further and ask what a particular event, thought, or attitude signifies. How important is it? The answers in part will depend on what we in the present ask and what we think is important. History does not produce definitive answers for all time. It is a process. [3]

The Miller Center’s project, First Year 2017, is exactly that: a valuable process to generate penetrating questions by which all of us can set expectations for the new administration.

  1. See: Andrei Shleifer, Inefficient Markets, Oxford University Press, 2000, page 129. []
  2. Pages 36-37. []
  3. Page 167. []
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The Reading Leader: Recommended Books, 2015

 

“I just sit in my office and read all day.” Warren Buffett, Chairman, Berkshire Hathaway (he claims to spend 80% of his time reading.)

 

In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none. Zero. You’d be amazed at how much Warren reads — and how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.” — Charlie Munger, Vice-Chairman, Berkshire Hathaway.   [1]

 

Why these business leaders read so much is a wonderment to most people.  But to regular followers of this blog, the answers will come as no surprise.  This post is my annual exhortation to read books and my recommendation of some great books to read.  For years (see 2011, 2012, 2013, and 2014), I’ve contended that reading is a predicate to professional success.  Last year, I argued that reading builds leadership qualities: if you want to lead, you must read.  In other years, I’ve made the case that reading makes you a more interesting person and prepares you to deal with a broader array of challenges and opportunities. 

 

Today, I’ll offer an equally potent argument: reading spawns fresh ideas.  If you’re tired of stale thinking and/or thrashing around for a fresh perspective on things, then read.  Reading boosts new idea creation through two means, one obvious, and the other subtle. 

 

The obvious path is that reading may lead you directly to the idea you need.  Reading extends your own knowledge.  The real cost of access to a vast knowledge base has plummeted in the past few decades: check out the books, articles, websites, and blogs available online today.  But this path is likely to disappoint you more often than it helps: the answers to the problems you really want to solve rarely come straight out of a book.  Should I hire Jones?  Should I bet next year’s profits on the new gizmo coming out of R&D?  Should the company expand to Africa or Arkansas?  Trying to answer questions like these through reading is to treat reading like any other instrument of management, a means to an end—and it may take you into the shallowest part of the pond.  Amazon.com lists millions of books in the management self-help field, most of which are banal and fruitless.

 

The less obvious path is to treat reading as an end in itself—and trust that it will reward you with surprising insights that are relevant to your problems at hand.  Reading stimulates your mind at two levels: the conscious (like the user interface of a computer that you interact with) and the subconscious (like the heavy computing that your laptop does in the “background.”)  Neurologists tell us that the brain devotes some 90% of its effort to work in the background, such as timing your heartbeats, coordinating movement, and trying to resolve dilemmas that matter to you.  Virtually everyone has had a “Eureka!” moment where a fresh idea simply came to mind—the tipping point of every Sherlock Holmes story entails one of these.  That moment could entail “connecting the dots” of a factual problem in some fresh way, detecting an inconsistency, reinterpreting someone’s meaning, or defining a problem in terms of a completely different metaphor (e.g., “This labor negotiation is like trying to bake bread without yeast.  Let’s get yeast going here!”)  Eureka moments are manifestations of the subconscious at work.  Reading simply stokes the subconscious with lots of fuel.  ((Other pursuits that stoke the subconscious are vacation travel, hobbies, music, sports, etc.)) 

 

The problem is that reading is easily cut under time pressures.  But cutting your reading ultimately starves your ability to generate fresh thinking.  Abraham Lincoln once said that if he had eight hours to cut down a tree, he would spend six of those eight sharpening the saw.  Thus it is with one’s mind.  The point of this post is to encourage you to boost your fresh thinking: read and read more.  Here is my approach, outlined in previous years:

·        Make reading a habit, like exercise.  Regularity helps to assert the priority of reading and to capture its benefits.  Irregular reading makes it hard to sustain the thread of an argument.  Losing the momentum of a story or argument is like losing one’s physical conditioning.  Even a little reading every day will set you up for fresh thinking.

·        Set aside a time and place to read every day.  Most frequent question: “Where do you find the time?” Answer: by making time every day; turn off the television; don’t surf the Web endlessly; learn to read on a stationary bike, bus, or subway—in these contexts, it is easy to find an hour or more per day to read. 

·        Carry something to read with you all the time.  On your tablet, have several books and magazine subscriptions going.  Airline flight delays? On hold for 45 minutes with the IT help line?  No problem: just pick up where you left off.

·        Get out of your comfort zone. Lots of business professionals focus exclusively on business self-help books and magazines in familiar areas. Big mistake. You’ll boost your resilience, creativity, and repertoire by going farther afield.

·        Don’t read junk. Focus on the good stuff.  The old socialist slogan, “You are what you eat” is relevant here: you are what you read. 

·        Talk with others about your reading. As Darden’s MBA students readily discover, you really don’t know something until you can tell others about it. You might even be so bold as to start a discussion group in which you can actively debate the writer’s point of view. Such a group worked marvelously for Benjamin Franklin.

·        Keep up with the news every day.  Follow at least one major daily newspaper and your local newspaper.  Among the majors, I recommend New York Times, Wall Street Journal, and Financial Times.

·        Follow some periodicals.  The really worthwhile journals give you chewy introductions to research, important trends, and fierce debates—all without the more intensive investment that a book requires.  I read The Economist cover-to-cover usually in one sitting on the day it arrives. And I browse through Foreign Affairs, Foreign Policy, American Historical Review, Journal of Finance, Journal of Financial Economics, Harvard Business Review, Atlantic, Wired, and New Yorker.  Usually there is at least one article in each edition that really jogs my thinking.

·        Keep one or more books going all the time.  In contrast to newspapers and periodicals, books are immersive: they develop some theme or argument more fully; they show more evidence; they develop nuance; and they enable you to think more critically along with the author. 

 

Here are some of the best books I’ve read over the past 12 months.  This is a longish list and does not cover everything I could suggest.  I finished some 75 books this year, most of which were pleasing in some particular way, but don’t merit recommendation to a broader audience.  The ones that follow deserve special attention and have my enthusiastic support. 

 

David Brooks’ The Road to Character is an inspiring reflection on the strong character attributes on which society depends, and how we might seek to deepen these attributes.  The problem, he says, is that we are self-centered.  Brooks writes that we should not organize our lives as with a business plan, motivated by personal wants and individual choices.  He says, “You don’t ask, What do I want from life?  You ask a different set of questions: What does life want from me?  What are my circumstances calling me to do?”  Brooks offers numerous examples from history of people who illustrate the road to character: Frances Perkins, Dwight Eisenhower, Dorothy Day, George C. Marshall, Bayard Rustin, George Eliot, St. Augustine, and Johnny Unitas—across this disparate group, Brooks weaves a brilliant thread of argument about character: strength of character is not given but is earned through personal struggle; it is inherently outward-focused, not inward-focused; and strong character is manifested in many ways.

***

Atul Gawande is professor of surgery at Harvard Medical School and a writer for the New Yorker.  I would encourage you to read anything of his that you can get your hands on.  This year, I read two of his books.  The Checklist Manifesto is nominally about surgical procedure but is really a meditation on how behavioral errors can override the very best training.  The lessons here are of great significance to business practitioners.  Gawande writes:

“We now live in the era of the super-specialist—of clinicians who have taken the time to practice at one narrow thing until they can do it better than anyone who hasn’t. Super-specialists have two advantages over ordinary specialists: greater knowledge of the details that matter and an ability to handle the complexities of the job. There are degrees of complexity, though, and intensive-care medicine has grown so far beyond ordinary complexity that avoiding daily mistakes is proving impossible even for our super-specialists. The I.C.U., with its spectacular successes and frequent failures, therefore poses a distinctive challenge: what do you do when expertise is not enough?”

Thus, he argues that where human health and welfare are at stake, even the loftiest professional should follow routines established by checklists.  But at the core of this book is a tension on which all business leaders should reflect: lofty professionals resist checklists as an insult to their mastery.  Gawande replies that fallibility, not mastery, is the issue.  In short, humans forget and overlook; checklists correct.

***

Gawande’s book, Being Mortal and What Matters in the End, addresses the modern irony of medicine, that by its very success in saving and prolonging life, it creates new ethical dilemmas for old age and the end of life.  The problem as Gawande points out, is the “medicalization” of old age.  At the core of medical ethics is the desire to save the patient, regardless of cost or later disability.  Gawande writes, “Arriving at an acceptance of one’s mortality and a clear understanding of the limits and the possibilities of medicine is a process, not an epiphany….The debate is about what mistakes we fear most—the mistake of prolonging suffering or the mistake of shortening valued life?”  Anyone contemplating instructions to put into his or her medical directive should read this book first. 

***

In 1938, Harvard commissioned a long-term study of 268 men from the graduating classes of 1938 to 1944.  The purpose was to “transcend medicine’s usual preoccupation with pathology and learn something instead about optimum health and potential and the conditions that promote them.”  This study has produced various reports and books over the years.  Now, George E. Vaillant’s 2012 book, Triumphs of Experience: The Men of the Harvard Grant Study, presents what is likely to be the summation of this extraordinary project as the subjects pass on.  Vaillant has been a leader of the study since 1966 and offers not only insights from the research, but also reflections on the challenges of sustaining such a massive project for so long.  Anyone interested in the subject of aging will find this book loaded with insights and examples.  My dominant takeaway from this study is that life choices really do presage one’s quality of life, particularly in the “senior years.”  We all benefit from such reminders: eat sensibly; don’t smoke; get regular exercise; stay mentally active; sustain relationships and make new friends; use alcohol just in moderation; nurture the next generation; save money for retirement and a rainy day; and promote a community—all of which pay big dividends as one ages.  And if these nostrums aren’t sufficiently motivating, then the numerous sobering case studies that Vaillant offers will prompt one to find a better style of life.

