Felix Salmon

This is why Mark Zuckerberg was smart to stay in complete control of Facebook and not listen to anybody telling him that a multi-billion-dollar company needed a seasoned, professional CEO in charge.

Jack and Suzy Welch are onto something when they diagnose a potential class problem at Facebook, post-IPO.

After its IPO, Facebook is going to have two classes of citizens. That’s just reality. Some of its 3,000 or so employees — several hundred in number by some counts — will have significant riches in the hand. Newer hires, though — well, they’ll mostly have options in the bush.

Where they go hilariously wrong is in their proposed solution to the problem. There’s a carrot, which as far as I can tell involves Silicon Valley manager-geeks suddenly transforming themselves into motivational speakers. And then there’s a stick:

With all this exultant “barking,” there also needs be bite — in the form of frequent, rigorous performance reviews. The facts are, if Facebook wants urgency, speed and intensity around its mission, those behaviors must be explicit values that, when demonstrated, result in bonus money and upward mobility — or not.

Any company, in the wake of an IPO, finds itself growing new and previously-unnecessary layers of management, especially in areas like the general counsel’s office, investor relations, and public relations. But for the Welches, that’s not enough: extra management also has to be marbled throughout the organization, to be found everywhere as “frequent, rigorous performance reviews”.

There is absolutely zero evidence that frequent, rigorous performance reviews ever do any good, and quite a lot of reason to believe that they actually do harm. And what’s true of business professionals in general is especially true of Silicon Valley engineers — a culture where pretty much everybody knows exactly who’s hot and who’s not, without any need for formal, frequent, or rigorous performance reviews.

What’s more, it’s far from clear that the best way to motivate a Silicon Valley engineer is to dangle an annual bonus in front of his face and tell him that if he works hard he could get an extra couple of months’ salary at the end of the year. Rather, the best way to get the most out of engineers is to surround them with other great engineers, in a collegial atmosphere where everybody works hard and everybody does really well building great products that everybody is proud of.

Performance reviews are horrible, divisive things which create a whole other set of class distinctions within a company, between the “high performers” who get money and promotions and the grunts who live in fear that their review will be used to punish or fire them. (And of course if bonus-greed isn’t a great motivator of computer engineers, fear is even worse, especially in the context of Silicon Valley, where there are multiple jobs permanently being dangled in front of just about anybody who can code.)

Managing a company like Facebook is all about creating a magnetic culture — a place where employees love to work, and where they’ll tell their friends that they’re having a great time and that they should come join them. Meanwhile, there has never been a company in the history of capitalism where managers really love the performance-review process and tell all their friends that they would hugely enjoy going through it themselves on a frequent and rigorous basis.

In other words, the mere existence of such things would probably be enough to put off many talented potential employees with a wide choice of possible employers. At a company like GE, a CEO like Jack Welch tends not to worry about such things. But at Facebook, the ability to continue to attract Silicon Valley’s best coders is very high up Mark Zuckerberg’s list of priorities and concerns.

Which is reason number 1,452 that all of Facebook’s shareholders should be very happy indeed that the company is being run by Mark Zuckerberg and not by Jack Welch.

Just how corrupted was the culture of Rajat Gupta’s McKinsey? Suzanna Andrews reports:

McKinsey had a culture of superiority, says one longtime client, who declined to be identified, adding that consultants at the firm really seemed to think they were better than anyone else in the business world. This CEO is still shocked recalling an incident in the late 1980s, when a McKinsey team offered to provide him with a road map of what his competitors were doing. When asked how they could produce such information, he was told that McKinsey also worked with his competitors, but he could trust McKinsey to know what was confidential information and what was to be kept private. He says arrogance permeated the firm. The usual rules seemed not to apply. When this CEO listened to a wiretapped phone call from July 2008, in which Gupta relayed to Rajaratnam the details of the Goldman board’s discussions about buying a commercial bank, it sounded to him just like Gupta consulting a client.

Gupta seems to have been directly violating internal McKinsey rules for years:

As the managing director and then as senior partner of McKinsey for four more years before he retired, he ran his own consulting business on the side — a violation of McKinsey rules…

While Gupta was devoted to his philanthropy in India, his quest to amass great wealth led him to lapses in judgment, says Bala Balachandran, dean of the Great Lakes Institute of Management in Chennai, India, and a friend for almost three decades.

“He wanted a billionaire’s life and the question for him was how could he become a billionaire in a short time,” Balachandran says.

If Andrews’s CEO was shocked by what a presumably-representative McKinsey team would do in the course of normal business, one can only imagine what Rajat Gupta and Anil Kumar got up to at Mindspirit, the company set up by their wives (!) to consult for InfoGroup CEO Vin Gupta — or what services Gupta provided to Genpact which resulted in him getting 81,405 stock options at a strike price of less than a buck apiece. Genpact, whose sole client is GE, another McKinsey client, is currently trading at $16.88 per share, which means that Gupta’s options in the company are worth well over a million dollars.*

And Andrews does put forward one explanation of why Gupta might have been giving such valuable information to Raj Rajaratnam. It’s not because he was being paid for it directly, but rather because he had much bigger ambitions: he was negotiating with Rajaratnam for a 10 percent to 15 percent stake in the Galleon International Fund in exchange for attracting investors and becoming the fund’s chairman. And the wiretaps don’t end there:

Listening to the pleading tone in Gupta’s voice as he pitches himself to Rajaratnam is almost painful. “I can be helpful in Galleon International, by the way—not Galleon International, Galleon Group,” he says, apparently angling for a bigger job. “I mean you’ve given [me] a position in Galleon International, that’s good enough. I, I … ,” he breaks off.

It seems clear that Gupta had various personal crises and issues which obviously aren’t reflective of McKinsey as a whole. But at the same time, this quiet man who described himself as a servant to McKinsey’s partners was clearly never going to crack down on any of them if and when they started pushing the envelope in terms of fishing for clients by trading in confidential information. Unless and until some heads start rolling within McKinsey, it’s fair to assume that many of the most successful Gupta-era partners remain. And we’ve been given precious little reason to trust in their integrity.

Update: Gail Marold of Genpact responds in the comments, saying that Gupta provided no consulting services beyond his capacity as a director. And although Genpact did start life as a division of GE, it now gets 62% of its revenue from non-GE clients.

Ian McGugan has a good review of Bill Cohan’s huge new book on Goldman Sachs which includes an intriguing quote about how Bob Rubin “encouraged a culture of undisciplined risk taking” — something which goes directly against the reputation he’s spent many years cultivating. It comes from Chapter 15, which starts in the dangerous year of 1994 and which is full of juicy gossip about the very human frailties of the people running Goldman. Here’s more of it:

“For a long time he just sort of sat in his office,” one partner said of Corzine. “He would sit in his office breaking out in tears at various times while the firm was losing all this money.”…

As the losses in 1994 mounted, many partners became increasingly nervous that the firm was at risk… Some forty partners left Goldman at the end of 1994, the first time anything like that many partners had voted with their feet. “People resigned out of fear,” one partner said. “That should tell you something.”… Howard Silverstein, the partner in charge of Goldman’s Financial Institutions Group, left. “He was perceived as being an expert,” one partner on the Management Committee said. “And all he did was just do a simple calculation if this continues. You know: wiped out.”…

Paulson cut people, travel expenses, allowances for overseas living, and many of Goldman’s vaunted perks. He even cut back on the use of a corporate jet and recalled grueling overseas trips flying around Europe and Asia on commercial flights…

Goldman’s problems at that time weren’t only ones of cost and bad bets. A culture of undisciplined risk taking had built up over many years. “A lot of these practices were set up when [Rubin] was there,” one top partner said. “Okay? The lack of a risk committee, trusting individual partners, model-based analytics — that by God you can be smart and figure it all out — and letting traders become too important and being afraid to confront them if they’ve been big moneymakers. All that sort of stuff built up.” …

Aside from why Friedman had seemingly botched his departure, the other lingering question that remained among many of the Goldman partners was how Corzine could have emerged as the firm’s leader when he was leading the very division — fixed- income — that had lost hundreds of millions of dollars in 1994…

Goldman had selected as its new leader the very person who had just presided over a complete meltdown in Goldman’s fixed- income business and who, as a result, never fully had the trust and faith of the firm’s investment bankers. “That is one good question,” one Goldman trading partner said. “At a normal place, it would be discordant. You couldn’t imagine it. And I guess at this place, somehow you could.”