***

People who learn continuously through life will tend to be more successful than those who don’t–Carol Dweck’s Mindset: The New Psychology of Success is an extremely important book for those who care about the performance and development of leaders and organizations.  The research of my colleagues, Jeanne Liedtka and Ed Hess, has drawn inspiration from this book.  Dweck is a professor of psychology at Stanford; her book has grown to be a classic.  The essence of the book is in the contrasting nature of two frames of attitude and their radically different implications for human development and behavior.  Dweck calls these frames of attitude, “fixed mindset” and “growth mindset:”

“…believing that your qualities are carved in stone—the fixed mindset—creates an urgency to prove yourself over and over.  If you have only a certain amount of intelligence, a certain personality, and a certain moral character—well, then you’d better prove that you have a healthy dose of them….There’s another mindset in which these traits are not simply a hand you’re dealt and have to live with, always trying to convince yourself and others that you have a royal flush when you’re secretly worried it’s a pair of tens.  In this mindset, the hand you’re dealt is just the starting point for development.  This growth mindset is based on the belief that your basic qualities are things you can cultivate through your efforts. Although people may differ in every which way—in their initial talents and aptitudes, interests, or temperaments—everyone can change and grow through application and experience.”

***

One’s mindset and consciousness have a dynamic relationship with the brain.  Norman Doidge’s The Brain that Changes Itself: Stories of Personal Triumph from the Frontiers of Brain Science discusses the concept of neuroplasticity—the ability of the brain to reorganize itself by making new neural connections over time.  Norman Doidge, M.D. is a researcher and psychiatrist at Columbia University and University of Toronto.  Conventional thinking had it that damage to the brain through injury or disease is irreversible.  But Doidge presents research and numerous case examples to the contrary: the brain can rewire itself.  It is plastic. Not only does the brain change in predictable ways as we age (it gets smaller), but it also responds to intellectual and emotional stimuli.  Mental illness, such as depression, triggers adverse trends in the brain.  And a daily dose of math problems, reading, crossword puzzles, or other cognitive activity, can help to retard or forestall symptoms of dementia.  Neuroplasticity is a very important concept, to which this book is an excellent introduction for the lay person.

***

In 2015, one was struck by the news of rising suicide rates among military veterans.  And in a tight-knit university community, one sees the threat of suicide more plainly than elsewhere, perhaps. The book, Stay: A History of Suicides and the Philosophies Against it, by Jennifer Michael Hecht, is an eloquent moral argument against suicide.  The philosopher, David Hume, once argued that suicide was acceptable because it promoted the common good.  Yet, research shows the opposite: it damages those left behind.  The act of suicide loosens the grip of other despairing people and promotes imitators.  It damages friends and loved ones left behind.  And you owe it to your future self to live.  The New York Times columnist, David Brooks, wrote, “Suicides happen in clusters, with one person’s suicide influencing the other’s. If a parent commits suicide, his or her children are three times as likely to do so at some point in their lives… People in the act of committing suicide may feel isolated, but, in fact, they are deeply connected to those around. As Hecht put it, if you want your niece to make it through her dark nights, you have to make it through yours.”  Some years ago, I helped an acquaintance through such a dark night; thankfully, the intervention of many people succeeded.  I wish I had had this book at hand.  It gives not only words, but reasons and arguments, for saying “stay.”

***

The field of psycholinguistics tells us that there is a link between our sentiments on one hand, and the words we use on the other.  The book by Steven Pinker, The Stuff of Thought: Language as a Window into Human Nature, is a popular introduction to the nature of this link.  Pinker is a cognitive scientist at Harvard University, a leading authority in psycholinguistics.  Of the books recommended here, I found this one about the most challenging to read—not because the ideas are so hard, but because the narrative bounces across interesting examples at such velocity that one barely hangs on.  Yet I recommend the book as an anchor for understanding the emerging field of sentiment analysis, which uses big data analytic techniques to discern attitude shifts in social media and other sources.  Sentiment analysis depends on psycholinguistics for its validity.  In this regard, I found Chapter 7 to be helpful; there, Pinker discusses “the affective saturation of words,” their emotional coloring.  A classic example of affective saturation is a radio interview of Bertrand Russell in the 1950s in which he distinguished, “I am firm.” “You are obstinate.  “He is pigheaded.”  Each sentence is saturated with loaded feelings, of sharply different kinds.  Sentiment is also reflected in our use of metaphors (Chapter 5) and how we name children (Chapter 6).  If you want to understand sentiment analysis, big data, and social media, this book affords an intellectually stimulating introduction to its foundation, psycholinguistics. 

***

Over a decade ago, Stieg Larsson gained global acclaim by the publication of three mystery-thrillers about Lisbeth Salander, a sui generis character living on the fringe of Swedish society.  Larsson passed away unexpectedly in 2004, and with him, the hopes of his world-wide fans for more of the same.  Then along came David Lagercrantz in 2015 with The Girl in the Spider’s Web, a very good extension.  Lagercrantz sustains Lisbeth Salander as a remarkable heroine: “She was no hormone-fueled teenager, no idiot show-off looking for a kick.  She would only embark on such a bold venture because she was after something very specific, although it was true that once upon a time hacking had been more than just a tool for her.  During the worst moments of her childhood it had been her way of escaping, a way to make life feel a little less boxed in.  With the help of computers she could break through barriers which had been put in her way and experience periods of freedom. “

***

We are hearing populist sentiments in the run-up to the Presidential election in 11 months.   Robert Penn Warren’s All the King’s Men is a fictional narrative that evokes the story of Huey Long, Governor of Louisiana from 1928 to 1932 and U.S. Senator from 1932 until his assassination in 1935—and one of the iconic populists in U.S. history.  The book won the Pulitzer Prize and remains a classic to this day.  The character development, dialogue, and tableaus of the deep South are priceless.  And one learns something about populism.  Here’s a sample, from a point in the book at which the protagonist, Willie Stark, is being coached about giving a speech:

               “Maybe you try to tell ‘em too much.  It breaks down their brain cells.”

               “Looks like they’d want to hear about taxes, though,” he said.

               “You tell ‘em too much.  Just tell ‘em you’re gonna soak the fat boys and forget the rest of the tax stuff.”

***

As I stepped down from the Deanship, I took a kayaking trip in the Great Lakes with a son, and brought along Ernest Hemingway’s The Nick Adams Stories.  This collection is about the renewal a young man gains from outdoor life in Michigan.  Unlike the previous two recommended books, there is no trail of suspense or gripping climax in these stories.  These are literary tone-poems; what matters is the sense of a place conveyed in Hemingway’s imagery.  This is the kind of reading you must reflect upon—and to appreciate the depth and symbolism in these stories, you could draw on the very extensive commentary about them on the Web.  Hemingway evokes the beauty of the North Woods in prose that is his signature spare style: “He was watching the bottom of the spring where the sand rose in small spurts with the bubbling water.  There was a tin cup on a forked stick that was stuck in the gravel by the spring and Nick Adams looked at it and at the water rising and then flowing clear in its gravel bed beside the road.  He could see both ways on the road and he looked up the hill and then down to the dock and the lake, the wooded point across the bay and the open lake beyond where there were white caps running.  His back was against a big cedar tree and behind him there was a thick cedar swamp.”  I have been to such places in the Great Lakes region and can attest to the authenticity of his depiction.  But this collection of stories is more than a travelogue; it is a fictional testament to the wisdom of writers such as Henry David Thoreau, who wrote, “I went to the woods because I wished to live deliberately, to front only the essential facts of life, and see if I could not learn what it had to teach, and not, when I came to die, discover that I had not lived.

***

Last summer, I joined a group of faculty who read and discussed Thomas Piketty’s Capital in the Twenty-First Century.  He prescribes government policy of massive wealth redistribution through a global wealth tax—the name, Capital, will evoke the title of Karl Marx’s famous work; such is Piketty’s intention.  Translated from French and written by an economist seeking to influence other economists and government policy makers, the general reader will encounter this as a dry and somewhat technical treatise.  Yet it is worth slogging through the volume because of the enormous influence it has gained in debates about economic inequality, and to discover along the way that its arguments are not bullet-proof.  Piketty ignores the impact of massive social transfer payments, and of investments in human capital.  The thoughtful person should be wiser and more informed about economic inequality and declining social mobility.  While Piketty’s book may not be the definitive treatise on the subject, it has so impressively shaped the debate that one cannot intelligently participate in the conversation without gaining an awareness of his arguments. 

***

Harry Frankfurt’s On Inequality is a stimulating companion to Piketty.  Frankfurt is a moral philosopher at Princeton.  This short (89 page) item argues contra Piketty that our primary goal should be to deal with poverty, not eradicate inequality.  Accordingly, Frankfurt’s government policy prescriptions are quite different.  Frankfurt writes,

“Economic inequality is not, as such, of any particular moral importance; and by the same token, economic inequality is not in itself morally objectionable.  From the point of view of morality, it is not important that everyone should have the same.  What is morally important is that each should have enough.

***

This past fall, Richard Mayo and I continued our reading seminar on business history, and concentrated on major financial crises.  Several good books emerged either in the seminar or in my reading parallel with it.

Ben Bernanke’s book, The Courage to Act, describes the Panic of 2008 from the vantage of one of the best-informed players, the Chairman of the U.S. Federal Reserve Board.  My dominant takeaways had to do with the large gap between economic theory and the practice of setting economic policy and with the challenges of leading during a crisis.  Bernanke gives the reader concise briefings on economic concepts along the way including Keynesianism, Monetarism, and neo-classical economics.  His own research as a young scholar figures significantly in how he tackled the crisis.  He argued that the disruption of flows of commercial credit during a banking crisis can greatly accelerate the downturn–accordingly, the role of a central bank in a crisis must be not only to promote financial stability but also restore normal flows of credit.  This proved nearly impossible in a financial system that had grown well beyond the regulatory reach of the Fed in 2008.    