This, remember, is the world’s best investment bank. It’s worth bearing in mind when you see those eight-figure salaries and wonder whether they’re earned. And when you hear politicians bellyaching about the importance of keeping US banks “competitive” on the international stage. If this is competitive, it might well be best to just drop out of the competition all together.

Remember the Global Business Oath of the Young Global Leaders at Davos? Let me remind you: it’s a terribly silly and earnest document which begins with “As a business leader I recognize that” and ends with “This pledge I make freely and upon my honor.” In between is a bunch of do-goody pablum. But thanks to Ben McGrath’s wonderful Talk piece in the latest New Yorker, I now know that the Global Business Oath has a rival: the MBA Oath. This one has a few small differences — it starts with “As a business leader I recognize my role in society” and ends with “This oath I make freely, and upon my honor.” But it also has a big difference: it’s a book, which can be bought at places like 800 CEO READ.com.

In hindsight, this was probably the biggest problem with the Global Business Oath, whose Twitter feed has only 264 followers, to the MBA Oath’s 568. For one thing, there are many more MBAs than there are Young Global Leaders, so the MBA Oath has a naturally larger constituency of smug young backstabbers to cultivate. And more importantly, the first thing that the inventors of the MBA Oath did was sell the book rights to the concept, with some unspecified “portion” of the proceeds going to “support the MBA Oath movement”. After all, in this world, if you’re not doing well by your idea, then you hardly count as even doing any good in the first place. So Max Anderson and Peter Escher first sold their book, and then parlayed their advance, before the book was even published, into well-paying jobs in asset management. Which I’m sure comports perfectly with the final principle of their oath:

I will invest in developing myself and others, helping the management profession continue to advance and create sustainable and inclusive prosperity.

So far, over 3,000 people have taken this oath, all of whom were presumably unfazed by the idea that they were pledging their personal honor to “help the management profession continue to advance”. If, that is, they actually read the thing.

Malcom Gladwell is no particular expert on financial markets. But he has said, according to Moe Tkacik, that of all the people he has interviewed, he most identifies with Nassim Nicholas Taleb — in a 7,800-word profile which explains just how hard it is to invest in markets when your strategy involves losing money every day and waiting for a tail event.

With a few notable exceptions, like the few days when the market reopened after September 11th — Empirica has done nothing but lose money since last April. “We cannot blow up, we can only bleed to death,” Taleb says, and bleeding to death, absorbing the pain of steady losses, is precisely what human beings are hardwired to avoid. “Say you’ve got a guy who is long on Russian bonds,” Savery says. “He’s making money every day. One day, lightning strikes and he loses five times what he made. Still, on three hundred and sixty-four out of three hundred and sixty-five days he was very happily making money. It’s much harder to be the other guy, the guy losing money three hundred and sixty-four days out of three hundred and sixty-five, because you start questioning yourself. Am I ever going to make it back? Am I really right? What if it takes ten years? Will I even be sane ten years from now?” What the normal trader gets from his daily winnings is feedback, the pleasing illusion of progress. At Empirica, there is no feedback. “It’s like you’re playing the piano for ten years and you still can’t play chopsticks,” Spitznagel say, “and the only thing you have to keep you going is the belief that one day you’ll wake up and play like Rachmaninoff.”

So I was very puzzled to pick up this week’s New Yorker to find Gladwell write about John Paulson in very different terms. (The story is behind a firewall; it’s not particularly worth paying for, although the magazine as a whole is a fantastic value.)

Gladwell in this essay characterizes Paulson as “The most successful entrepreneur on Wall Street — certainly of the past decade and perhaps even of the postwar era”. I think this involves a very narrow criterion of what makes successful entrepreneur. Later in the essay Gladwell talks about how “people who work for themselves are far happier than the rest of us”, and in my experience hedge-fund managers — who do after all work primarily for their clients — are not in fact particularly happy people. They might not have a single boss telling them what to do, but the pressures of managing other people’s money are immense.

What’s more, any hedge fund manager playing a version of the negative-carry trade has it much worse than most of his peers. Warren Buffett says that the first rule of running other people’s money is don’t lose it; the second rule is “don’t forget the first rule”. One of the reasons Taleb gave for giving up running money day-to-day was precisely the incredible toll it takes when you’re losing money almost every day. Andrew Lahde, another huge winner from the subprime crisis, also quit the business, citing the way in which the stress of the job destroyed his health. Gladwell himself talks about how successful entrepreneurs will deliberately harm their own reputation if it means improving their risk-adjusted returns. That’s not a route to happiness.

And in any event, although success is often measured in dollars on Wall Street, even Wall Streeters don’t end the analysis there. Is Paulson really a more successful entrepreneur than, say, Charles Schwab, just because he arguably has more money? For that matter, Mike Bloomberg has not only founded a hugely successful company which can run very well without his presence; has also made more money than Paulson. Even if Paulson does count as an entrepreneur, it’s not at all obvious how he counts as being more successful than Bloomberg.

But I digress. The point is that Paulson, like Taleb, is a negative-carry kind of guy. Positive-carry investing can take you a very long way, and indeed it’s the foundation of the entire global banking industry, but it’s negative-carry trades which have the ability to score enormous home runs like Paulson’s. Many big hedge-fund managers avoid negative-carry trades, because they feel too much like a gambling habit: you pay out money every day in the hope of scoring a huge jackpot. That’s not the kind of strategy most investors in hedge funds particularly like, and indeed the likes of Taleb take great care to sell their funds as hedging devices — a place to put a small amount of your net worth for insurance purposes — much more than as absolute-return vehicles.

Paulson is no Taleb: his clients are pretty typical hedge-fund investors, including rich individuals who really hate losing money. Which means that his negative-carry trade — buying credit default swaps which obligated him to pay out millions of dollars in annual premiums, with no income attached at all — was extremely risky, from a business point of view. Gladwell quotes Greg Zuckerman explaining that “the most an investor could lose would be 8 percent a year”, while the upside (as we saw) turned out to be astronomical. But it doesn’t take many years of 8% losses — or any losses at all, for that matter — for clients to pull all their money out of your hedge fund.

Paulson was not actively trying to burst the bubble, in the way that George Soros pushed the pound out of the European exchange-rate mechanism with his legendary 1992 negative-carry trade. Instead, he was just the biggest of a long line of investors who saw that there was a housing bubble and tried to find a way to go short. Those who were right but too early disappeared into the footnotes of finance — if they were lucky to get even that. They learned the hard way that “the market can stay irrational longer than you can stay solvent”. Paulson was like them: he felt certain that the bubble was going to burst, but he didn’t — couldn’t — know when, and he simply had to pray that it would happen before his investors deserted him.

What’s more, there was no guarantee that even if the housing bubble did burst, that Paulson was going to make lots of money. To be sure, he had a lovely model, put together by his colleague Paolo Pellegrini, showing that if house prices stopped rising, subprime mortgages were going to suffer enormous losses. But on the other hand, all the banks and credit-rating agencies also had models, showing that the bonds that Paulson was betting against had almost no chance of defaulting. When your model shows one thing, and everybody else’s models show something else entirely, there’s a very good chance that your model is flawed.

Gladwell’s thesis, in this essay, is that Paulson is actually very risk-averse, rather than being a big risk-taker. “Would we so revere risk-taking,” he asks right before introducing Paulson as Exhibit A, “if we realized that the people who are supposedly taking bold risks in the cause of entrepreneurship are actually doing no such thing?”

The fact is that Paulson did take bold risks, on factors which were entirely out of his control: When would the bubble burst? How long could he hold out before his investors deserted him? Indeed, Paulson’s strategy had a Ponzi aspect to it, where he would try to make up losses with new investments: “He bought CDS contracts by the truckload,” Gladwell writes, “and, when he ran out of money, he found new investors, raising billions of new dollars so he could buy even more.”

Warren Buffett has described his most recent mega-acquisition, that of Burlington Northern, as a huge bet on the long-term health of the US economy. That kind of bet has made him more billions than even Paulson can dream of, and it’s a bet made in the positive-sum game of the equity markets. Stocks can and do rise over time, and a well diversified stock-market investor has been able to reasonably expect to see some kind of profit over the long term.

Paulson, by contrast, was playing in the zero-sum derivatives markets. In order for him to make any money at all, somebody else had to lose. If I bought a random basket of derivatives contracts and held them over the long term, my expectation would be that I would end up with less money than when I started.