***

Alan Greenspan’s The Map and the Territory 2.0: Risk, Human Nature, and the Future of Forecasting was first published in 2013 and then revised and republished in 2014 (hence the “2.0”).  It represents his take on the Global Financial Crisis.  Though he did not lead the Fed through the crisis, he was in charge during the housing bubble and remains one of the most trenchant observers on the entire episode.  This book is perhaps the most highly readable volume about the crisis, written for a general audience by a leading player.  It complements the writings of behavioral finance experts, who argue that behavior and bubbles are products of a kind of incentive-driven irrationality.  Greenspan contends that bubbles may now be detectable (hence the reference to the “Future of Forecasting”.)  And it represents a bit of a mea culpa for Greenspan, who has been one of the staunchest believers in market rationality.  Greenspan writes: “But now after the past several years of closely studying the manifestations of animal spirits during times of severe crisis, I have come around to the view that there is something more systematic about the way people behave irrationally, especially during periods of extreme economic stress, than I had previously contemplated….In a change of my perspective, I have recently come to appreciate that “[animal] spirits” do in fact display “consistencies” that can importantly enhance our ability to identify emerging asset price bubbles in equities, commodities, and exchange rates—and even to anticipate the economic consequences of their ultimate collapse and recovery.”

***

Perhaps the recurrence of financial crises in the United States is related to our choices about the structure of the financial industry and its regulation.  For instance, Canada has had no systemic banking crises since 1840, while the U.S. has had twelve.  Charles Calomiris and Stephen Haber’s Fragile by Design: The Political Origins of Banking Crises and Scarce Credit argues that the U.S. banking system is more fragile because of complex bargains struck between politicians, bankers, consumers, shareholders and others.  Bad bargains emerge because,

“it is difficult to coordinate opposition to any program that benefits few at the expense of many because of the transactions cost of political activity.  Second, taxpayers cannot easily identify the allocation of costs and benefits from bailouts, which is determined not be the courts but by a deposition insurance resolution authority within the government under opaque circumstances and ad hoc arrangements.  Third, because taxpayers are sometimes depositors, they may not be able to determine whether they are better or worse off as a result of the government’s intervention.”

***

While studying with students the Crash of 1929 and Great Depression, we reviewed the enormous wave of financial regulation enacted by the New Deal.  The conventional narrative is that these regulations fixed problems engendered by unregulated markets.  But Paul Mahoney’s Wasting a Crisis: Why Securities Regulation Fails offers a stunning alternative narrative founded on new research.  The New Deal’s regulations either fixed non-existent problems or enhanced the position of influential incumbents in markets at the expense of potential new entrants.  Mahoney (Dean of UVA’s School of Law) writes,

“Logically, regulation can have three different effects in varying combinations.  It can benefit society by solving informational or incentive problems that keep markets from functioning effectively.  It creates social costs because complying with regulations takes money and effort.  Finally, it creates private benefits because compliance costs are not uniform across firms.  Some firms can comply at lower cost; they profit relative to the rest.  The resulting private benefits give the winners an incentive to support socially detrimental legislation or shape regulations in ways that harm society.  Whether the public or just certain segments of the regulated industry are net beneficiaries in any given situation must be determined empirically.  That is the purpose of this book.”

***

After the Panic of 2008, Congress chartered the Financial Crisis Inquiry Report on the causes of the crisis.  The Commission, composed of five Democrats and four Republicans could not align on their conclusions.  The majority (Democrats) adopted the view that the crisis was caused by greed and mismanagement in the private sector.  The Republican minority offered an alternative narrative that pointed to government regulations and the perverse goals and incentives imposed by HUD and Congress on Fannie Mae and Freddie Mac.  Peter Wallison was a member of the inquiry commission and offers his book, Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again, as a detailed exposition of that alternative view. It is impressively documented and lends withering attacks on the majority.  In pursuit of nuanced differences between the two narratives, one could read in parallel the Financial Crisis Inquiry Report—I’ve done it though, I warn you that doing so will take a strong constitution.

***

Here’s a decade-long reading challenge for you: The Oxford History of the United States is a series of volumes prepared by leading historians and written in sufficiently great detail to capture the incredible process of development moving forward in parallel streams at any moment.  Each of the books is hefty and not for the faint of heart (hence the decade I mentioned).  I’ve read five of the eight volumes, but have seen enough to recommend enthusiastically the entire collection. 

This past year, I finished Robert Middlekauff, The Glorious Cause: The American Revolution 1763-1789, and Gordon Wood, Empire of Liberty: A History of the Early Republic, 1789-1815.  Though I have been an eager consumer of American history my entire life, it humbles me to reflect on what new stuff I learned in these books.  The dominant takeaway from the first two volumes in the series is that the founding of the Republic was quite a close-run thing.  And these histories show that pressing issues today extend their roots back 200 or more years in time. Thus, to get wise about today’s problems, study the past.

***

How leaders take charge when they assume the mantle of responsibility is an enduring question.  Anthony J. Badger’s FDR: The First Hundred Days, offers an iconic example.  Franklin D. Roosevelt was elected President in 1932, at the nadir of the Great Depression.  In a space of time so short that it defies imagination, he coaxed 15 major pieces of legislation through Congress, took the U.S. off the gold standard, and expanded the power of the President through executive orders.  FDR’s record of accomplishment became the benchmark against which all of his successors have been evaluated.  Badger wrote,

“Roosevelt gave indispensable assistance to many Americans in the summer of 1933. He instigated a regulatory regime for financial institutions that prevented a repeat of the Great Crash. He made a start on a massive program of investment in the physical infrastructure of the United States. What he had not found in 1933 was the magic key to economic recovery. But in the Hundred Days, Roosevelt demonstrated that a democracy need not be paralyzed in the face of economic catastrophe. He inspired a new generation of public servants for whom government service was an honorable, disinterested calling. They would enable the United States to survive the worst depression in the nation’s history with its democratic institutions intact and with enough social cohesion and government and productive capacity to fight a successful world war.”

Still, scholars have been mixed in their assessment of what FDR accomplished in the first hundred days.  Some elements of the program were ill-conceived, botched on execution, or invalidated by courts. 

***

FDR was elected in 1932 on a platform that by today’s standard would seem conservative: balance the budget, cut taxes, resist financial intervention, etc.  Some of his swing to the left of the political spectrum may have been intended to prevent defections of voters to populist candidates.  The populist threat to FDR is the focus of Alan Brinkley’s Voices of Protest: Huey Long, Father Coughlin, & the Great Depression.  The book presents extremely interesting profiles of populist sentiments during the depression, and of their advocates.  Brinkley wrote,

“For more than seven years, Huey Long wielded a control of the government of his native Louisiana so nearly total, so antithetical to many of the nation’s democratic traditions, that there was some justification for popular characterizations of him as a “dictator.”  Mention of his name decades later brings to mind a vision of ruthless, brutal power…Father Coughlin, for his part, became after 1938, in the last years of his public career, one of the nation’s most notorious extremists: an outspoken anti-Semite, a rabid anti-communist, a strident isolationist, and, increasingly, a cautious admirer of Benito Mussolini and Adolph Hitler.  Those who recall him almost invariably remember a man of hysterical passion and hatred, a harsh and embittered bigot.”

As the world deals with waves of immigrants and with slow recovery from the Global Financial Crisis, we see the appearance of new politicians and aspirants in the tradition of Long and Coughlin.   This book well complements Robert Penn Warren’s All the King’s Men, discussed above.

* * *

Last spring, I had the good fortune to join a group of 30 MBA students in a course to study the D-Day invasion of Normandy.  We toured the field and drew on the guidance of two senior instructors from the US Marine Corps University.  For me, the highlight of the extensive reading list for that course was Rick Atkinson’s The Guns at Last Light: The War in Western Europe 1944-1945.  As the memory of World War II fades, so does any recollection of the very fierce resistance by the Nazi army.  Indeed, some generals in 1944 thought that the war would be over by Christmas.  But the D-Day landing itself and then the drive through France, Belgium, Holland, and Germany were supremely challenging and demanded new leadership, materials, and organization.  Atkinson brings all of this to light through lively prose and a well-paced narrative.  This book is especially relevant to business practitioners, for the profiles and insights it offers on leadership styles and personalities of leading generals.  For instance, about George S. Patton:

“Instead, the allies would have to settle for the arrival on stage of a man described by a reporter as “a warring, roaring comet” and by a West Point classmate as a “pure-bred gamecock with brains.”  The first glimpse of Lieutenant General George S. Patton, Jr., for many soldiers came in Avranches, where he leaped from his jeep into an umbrella-covered police box and directed convoy traffic through a congested round-about for ninety minutes.  Assigned by Bradley to overseer VIII Corps’s drive south, Patton had helped shove seven divisions past Avranches in seventy-two hours, cigar smoldering as he snarled at occasional Luftwaffe marauders, “Those goddamned bastards, those rotten sons-of-bitches!  We’ll get them!”…When a subordinate called to report his position, Patton bellowed, “Hang up and keep going.”  In a Norman landscape of smashed vehicles, grass fires, and charred German bodies, he added, “Could anything be more magnificent?  Compared to war, all other forms of human endeavor shrink to insignificance.  God, how I love it.””

The Guns at Last Light is the third volume of Atkinson’s trilogy on the Second World War in Europe.  Based on the success of the third volume, I’ll have the first two volumes on my list of readings to come.

***

In closing, recall Charlie Munger’s message: “I have known no wise people…who didn’t read all the time—none.  Zero.  Therefore, go and do.  Read books.  Read widely.  It will make you a better leader and a more interesting person.  And it will fuel fresh thinking.  If my recommended books don’t resonate with you, check out these other lists from Bill Gates, Warren Buffett, Elon Musk, New York Times, Wall Street Journal, New Republic, or others you might turn up on the Web. 

 

And best wishes to you and your loved ones for the holidays and the New Year.

 

 

 

 

 

  1. These quotations were presented in Amanda Tipton, “The Transformative Effects of Reading,” http://inside.envato.com/the-transformative-effects-of-reading-elon-musks-reading-list/. []
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On Exams: “Why don’t we just TELL them what they need to know?”

It’s that time of year: mid-term exams. Anxiety is in the air, for students and for faculty. In the exam results, the teacher sees what didn’t get learned, and confronts the possibility of his or her incompetence. At case method business schools, some teachers (and some students) are prone to ask, “Why don’t we (they) just tell them (us) what they (we) need to know?”

This delicious question gets to the heart of the case method and to the larger point of graduate business education (or in fact ANY education.) Some fairly exercised people have pitched this question to me over the years. Telling students what they need to know is probably a more efficient use of the teacher’s time. The alternative is asking, guiding the students through questions to arrive at an understanding of insights they need to gain. Four reasons explain why it is better to ask than tell:

1. Simply “telling” is incomplete and a low return on the students’ investment of time, effort, and money. “Telling” surely conveys names, dates, formulas, mechanics—the stuff of knowledge. One needs to master knowledge as a foundation for life. But a great university education entails much more than knowledge: it should also include the acquisition of skills and growth in wisdom. One gains skills and wisdom better through experiential learning than by being talked at.

2. Asking promotes meaning. We’ve all had the experience of intensive memorization (or cramming for an exam), followed by equally rapid forgetting of what was memorized. Research suggests that we forget because we’ve absorbed someone else’s structure of knowledge, one that has little or no meaning to the learner. The lessons are only permanently learned when knowledge is reframed in ways that are meaningful to the learner. In blunt terms, “Figure it out for yourself!” is excellent advice because it implies that you will cast someone else’s knowledge in ways that make sense to you (whether you like the ideas or not.) The case method is tremendous because you learn best that which you teach yourself.

3. Asking—not telling—better approximates the real world. Every case study is an exercise in confronting the ambiguity of life. Data are abundant, but often conflicting or inconsistent. Distractions are plenty. The stated problem may not be the real problem. And so on. Across hundreds of case studies, one develops a method for getting to the heart of the matter. This is excellent preparation for professional life.

4. Asking—not telling—models for others some attributes of leadership. You can train people to be order-takers by relentlessly telling them what to think and how to think. Alternatively, you can train people to lead from where they are by asking them to identify problems, frame a vision and strategy for dealing with those problems, enlist others, and develop a bias for action. Case teaching empowers the learners, and indeed, delegates responsibility to them. Elsewhere, I have argued that you can actually manage a company the way we teach by the case method—by asking, not telling. No manager is all-knowing. Senior leaders need employees up and down the organization to figure things out for themselves, to lead from where they are. Asking questions—not telling—helps to train others to take action.

What does asking, not telling, imply about exams?

The faculty should develop exams with a view to exercising the strengths of case learning. A great exam: is a case study; has a protagonist (a decision-maker) who faces a dilemma and has something at stake in the outcome; raises some urgency to the dilemma so that the decision-maker cannot just kick the can down the road (i.e. by hiring a consultant to figure things out); should require action and recommendations; should offer information sufficient for the student to display mastery in terms of knowledge, skills, and wisdom; should be constructively ambiguous and have no single “right” answer (but lots of wrong ones); should be do-able in the allotted exam time; and should be gradable in reasonable time.  Finding a case that meets all of these criteria is a tall order.  Mother never said it would be easy.

To students, I would say that if your instructor follows my advice, the best preparation is as follows:

1. Find a place free of distractions to think and write. If the case is loaded with constructive ambiguity, some of the most important decisions you will make during the exam entail where not to go. The ambiguities in the case may be tantalizing and distracting. You don’t need more distractions from outside the case. If you are a variety-seeker or one whose mind is prone to wander, get rid of everything in your environment that invites you to wander.

2. Get in the “zone.” Ideally, you would find a sense of flow or total engagement with the case. A little anxiety or sense of pressure is OK if not good, but too much will get you out of the zone. Just remember that your teacher is likely to give you a challenge that you have seen before. If you’ve kept up with your case preparation through the course, you should be able to recognize the core problem in the case and envision a way through it. The “zone” is a place where you feel that you’ve been before and have some confidence and even enjoyment in working through the case. A good night’s sleep helps to get in the zone, as does some sensible nutrition.

3. Address the question or problem in the case. Many case teachers will give you explicit exam questions to address. Answer them. The commonest distraction of an exam-taker is to get too wrapped-up in the elegance of some calculation and to ignore its implications. Based on your analysis, what does the protagonist need to know or do? Make a recommendation! To do so is to show that you can move from book-learning to “useful knowledge” (as Thomas Jefferson put it) and from analysis to wisdom.

4. Write about what leaves you uneasy. Perhaps the case invited you to make some heroic assumptions that seem unrealistic. This should raise red flags for you. And indeed, it may be the real problem in the case. Your ability to discuss uncertainties and risk will demonstrate a more sophisticated view of the dilemma. The ability to think critically about facts, analysis, and one’s own recommendations really separates the top performers from the rest.

5. Balance your allocation of time between analysis and writing. Setting a target or timer, helps to prevent becoming so enamored of your analysis that you forget to write about it.

6. If you run out of time, let the reader know where you would go next in your analysis and discussion. This “road map” dispels any impression that you’re just floundering and builds confidence in the teacher’s mind that you know what you are doing. And don’t get frantic if you’re running out of time. You aren’t alone; a number of your classmates will run out of time too. Stay calm and in the zone.

7. Work independently. Absolutely abide by the rules and honor code. The spirit of an exam is to demonstrate that you can “figure things out for yourself.” Respect the spirit and letter.

8. And keep some perspective: it’s just an exam, not a judgment about your life. Jack Ma, the founder and Executive Chairman of Alibaba Group wrote, “I flunked my exam for university two times before I was accepted by what was considered my city’s worst university, Hangzhou Teachers University. I was studying to be a high school English teacher. In my university, I was elected student chairman and later became chairman of the city’s Students Federation.” Jack Ma failed a couple of exams but arguably succeeded in his career.

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In the absence of “right” answers

“It’s an umpire’s convention. Three umpires are standing aside, conversing. The first umpire, the most junior, says, “Baseball, nuthin’ but balls and strikes. I calls ‘em as I sees ‘em.” After a pause, the umpire with somewhat more experience, says, “Baseball, nuthin’ but balls and strikes. I calls ‘em as they are.” Finally, the senior umpire says, “Baseball, nuthin’ but balls and strikes. They ain’t nuthin’ till I calls ‘em.”“  [1]

This is a seemingly stupid disagreement over terminology, yet like much of baseball, it contains subtleties over which one can hear even philosophers argue. The fact is that reasonable people can disagree. The story illustrates the imponderable interactions of perception, definition, and choice. Different umpires will see the same pitch differently. And a study just out says that umpires call a pitch incorrectly about 10% of the time. Thanks to video cameras and digital recording, we now know that umpires aren’t infallible—after 169 years of baseball, this can’t be a surprise. And thanks to rather vivid photographs, we see how angry players can be with the judgments of the umpires.

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So too for general managers and leaders in all enterprises. On the most important kinds of questions, there are no answers in the back of the book that affirm what one should do. And the odds are nontrivial that you’ll be wrong in your judgment. What should the leader do about this? More immediately, what should the b-school professor or the MBA student who faces mid-term exams take from this?

The first lesson should regard how to look at managerial dilemmas.  One ought to wisdom and exercise students’ ability to act in a bewildering world. The real world is messy. Information is incomplete, arrives late, or is reported with error. The motivations of counterparties are ambiguous. Resources often fall short. Concepts that B-schools teach have immense practicality for sorting out the issues facing managers, assessing alternatives, weighing ethical dilemmas, recognizing moral hazards, and illuminating the effects of any particular choice. As one of the iconic professors in operations research, Russell Ackoff, once wrote, “Managers are not confronted with problems that are independent of each other, but with dynamic situations that consist of complex systems of changing problems that interact with each other. I call such situations messes …Managers do not solve problems: they manage messes.”  [2]

Messes present very murky decision problems. Over many years, students have learned that there are very few single ‘right’ answers in business—but there are lots and lots of wrong ones. The job as a student is to learn to parse the two. At least the following three questions can get you to the root of most dilemmas and start you down a good path:

1. What’s your purpose? The old saying is, “if you don’t know where you’re going, any road will take you there.” The absence of single ‘right’ answers does not mean that anything goes. Begin with clarity about your mission, vision, and values. Stick to those, and you are probably halfway through the dilemma. This addresses the second umpire’s statement “I calls ‘em as they are”—this is all about definition of standards. What is important to you and your enterprise?

2. What’s your context? You might not have all the information about your situation that you’d like to have, but do you have what you need? If the decision is important enough, do not be shy about pestering people to give you more clarity about your setting. SWOT analysis (strengths, weaknesses, opportunities, threats) is one time-worn way to flesh out what you know. This kind of work might also reveal that the dilemma as presented is incomplete: rather than two alternatives, there may be many. One source of error in judgment is to make yes/no decisions when in reality you have a host of possible either/or choices. Clarity about your context addresses the issue of perception, the first umpire’s statement—if you “calls ‘em as you sees ‘em,” you want to make sure that you’re seeing properly.

3. What do your answers to the first two questions imply for your strategy? Most managerial dilemmas are tactical in nature. As tempting as it may be, it’s always dangerous to let tactical decisions define your strategy. You must have in mind a general path forward, even at the risk of closing some doors (or opening others). To choose a strategy is to be the third umpire: “They ain’t nuthin’ till I calls ‘em.”

With the passing of years, one accumulates instincts for parsing out the wrong answers from the rest—such instincts can be costly to acquire. Walter Wriston used to say that “Good judgment comes from experience; experience comes from bad judgment.”