The amount of sheer hubris involved in Paulson’s trade, then, is enormous. He had to have an unshakeable faith in the infallibility of his own models, in a world where no model is infallible. He had to have entirely irrational confidence that the bubble would burst before he ran out of cash. And he had to do all of this with other people’s money: while he was already personally set for life when he entered into the bet, he couldn’t say the same thing about all of his clients, who didn’t necessarily share his shoot-for-the-moon risk profile.

After all, Paulson’s clients had invested their money with a manager whose returns, Gladwell quotes Zuckerman as saying, were solid, careful, and decidedly unspectacular. Did Paulson decide to put them into a risky derivatives trade with a negative carry just because he’d already made lots of money and was now aiming for posterity? I’m sure all those clients are very happy with Paulson today. But if you’d told them about his strategy while the bubble was still inflating, they might have had a very different opinion indeed.

Update: Zuckerman responds, in the comments.

We’re less than two months from a New Year’s where a 9 ticks over into a 0, and so that means all manner of decade retrospectives. (And still we haven’t come up with a name for this decade!) Fortune is getting into the game early, naming Steve Jobs its CEO of the decade, for his work at Apple.

What’s more interesting to me is the list of 12 “also-rans” for the title: Larry Page, Sergey Brin, Warren Buffett, Bernie Madoff, Carlos Slim, Ken Lay, Jeff Skilling, Andy Fastow, Bill Gates, Oprah Winfrey, Alan Greenspan, and Martha Stewart. Five of the 12 aren’t CEOs at all (Page, Brin, Skilling, Fastow, Greenspan); and not a single one of the 12 is a CEO who was hired to run a company by its board of directors.

Jobs, by contrast, is such a CEO, in a manner of speaking: although he did found Apple, he sold all his shares when he was ousted in the 80s, and was hired back by Apple’s board. (As a result, he’s made more money from Pixar than he has from Apple.)

It’s natural for company founders to give themselves the CEO job. But how come all of Fortune’s top CEOs seem to be founders, and none of them are in the much more common position of having been hired, by the board, to run the company?

Is there an M&A lesson to be learned from the Microsoft/Danger/Sidekick fiasco? Here’s Dave Methvin:

Any $500 million acquisition usually comes with some technical due diligence. When Microsoft bought Danger, didn’t they have someone take a look at how the company ran their servers? During the more than 18 months since the acquisition, didn’t anyone review how Danger was operating?

The implication here is that the meltdown would have happened if Microsoft hadn’t bought Danger, and that Microsoft’s biggest mistake was not managing its acquisition more diligently. But Danger seemed to be perfectly good at cloud computing until Microsoft bought it — and then buried its founders so far down the org chart that one could easily forgive them for becoming somewhat demoralized.

It’s pretty obvious that company founders aren’t going to act with the same drive and sense of ownership when they’re a tiny part of a monster organization as they did when they owned and ran their own shop. Microsoft should have been on top of what was (and, more importantly, what wasn’t) going on at Danger, and been alert to defections and any hints of dissatisfaction in the team. Instead, it’s managed to deliver the single largest blow yet to the whole concept of cloud computing. And there’s lots of indication that Microsoft is at fault here:

Microsoft’s takeover of Danger almost two years ago should have given the software giant the time to fortify and secure Danger’s online operations. Instead, it appears the company actually removed support to cut costs…

Microsoft’s accountability in supporting its acquired SideKick support obligations with T-Mobile was also shirked… Microsoft could get more money from T-Mobile for their support contract if T-Mobile thought that there were still hundreds of engineers working on the Sidekick platform. As we saw from their recent embarrassment with Sidekick data outages, that has clearly not been the case for some time.

That indicates that Danger’s high profile cloud services failure didn’t occur in spite of Microsoft’s ownership, but rather because of it.

It’s not just that company founders lose zeal once they’ve been acquired; it’s also that executives at the acquiring company are often suspicious of what they’ve bought, especially when that company used to be a direct competitor. If you’re going to be spending billions of dollars on acquisitions, you should certainly invest a chunk of time and money ensuring smooth integration. That clearly didn’t happen here.

Update: Andrew Leonard has another idea:

Maybe we should consider this a Machiavellian shot across Google’s bow? What better way to defend the Windows/desktop franchise than to create a sense of fear, uncertainty and doubt concerning the fundamental security of cloud computing?