The poet, Carl Sandburg, was a baseball fanatic. He wrote, “The inexplicable is all around us. So is the incomprehensible. So is the unintelligible. Interviewing Babe Ruth in 1928, I put it to him “People come and ask what’s your system for hitting home runs—that so?” “Yes,” said the Babe, “and all I can tell ‘em is I pick a good one and sock it. I get back to the dugout and they ask me what it was I hit and I tell `em I don’t know except it looked good.”” [3] — Carl Sandburg marveled at Babe Ruth’s inexplicable, incomprehensible, and unintelligible instincts, he skipped any mention of Ruth’s years of practice and climb to fame.

Where B-schools can make a difference in the development of leaders is by accelerating the acquisition of those instincts. In the case method of learning, each case is a rehearsal for some dilemma to come. B-schools help the future Babe Ruths of business make the incomprehensible comprehensible, and thus sharpen their wisdom for good decisions.

  1. Michael Levin, “Cultural Truth and Ethnographic Consequences,” Culture, 1991, vol 11, page 94. []
  2. Russell Ackoff, “The Future of Operational Research is Past,” Journal of Operational Research Society, 30, 1 (Pergamon Press, Ltd., 1979): 93-104. []
  3. Carl Sandburg, “Notes for Preface,” in Harvest Poems (New York: Harcourt Brace Jovanovich, 1960), p.11. []
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Advice to an entering student

Some years ago, I happened upon Letters from a Self-Made Merchant to His Son, by George Horace Lorimer—I recommend the book. Lorimer was an editor of the Saturday Evening Post, and penned a column for his readers over the 1890s that was eventually gathered into this book, and published in 1902. The letters were written by a fictitious “John Graham,” who was a captain of industry, had built a large meatpacking company in Chicago, and had learned what he knew from the school of hard knocks. His son, Pierrepont, had apparently enjoyed a more fortunate upbringing than had the father. The Letters entail advice, often witty and always wise. Read in the present day, the colloquialism and rough grammar, and the references to meatpacking and business conditions of the 1890s seem quaint. And were some editor to write such advice today, the references would be to sons and daughters, men and women. Still, Lorimer’s insights resonate.

This is the advice season. What does one urge upon students who are entering colleges and universities this year? Lorimer’s book affords a practical perspective. The first chapter is a letter addressed to Pierrepont, who has just enrolled as a member of the freshman class at Harvard; his mother has just left after bringing him there. I append the letter here:

Chicago, October 1, 189-

Dear Pierrepont: Your Ma got back safe this morning and she wants me to be sure to tell you not to over-study, and I want to tell you to be sure not to under-study. What we’re really sending you to Harvard for is to get a little of the education that’s so good and plenty there. When it’s passed around you don’t want to be bashful, but reach right out and take a big helping every time, for I want you to get your share. You’ll find that education is about the only thing lying around loose in this world, and that it’s about the only thing a fellow can have as much of as he’s willing to haul away. Everything else is screwed down tight and the screwdriver lost.

I didn’t have your advantages when I was a boy, and you can’t have mine. Some men learn the value of money by not having any and starting out by prying a few dollars loose from the odd millions that are lying around; and some learn it by having fifty thousand or so left to them and starting out to spend it as if it were fifty thousand a year. Some men learn the value of truth by having to do business with liars; and some by going to Sunday School. Some men learn the cussedness of whiskey by having a drunken father, and some by having a good mother. Some men get an education from other men and newspapers and public libraries, and some get it from professors and parchments—it doesn’t make any special difference how you get a half-nelson on the right thing, just so you get it and freeze on to it. The package doesn’t count after the eye’s been attracted by it, and in the end it finds its way to the ash heap. It’s the quality of the goods inside which tells, when they once get into the kitchen and up to the cook.

You can cure a ham in dry salt and you can cure it in sweet pickle, and when you’re through you’ve got pretty good eating either way, provided you start in with a sound ham. If you didn’t, it doesn’t make any special difference how you cured it—the ham-tryer’s going to strike the sour spot around the bone. And it doesn’t make any difference how much sugar and fancy pickle you soak into a fellow, he’s no good unless he’s sound and sweet at the core.

The first thing that any education ought to give a man is character, and the second thing is education. That is where I’m a little skittish about this college business. I’m not starting in to preach to you, because I know a young fellow with the right sort of stuff in him preaches to himself harder than anyone else can, and that he’s mighty often switched off the right path by having it pointed out to him in the wrong way.

I remember when I was a boy, and I wasn’t a very bad boy, as boys go, old Doc Hoover got a notion in his head that I ought to join the church, and he scared me out of it for five years by asking me right out loud in Sunday School if I didn’t want to be saved, and then laying for me after the service and praying with me. Of course I wanted to be saved, but I didn’t want to be saved quite so publicly.

When a boy’s had a good mother he’s got a good conscience, and when he’s got a good conscience he don’t need to have right and wrong labeled for him. Now that your Ma’s left and the apron strings are cut, you’re naturally running up against a new sensation every minute, but if you’ll simply use a little conscience as a tryer, and probe into a thing which looks sweet and sound on the skin, to see if you can’t fetch up a sour smell from around the bone, you’ll be all right.

I’m anxious that you should be a good scholar, but I’m more anxious that you should be a good clean man. And if you graduate with a sound conscience, I shan’t care so much if there are a few holes in your Latin. There are two parts of a college education—the part that you get in the schoolroom from the professors, and the part that you get outside of it from the boys. That’s the really important part. For the first can only make you a scholar, while the second can make you a man.

Education’s a good deal like eating—a fellow can’t always tell which particular thing did him good, but he can usually tell which one did him harm. After a square meal of roast beef and vegetables, and mince pie and watermelon, you can’t just say which ingredient is going into muscle, but you don’t have to be very bright to figure out which one started the demand for painkiller in your insides, or to guess, next morning, which one made you believe in a personal devil the night before. And so, while a fellow can’t figure out to an ounce whether it’s Latin or algebra or history or what among the solids that is building him up in this place or that, he can go right along feeling them in and betting that they’re not the things that turn his tongue fuzzy. It’s down among the sweets, among his amusements and recreations, that he’s going to find his stomach-ache, and it’s there that he wants to go slow and pick and choose.

It’s not the first half, but the second half of a college education which merchants mean when they ask if a college education pays. It’s the Willie and the Bertie boys; the chocolate éclair and the tutti-frutti boys; the la-de-dah and the baa-baa-billy-goat boys; the high cock-a-lo-rum and the cock-a-doodle-do boys; the Bah Jove!, hair-parted-in-the-middle, charoot-smoking, Champagne-Charlie, up-all-night-and-in-all-day boys that make ‘em doubt the cash value of the college output, and overlook the roast-beef and blood-gravy boys, the shirt-sleeves and high-water-pants boys, who take their college education and make some fellow’s business hum with it.

Does a College Education pay? Does it pay to feed in pork trimmings at five cents a pound at the hopper and draw out nice, cunning, little “country” sausages at twenty cents a pound at the other end? Does it pay to take a steer that’s been running loose on the range and living on cactus and petrified wood till he’s just a bundle of barb-wire and sole-leather, and feed him corn till he’s just a solid hunk of porterhouse steak and oleo oil?

You bet it pays. Anything that trains a boy to think and to think quick pays; anything that teaches a boy to get the answer before the other fellow gets through biting the pencil pays.

College doesn’t make fools; it develops them. It doesn’t make bright men; it develops them. A fool will turn out a fool, whether he goes to college or not, though he’ll probably turn out a different sort of a fool. And a good, strong boy will turn out a bright, strong man whether he’s worn smooth in the grab-what-you-want-and-eat-standing-with-one-eye-skinned-for-the-dog school of the streets and stores, or polished up and slicked down in the give-your-order-to-the-waiter-and-get-a-sixteen-course-dinner school of the professors. But while the lack of a college education can’t keep No. 1 down, having it boosts No. 2 up.

It’s simply the difference between jump in, rough-and-tumble, kick-with-the-heels-and-butt-with-the-head fighting, and this grin-and-loo-pleasant, dodge-and-save-your-wind-till-you-see-a-chance-to-land-on-the-solar-plexus style of the trained athlete. Both styles win fights, but the fellow with a little science is the better man, providing he’s kept his muscle hard. If he hasn’t, he’s in a bad way, for his fancy sparring is just going to aggravate the other fellow so that he’ll eat him up.

Of course, some men are like pigs, the more you educate them, the more amusing little cusses they become, and the funnier capers they cut when they show off their tricks. Naturally, the place to send a boy of that breed is to the circus, not to college.

Speaking of educated pigs, naturally calls to mind the case of old man Whitaker and his son, Stanley. I used to know the old man mighty well ten years ago. He was one of those men whom business narrows, instead of broadens. Didn’t get any special fun out of his work, but kept right along at it because he didn’t know anything else. Told me he’d had to root for a living all his life and that he proposed to have Stan’s brought to him in a pail. Sent him to private schools and dancing schools and colleges and universities, and then shipping him to Oxford to soak in a little “atmosphere,” as he put it. I never could quite lay hold of that atmosphere dodge by the tail, but so far as I could make out, the idea was that there was something in the air of the Oxford ham house that gave a fellow an extra fancy smoke.

Well, about the time Stan was through, the undertaker called by for the old man, and when his assets were boiled down and the water drawn off, there wasn’t enough left to furnish Stan with a really nourishing meal. I had a talk with Stan about what he was going to do, but some ways he didn’t strike me as having the making of a good private of industry, let alone a captain, so I started in to get him a job that would suit his talents. Got him in a bank, but while he knew more about the history of banking than the president, and more about political economy than the board of directors, he couldn’t learn the difference between a fiver that the Government turned out and one that was run off on a hand press in a Halsted Street basement. Got him a job on a paper, but while he knew six different languages and all the facts about the Arctic regions, and the history of dancing from the days of Old Adam down to those of Old Nick, he couldn’t write up a satisfactory account of the Ice Men’s Ball. Could prove that two and two made four by trigonometry and geometry, but couldn’t learn to keep books; was thick as thieves with all the high-toned poets, but couldn’t write a good, snappy, merchantable street-car ad; knew a thousand diseases that would take a man off before he could blink, but couldn’t sell a thousand-dollar insurance policy; knew the lives of our Presidents as well as if he’s been raised with them, but couldn’t place a set of the Library of the Fathers of the Republic, though they were offered on little easy payments that made them come as easy as borrowing them from a friend. Finally I hit on what seemed to be just the right thing. I figured out that any fellow who had such a heavy stock of information on hand, ought to be able to job it out to good advantage, and so I got him a place teaching. But it seemed that he’d learned so much about the best way of teaching boys, that he told his principal right on the jump that he was doing it all wrong, and that made him sore; and he knew so much about the dead languages, which was what he was hired to teach, that he forgot he was handling live boys, and as he couldn’t tell it all to them in the regular time, he kept them after hours, and that made them sore and put Stan out of a job again. The last I heard of him he was writing articles on Why Young Men Fail, and making a success of it, because failing was the one subject on which he was practical.

I simply mention Stan in passing as an example of the fact that it isn’t so much knowing a whole lot, as knowing a little and how to use it that counts.

Your affectionate father,

John Graham

Union Stockyards, Chicago

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The “right kind of ignorance”: advice to the returning 2nd year MBA student

If ignorance is bliss, Father said,

Shouldn’t you be looking blissful?

You should check to see if you have

the right kind of ignorance. If you’re

not getting the benefits that most people

get from acting stupid, then you should

go back to what you always were—

being too smart for your own good.

– “The Benefits of Ignorance,” Hal Sirowitz

For students, the summer is practically over. Schools throughout the northern hemisphere are gearing up for the fall term. First-year MBA students are moving in, settling down, finding their way around, and getting ready for a transformational experience. Second-year MBA students have a rather different perspective—every summer I’ve written to them with advice about getting the most out of their summer jobs (see, for instance, this and this). This year, I want to offer advice about one’s learning perspective, which is no less relevant to gaining ultimate employment.

The job market for Darden’s MBA students is hot. The final numbers on the Class of 2015 are just coming in, so I’ll decline to get specific, but the mounting evidence is that students in that class gained virtually full employment. Kudos to them: the results aren’t due only to hot demand, but also to the quality of supply.

No doubt, the hot job market is not lost on rising second-year MBA students. It’s great to be a seller in a seller’s market. I wish the Class of 2016 results similar to 2015. And I would caution students that what burns hot in the first year can turn cold suddenly, as students in the classes of 2009 and 2000 found. Yet I resist dampening your outlook.

This year, my advice to rising second-years has less to do with getting the max out of your summer jobs and more to do with the mindset with which you engage your remaining time at Darden. This is motivated in part by today’s buoyant job market, and more generally by students’ self-confidence engendered by a successful first year and summer experience. You know the system; you passed the fearsome exams; you already toiled through maybe 300 case studies; you partied hard; you got a good summer job; and in most cases you got a full-time offer. In short, you not only survived, you prospered. Been there, done that.

Many years ago, a rising second-year student asked me, “Why should I come back?” He argued that the first year taught him the basics of business—the second year is just commentary, elaboration, and job-hunting. He said that the second year was “just doing time.” I responded that whereas the first year was about imparting insights that he knew he didn’t know, the second year was about deeper insights: “You still don’t know what you don’t know,” I said; “There is much more to learn.” Whereas the first year was totally structured around a common core of knowledge, the second year would be tailored—by him—to deepen capabilities that matter to him. By May of the second year, students rave to me about their experiences that year.

What that story suggests is the universal challenge for students: disbelief that what is to be taught is worth learning. But efforts by teachers to motivate students go only so far. The student must bring to the party at least a willingness (if not a zeal) to learn—call it a learning mindset. Such a mindset is a rare commodity. It begins with suspending disbelief.

In her very valuable book, Mindset, Stanford psychologist Carol Dweck argues that the fulfillment of one’s potential depends on adopting a “growth mindset.” She says that, a growth mindset is a belief that intelligence can be developed. This “leads to a desire to learn and therefore a tendency to embrace challenges, persist in the face of setbacks, see effort as the path to mastery, learn from criticism, and find lessons and inspiration in the success of others. As a result, they reach ever higher levels of achievement.” The alternative is a “fixed mindset” that sees intelligence as static. This “leads to a desire to look smart and therefore a tendency to avoid challenges, get defensive or give up easily, see effort as fruitless or worse, ignore useful negative feedback, and feel threatened by the success of others. As a result, they may plateau early and achieve less than their full potential.” [1] Dweck marshals an impressive volume of research in support of the framework. And the framework appeals intuitively; one easily recalls people who displayed one or the other mindset.

The value of learning and a growth mindset has been affirmed by colleagues at Darden. Jeanne Liedtka co-authored The Catalyst, a study of “growth leaders,” people who led businesses through an astonishing trajectory of advancement over a long period. She concluded that they stand apart from others in terms of their appetite to: learn, embrace challenges, persist, gain criticism, and draw from the examples of others. And another book, The Physics of Business Growth: Mindsets, System, and Processes, by Ed Hess and Jeanne Liedtka, extends the importance of organizational mindsets as a foundation for enabling growth. In short, a learning mindset is very important to high performance in business.

The poem by Hal Sirowitz is cheeky. It is easy to imagine it as the conclusion of a conversation between a wise-guy father and an uppity teenager. But the poem raises a tantalizing question for 2nd year MBA students: what is “the right kind of ignorance”? Surely, it is to acknowledge that one always has more to learn. We don’t know what we don’t know and therefore should bring to the effort a good measure of humility. Otherwise, it is too easy to be “too smart for your own good” and to be stuck in a fixed mindset. And just as surely, it is to acknowledge that some of what we know may need changing.  The American humorist, Josh Billings, once said that ignorance is not what one does not know, but rather is what one knows with certainty but isn’t true.  Think of alchemy, astrology, racism and sexism—world history is littered with ideas that good people once embraced as good thinking.  The right kind of ignorance is an acceptance of your own limitations in figuring everything out.

I wish the Class of 2016 great success as learners. Pursue this year with a passion. Cultivate your learning mindset in the year ahead. Graduation will be here before you know it.

  1. Both quotations from Dweck, page 245. []
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What’s next after work?

“We must all either wear out or rust out, every one of us. My choice is to wear out.” — Theodore Roosevelt

Teddy Roosevelt (TR) was an energetic—some would say, manic—leader. As Police Commissioner, he fought to rid New York City of corruption. He led the Rough Riders in the charge up San Juan Hill. He was the first activist President in U.S. history and enlarged the presidency beyond the concept of the founders of the Republic: he busted trusts, built the Panama Canal, negotiated the end of the Russo-Japanese war (for which he won the Nobel Peace Prize), and championed the progressive movement in American politics. He drew energy from the political process: on each New Year’s Day, he opened the White House to thousands of visitors and personally greeted each one at the door with a handshake and a hearty “Dee-lighted!” He served two terms as President. After failing in his campaign for a third term in 1912, he embarked on an exploration of the River of Doubt in South America—a trip that nearly killed him. [1] Yet he recovered and went on for seven more years as a writer of articles, books (some 18 of them), and as advocate of the “strenuous life.” Thus it is no surprise that TR would “choose to wear out” in the final chapter of his life.

TR’s example raises the question, what does one do after a career of work? This is relevant here in Charlottesville: last spring, the University of Virginia announced an early-retirement program that has enticed wonderful staff colleagues (such as Kitty Smiley, Barbara Richards, and Lee Pierce) to retire. (To give you a sense of the wonderful citizenship such colleagues gave, see this Forbes blog post by Darden colleague Kim Whitler.) Sooner or later, most people feel ready for a change, love of friends and community notwithstanding. They grow out of a job or the job grows out of them. You have to listen to the voice that tells you that it’s time to move along. The first thing one must do after a career of work is to simply move along.

To move along is to let go of the past, to embrace the present, and to look forward. This doesn’t mean giving up your values or love for family, friends, or work community. But moving along does mean opening up new possibilities. A challenge faced by many professionals upon retirement is the utter loss of identity associated with the work they were doing (see this). Failure to replace the old identity with something new contributes to depression, illness, and decline. Thus, A.G. Lafley, the former and current CEO of Procter and Gamble, has said that when a CEO leaves, he or she should “move out, move away, and move on.” [2]

Another thing one does after a career of work is to sustain what is important. Former U.S. Presidents offer good examples: Carter, Clinton, and Bush (43) have become advocates for social causes. The book, Finishing Well, by Bob Buford reports numerous interviews of successful executives that reaffirm the importance of priorities and values in the final chapters of one’s life. [3]

Last weekend, Garrison Keillor’s Prairie Home Companion, came to town for a performance. Keillor, 72, has announced his retirement as of next July and is doing an enormous farewell tour. He was on stage for three hours, and as far as one could tell, used no notes, scripts, or sheet music—his genius of warmth, wit, and criticism is authentic and spontaneous. He qualifies as a modern-day Mark Twain. After the show, several members of the audience commented on a feeling of sadness, that we would lose such a creative spirit. Yet it seems unlikely that a writer whose lifetime was devoted to communication will suddenly go silent. He may give up the grind of a weekly show, but we are likely to hear more from him. One sustains what is important.

Third, one continues to invest in learning. Stasis, intellectually, is associated with decline. The universe of knowledge continues to expand. Grow with it. I’ll have more to say about this in my next post.

Fourth, one stops calling it “retirement,” a word that suggests leisure. Most retirees tell me that they are busier now than they were when working full time. Given the devastation of the Global Financial Crisis and Great Recession, many “retirees” must continue to work part-time to supplement their savings (see this). Others are called upon for advice and counsel, drawing on their years of experience. Leonard Sandridge, former EVP and Chief Operating Officer of UVA, contributes a great deal of his time on a pro bono basis to various organizations. Leisure does not describe most of the retirees I know, at least those in good health.

A case in point about what to call it is my own transition from the Dean’s Office at Darden. This is the result of a long-planned process (see this). All spring, students kindly wished me well upon my “retirement.” I explained that I wasn’t really quitting work and that I would return to the faculty to teach and write. So a student corrected himself and said I was “recycling.” But another student said, “That’s gross! You make the Dean seem like a used can or plastic bottle. Let’s just say he’s being repurposed.” A third student said, “He’s being reinvented.” A fourth: “renewed.” A fifth, “No. Reimagined.” The farther this went, the more that the students’ words lifted my outlook: more active, purposeful, newer, and creative. Words matter. The core issue about life after work is that whatever follows “re-“ entails some kind of vision about what is next. What’s your vision?

Friends who have expressed fears about life after work either have no vision about what is next or don’t like the vision they do have: leisure, boredom, slow physical decline, etc. That’s where Teddy Roosevelt’s saying becomes relevant: TR’s key words are, “my choice.” You have considerable choice in the matter of life after work. Though issues such as health and investment returns loom larger, a decision to remain active, to sustain what is important, and to move along are qualities that distinguish people who successfully create a new life after work.

  1. I highly recommend Candice Millard’s book on this journey, The River of Doubt: Theodore Roosevelt’s Darkest Journey. []
  2. This is advice that he did not exactly follow. He offered these words upon his first retirement as Chairman and CEO of P&G in 2010. Then the board re-hired him as CEO in 2013 to turn the company around. He will transition to Executive Chairman of P&G in November. []
  3. Many thanks to Scott Beardsley for recommending this book. []
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Darden Commencement Speech: “The hat you wear”

[Context: This is a farewell of sorts, since I’m stepping down as Dean of Darden this summer, and returning to the faculty. I started this speech wearing the traditional mortarboard hat. When I got to the part of talking about the baseball cap, I ad-libbed, saying, “Someone said, you can’t wear that hat at a UVA graduation.” I replied, “Well, yes I can: I’m the Dean.” As the speech progressed, I put on one hat or the other, to underline the properties of each.]

Part of my job this afternoon is to set a tone for the proceedings—and ideally for your lives going forward. They call this a “commencement” after all. It is a beginning of your career after Darden.

In American slang, we talk about wearing hats as a metaphor for shouldering responsibilities or expressing a point of view. We might say, “wearing my hat as a parent,” or “wearing my hat as a soccer coach,” or “wearing my hat as the CFO,” as a lead-in to an opinion or analytic insight. Typically, one uses this metaphor to validate the authority or expertise for the statement to follow. Today is a good day to reflect on the hats or points of view you acquired at Darden.

I processed into this ceremony wearing the traditional mortarboard. This particular hat was given to me by my mother, Marjorie Williamson Bruner. She wore it at her graduation as a newly-minted Ph.D. in comparative literature from the University of Chicago in 1933. And she wore it over several decades of graduations as a professor of English. She was a woman of great depth and considerable gumption: in addition to English, she could read several languages. She could play two musical instruments. She earned a Ph.D. in a day when professional work was not something that women did. She taught thousands of students how to write and speak better. She was married to my father for 51 years; she bore and raised five sons, all of whom went on to do their best work. And she still found time to serve on the local public school board for the better part of two decades. So when I wear this hat, I feel embraced by the spirit of a scholar who was in the world. It is this theme that I wish to underscore in my final send-off for Darden graduates, the theme of the scholar in the world.

This is a hat styled after the headgear of medieval scholars. It is thoroughly impractical and never worn outside of occasions such as this. It is ornate, formal, and traditional. It stands for schooling, visions, concepts, theories, ideas, curiosity, and critical thinking. It links us back to the Renaissance, when the Western world awoke from 1000 years of poverty superstition, anarchy, and barbarism. Wearing this hat is one way of reminding ourselves that, as John Dewey said, the barbarian is just a generation away and that education is the first bulwark against the barbarian. Universities and scholarship played a crucial role in the rebirth of civilization through critical thinking, debate, evidence-based research, and publication of ideas. From that standpoint, putting on this hat periodically is very satisfying.

But I’ll understand if you choose not to wear this hat to work. For there is an alternative that represents some compelling values. The American baseball cap fits better, shades the eyes better, and suits the current sensibility. It is ubiquitous in the United States, and indeed, around the world. It stands for practicality, simplicity, informality, comfort, and above all, action. As Thomas Edison said, “Vision without execution is hallucination.” The baseball cap is about execution.

Most of you probably own a baseball cap. And most of you will probably leave behind your mortarboard as you leave Darden today. Keeping one hat and leaving the other is a troubling metaphor to me. Will you keep the action-taking and leave the discipline of ideas and critical thinking?

Let that not be so. Take both hats with you, at least in spirit: a hat of thinking, and a hat of doing. Never leave either one behind. The managerial world is full of action that is thoughtless: the “Ready, Fire, Aim” kind of action-for-its-own-sake. Remember the mortarboard as a symbol of the need to think before you speak and act.

The mortarboard is a reminder to you that:

  • You will do better asking questions than answering them. Indeed, you can actually manage a company the way my colleagues lead case discussions, by asking questions.
  • You will do better by learning rather than knowing.
  • You will do better making meaning rather than simply taking the meanings provided by others.
  • You will do better by challenging assumptions rather than passively accepting them.
  • You will do better reading intentionally rather than surfing aimlessly.

You cannot be a person of effective action without also being an athlete of the mind. Train yourself relentlessly. UVA’s founder, Thomas Jefferson, was an exemplar of this.

The baseball cap is a reminder to you that:

  • The world needs your recommendations for action-taking.
  • The world needs you to run toward, not away from, society’s problems.
  • The world needs your robust moral voice—robust is the operative word.
  • The world needs you to lead.

You need both hats to survive and prosper in the world you face. Together, these hats make a great partnership. They will shield you from all kinds of business weather and will comfort you in the face of adversities. Hang on to both hats!

Good luck to you this day and forever more!

Thank you.

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Commencement speech, UVA 2015 “Go where you believe you can do your best work”

[Some context: I gave the commencement address at University of Virginia on May 17, 2015. UVA’s commencement stretches over three days, with a Valedictory address (given by comedian Ed Helms), a commencement address for graduates of the College of Arts and Sciences (given by Governor Terry McAuliffe), and a commencement address for all other graduates (given by me).  The video recording of this speech may be viewed at https://www.youtube.com/watch?v=Bd2qWp_B7MA.

I have blogged or spoken before on the general topic of going where you can do your best work (for instance, see this)—that subject is fertile ground for graduating students.  In this talk, I develop further the idea of “best work.”   I drew inspiration for this speech from various sources, which time and space would not allow me to express right in the speech, and therefore offer some annotations in the text that follows.] 

Rector Martin, President Sullivan, Visitors, distinguished guests, members of the faculty and staff, and the Class of 2015: [1]

I am grateful to the Graduation Committee for this opportunity to speak to you. And I understand that I’m the first faculty member to speak at Commencement in many years. It is tough to follow an entertainment celebrity and the Governor of Virginia both of whom have given remarks on this stage in the last 48 hours. I agree with them about the lamentable events visited upon UVA this year. I agree that higher education is critical to the future of this Commonwealth. What more can be said?

I feel like the late Elizabeth Taylor’s eighth husband. I mean, I know what needs to be done. The challenge is to make it interesting. [2]

So I will take up a new theme and invite you to picture this: a young girl falls down a rabbit hole and embarks on a fantastical journey. She doesn’t seem to feel lost, but she is looking for directions. Lewis Carroll’s Alice in Wonderland describes the point at which Alice encounters the Cheshire Cat. Alice says:

“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where–” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“–so long as I get SOMEWHERE,” Alice added as an explanation.
“Oh, you’re sure to do that,” said the Cat, “if you only walk long enough.”

From this exchange comes the adage, “If you don’t know where you are going, any road will take you there.” [3] Today is a good day to reflect on these themes of limitless possibilities, of seeking direction, of taking roads, and trying to get somewhere.

Around this time of year, friends and loved ones ask students, “Where are you going?” “What’s next?” “What do you intend to make of yourself?” You’ve probably received all sorts of advice, much of it unsolicited and pointing in different directions: fame, fortune, fun, and so on. The big question is, where should you go with your life?

My advice is this: You should go where you believe that you can you do your best work. One could deconstruct that sentence in fine detail; but today, focus on just two words, best work. These are radical in orienting you to a high standard. And they imply the existence of a compass — one you can turn to in every wonderland you stumble into. Its “true north” is something called “best work.” Your time at UVA has given you the outlines of the compass and true north. Your challenge in the days to come is to fill in the details.

The word, “best,” directs you to think about what you really value, how you define success. Here’s where the lures of fame, fortune, and fun usually crop up—these are the conventional view of success. But there is a different way to think about your work: what is “best” is necessarily service to a calling. Many of you graduating today have a job lined up; and others don’t. But all of you do have a calling, which is to live a life that is worth living. [4] To “get a life” is not about getting a job; it is about getting a calling. This is hard work: it takes courage, wisdom, strength and grace. Making a living is hard enough. Making a calling is even harder—and more fulfilling. [5] It is gained by going where you can do your best work.

A calling is felt, not seen. One knows a calling imperfectly, as if viewed through a glass darkly. One’s best work is observable. A calling is a sense of intent. Best work is the instrument of that intent. Calling is mission; best work is implementation.

There are many in the world-wide UVA community who garnered all the trappings of conventional success, but did so as a consequence of their service to a calling. Some have jobs at the very top of their field where their service as leaders is prominent. Others served a calling in equally important, but less obvious, ways. Let me cite some examples.

Within the faculty and staff at UVA we have many who inspire us by the way they have lived out their calling: Kenneth Elzinga, Dennis Proffitt, Ed Freeman, Marva Barnett, John Colley, Amanda Mills, Pat Lampkin, and so many others that time would not allow me to tell. These exemplars found their best work to be in one field and at UVA for years.

Other sons and daughters of UVA traced their calling down unexpected paths:

· Will Shortz delights millions of readers each day as the crossword puzzle editor for the New York Times. One might not guess that he graduated from UVA’s School of Law in 1977.

· Carolyn Miles is the CEO of Save the Children. She is taking action to address the endemic deprivation faced by millions of children in poverty. One might not guess that after graduating from Darden, she started out in consumer marketing.

· Toby Cosgrove graduated from UVA’s Medical School in 1966 and was inspired by new concepts of health care delivery. He moved beyond his job as a surgeon to follow a calling into general management. Today he is the CEO of the Cleveland Clinic.

· Michael O’Neill majored in art history and served in the U.S. Marines. Then he followed a calling into the turnarounds of several large banks. He is taking action to save jobs and to restore confidence and stability in one of the largest financial institutions in the world as Chairman of the Board of Citigroup.

Among all such exemplars, I see several attributes:

“Best work” comes from within. If you’re waiting for a mentor or headhunter to tell you what to do, forget it. You must listen for the still, small voice of a calling.

“Best work” is persistent. It does not give up easily. It is a marathon, not a sprint. And when it hits an obstacle, it may drop back to pursue the calling from a different angle. Or it may morph over time. For instance, at some points in life one’s best work is to be a learner and follower. At other points your best work will be as a teacher, leader, or mentor.

“Best work” harnesses serendipity. It may dabble, experiment, and try stuff—all with a purpose. Creative writing and curiosity-driven research are kinds of purposive wandering. Therefore, “best work” may well not occur according to a well-defined plan or within the conventional boundaries of a discipline or career track.

“Best work” sparkles most in the details, such as the ending semiquaver of a soprano; the wrist action of a brain surgeon; the just-right word of the poet; or the moment a business leader takes to encourage an employee. [6]

“Best work” heeds no venue. It gets done both in the big-title corner offices, and at the entry level of an organization or among friends, family, and neighbors. It could entail serving a community, nurturing loved ones, or repairing some nagging interpersonal problem. A calling always begins with the question, “How can I serve others right here and now?”

“Best work” makes meaning. And meaning about what you do—no matter the uncertainties you face–gives courage to take sensible risks. Followers need leaders who give meaning. [7] Meaning creates resilience, with which to withstand setbacks and failures. And finding meaning in life’s big transitions supports one’s sense of growth.

“Best work” leaves the world a better place. It isn’t sufficient just to “do no harm.” Your best work will serve justice, mercy, integrity, joy, and other virtues that constitute a society in which we’d all like to live.

“Best work” is its own reward. It is not triumphal. If you frequently need applause or a gold medal to keep you going, you’re likely not at your calling. If your only goal is a pile of money, you will never achieve it. [8] Financial success is really a reward for other achievements such as invention, efficiency, strategic insight, or delighting someone. Service to a calling is about doing something well. [9] And it summons achievements that transcend any resume, achievements that build character and soul, around which your eulogy will be written. In the final analysis, “best work” may not feel like work at all.

The foundation of your future “best works” was forged here with bonds of friendship, with teaching and scholarship that stretched you, and with the acquisition of leadership skills that can never be written in code but are now in your DNA. Celebrate that. Smile. You came here to learn how to be a leader and you leave here with the obligation to lead in your life.

So the Cheshire Cat got it about right: each and every one of us is bound to wind up somewhere if we walk long enough. But just getting somewhere does not fulfill the faith placed in you by family, friends, this University, and even by the aspirations of our founder, Thomas Jefferson. You should go where you believe that you can do your best work. And the best work serves a calling. Everything else — money, fame, power, leisure — is ancillary; don’t waste your life chasing those. And hopefully thanks to UVA, you don’t have to — because you now have a compass. Follow it. Trust it. And, if like Alice, you stumble into a rabbit’s hole from time to time, there is no need for the Cheshire Cat. The direction is to be found in your calling.

Thank you for the privilege and trust you have given all of us to be your teachers. We now become your students. Teach us about the future, which we now bestow to you with all blessings.

Now, go do your best work.

Thank you.

  1. I am indebted for helpful comments from David Aufhauser, Bobbie Bruner, and Jonathan Bruner. []
  2. I wondered whether students would know who Elizabeth Taylor was (she died in 2011). The ensuing laughter suggests that this was no problem. I suspect that it is an old joke, and heard about it from Peter Gomes, who used it in a sermon in 2000. []
  3. Carroll never actually wrote this, though it is commonly attributed to him. And it has spawned derivatives, from Henry Kissinger (“If you don’t know where you are going, every road will get you nowhere”) to Yogi Berra (“If you don’t know where you are going, you will end up somewhere else”). []
  4. Peter Gomes made this point in a sermon. []
  5. This point is well-argued by Michael Novak in his book, Business as a Calling: Work and the Examined Life. []
  6. And as Mies van der Rohe once said, “God is in the details.” []
  7. This point is well-argued by Rudy Karsan and Kevin Kruse, in their book, We. []
  8. I suspect that this idea has many precedents.  For instance, John D. Rockefeller, the richest man of his day said something similar. []
  9. Writers as different as Benjamin Franklin, Thomas Edison, Martin Luther King, Aristotle, and Confucius have said as much. []
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Choosing an MBA School: the Principle of “Five Friends”

“You are the average of the five people you spend the most time with.” – Jim Rohn

Taken at face value, Rohn’s statement is preposterous. Who you are is a consequence not only of your current personal relationships, but also of chance (for instance, were you born into a wealthy family and/or prosperous country?), inherited capabilities (such as intelligence, athleticism, verbal or artistic skill), and life experience (such as war, illness, discrimination)—as well as people who influenced you in the past but are not with you today (such as grandparents, grade school teachers, youth coaches). Most importantly, are humans chameleons? As some of the great autobiographies (Gandhi, Mandela, Malcolm X) reveal, you can will to be different from those around you. Each of us has at least some say in the matter of who we are.

Yet Rohn’s maxim seems so relevant. It recognizes the great influence of one’s peers. Parents everywhere ask their children, “Who are your friends?” because parents know that friends can steer behavior. “No man is an island,” as John Donne wrote, we are all part of a larger fabric of relationships. Most importantly, if you can choose with whom you hang out, that choice can be a tell-tale of significant preferences and direction.

The idea of the “five friends” resonates with me, because at this time of year, business school applicants from around the world are choosing who will be their friends for the next couple of years. Some admitted applicants reach out to me for advice or with questions. To my regular surprise, few of them consider the impact of the prospective “five friends” with whom they will spend their time in business school. This is a serious oversight. Let me explain why and then offer some questions that the admitted applicant should ask.

You should care about the “friends” with whom you will spend your time in business school for several reasons:

· Learning. In graduate school, you learn more from the friends around you than from the faculty. After all, it is graduate school; it is tougher; the expectations for you to figure things out for yourself are higher. The faculty are there to facilitate, provoke, inspire, and evaluate. But students in graduate school do more of the heavy lifting of learning than in undergraduate school. In any of the professional graduate disciplines such as law, medicine, or business, you are not only learning about tools of the trade; you are also learning how to conduct yourself as a professional: you acquire expectations for high performance; you learn how to communicate effectively; you adopt an action-orientation; and you sharpen your ethical foundation. So much of this important learning is social. At Darden, we explicitly harness that fact in the way we teach and structure our programs: students are assigned to learning teams and sections within which cutting edge business concepts are explored in depth; nearly 45 student clubs yield extensive opportunities to exercise leadership.

· Network. An MBA program affords the opportunity for you to forge deep relationships with classmates, faculty and staff members, and even alumni of the school. This kind of social capital can prove to be crucially important in future years when you need insights, introductions, or advice in dealing with opportunities and challenges. At Darden, the purposely-small scale of our programs promotes deep bonding and learning. Our alumni respond actively to outreach by students. And our faculty often rank #1 because of their willingness to work closely with students. By the time a student graduates, he or she will have made an acquaintance with virtually everyone in the class, and with faculty and staff members.

· Brand. The behavior of your “five friends” in future years will polish or tarnish your own reputation. Though you may have nothing to do with the subsequent behavior of those people, the public perception can be powerful. You must be comfortable with the “five friends” you acquire today and with the prospect of whom they will become in the future. Our admission process at Darden goes beyond mere academic potential to consider indicators of character. We require students to sign on to UVA’s Honor Code as a condition of enrollment.

I want to emphasize that the wrong way to contemplate a choice of school based on the “five friends” principle is to pursue elitism. Nothing about elitism ensures personal growth. The right way to implement “five friends” is by finding a school in which your peers will stretch, challenge, coach, and bolster you. Through your peers, you should grow in confidence and competence.

So, what the “five friends” notion ultimately means is that the admitted applicant should give serious consideration to several questions that bear on learning, network, and brand. Answers to these questions can be gained from attendance at programs for admitted applicants, typically held by each school this spring.

1. Do you want to learn through engagement with other students? Though I have made the argument that you should want to learn from your peers, some people simply prefer the anonymity of the lecture hall or the online course—this carries the lost opportunity of engagement with others. If the answer to this first question is “no,” then stop here; the rest of the questions will be irrelevant to you. Darden’s MBA programs actively harness the collaborative learning among students.

2. How selective is the school? Most of the 15,000 institutions in the world that award degrees in business are “open enrollment” schools: if you can pay, you can be admitted. In 2013, only 55 schools in the world admitted less than a third of their applicants. In recent years, Darden has admitted about a quarter of its applicants.

3. On what attributes does the school select applicants? You should be able to see some dimensions that matter to you, because you will almost certainly be stretched in those ways. At Darden, we look to compose a class of students who bring diversity, intelligence, leadership, integrity, and business potential, among other attributes.

4. Do I get energy from the other admitted applicants? Do I like them? Can I learn from them? Some of the attributes of excellent teachers include positive motivation, an ability to connect at a personal level with the learner, and a perspective that broadens the learner—so it is with the best peers.

The “five friends” principle invites the applicant to consider the influence of future peers in selecting which school to attend. This influence is a vitally important contributor to the success of one’s learning experience in business school.

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