Why did Jamie Dimon fire Bill Winters as head of JP Morgan’s investment bank? According to Bloomberg, it’s because he felt Winters shouldn’t be CEO of the bank as a whole. And so, by the inexorable up-or-out logic of Wall Street, Winters was out.

Winters is one of the best risk managers on the street, and saved JP Morgan countless billions of dollars when he refused to let his group join the structured-product gold rush. But there’s much more to being a CEO than risk management, especially today, when you need to be able to charm not only institutional investors but also Washington regulators.

In a way it’s sad that no role could be found for Winters at JP Morgan — but he’s had a long and hugely successful run at the bank, and he’s surely happier dreaming of being CEO elsewhere than being stuck in JP Morgan without any hope of achieving the top job. This is how succession planning should work. For an example of how it shouldn’t work, of course, you just need to look at Bank of America.

If Winters had worked for Ken Lewis, not only would he never have been in line for the CEO job, but he would also have been fired years ago for being altogether too competent. Lewis didn’t like promoting potential rivals; Dimon, by contrast, loves surrounding himself by the smartest and best-qualified professionals he can find.

This time last year, I attended the World Business Forum at Radio City. I came away with a slight ringing in my ears and a blog entry entitled “The Parallel Universe of Leadership Events”, in which I attempted to skewer the content-free nature and general mindlessness of such things. My prize was an invite to come back this year, as part of their “Bloggers Hub“, so I could repeat the whole experience. I’m not there now, but I might pop along once or twice: it’ll be interesting to see how Paul Krugman, for one, approaches such a crowd.

It’s worth asking how Krugman felt himself allowed to take this gig. This is, after all, the man who wrote this:

I do very little paid speaking now, and no consulting, because the New York Times has quite strict rules: basically I can only get paid for speaking to nonprofits that have no possible interest in influencing the content of the column. It’s a good rule – read Eric Alterman’s book “Sound and Fury” to see how speaking fees can corrupt pundits – though it meant that I took a substantial income cut to work for the Times.

The World Business Forum is emphatically not a nonprofit, and it pays its speakers very large sums of money. (That’s how it gets the likes of Jack Welch, Tony Blair, and Bill Clinton to turn up.) So what’s Krugman doing there?

In any case, this annual boondoggle — an event with zero news value, which large companies give to their middle managers so that they can feel important and have a fun couple of days in New York without really working — has managed, incredibly, to get itself an entire dedicated blog at the WSJ. This is probably a function of the fact that the Journal — along with BusinessWeek, Fox Business, and something called ExecuNet — is a “media sponsor” of the Forum. (Those middle managers are exactly the audience that the WSJ wants to reach.)

I don’t for a minute blame the business side of the WSJ for sponsoring the WBF — it’s their job to do such deals. But there’s no indication on the WSJ’s WBF blog that it’s anything other than an editorial-side effort, put together by “reporters and editors at The Wall Street Journal”.

Which leaves just two possibilities, neither of which reflect very well on the WSJ. Either the business side bullied the editorial side into putting together this dedicated blog — which would imply that the wall between the two is porous indeed. Or else the editorial side really believes that the World Business Forum is so inherently newsworthy that it should be blogged by multiple staffers over two days. In which case someone at the WSJ really needs their news judgment examined.

The Economist doesn’t approve of ad agencies “stretching the accordion”, and branching out into non-core businesses such as product design and environmental consulting:

The grim economic climate does not favour such dabbling. It takes cash and time to develop a fledgling unit. Those are two things that many agencies do not have.

Well, they may not have cash, but they do have time. What should happen, in a cyclical business, to an employee whose net present value to the company is high — if you take into account all her future work — but who has relatively little to do right now? In a badly-managed business, you get massively-multiplying meetings: every decision, no matter how tiny, ends up being debated and signed off on by far too many people, who thereby get to feel (and show their bosses) that they’re Doing Something.

Much more intelligent, in a creative company, to do something potentially very valuable with temporarily-underemployed executives and staff. If it works, that’s fantastic; if it doesn’t, the employees have still had a valuable and productive experience, and the company hasn’t bogged down in bureaucracy. Meanwhile, layoffs have been avoided, and top employees don’t end up working at a competitor.

Recessions are often a great time to launch new businesses — if you can make it work right now, you’re likely very well placed for the future. And talent is easier to come by. So in theory I can see how stretching the accordion might make a lot of sense — so long as the marginal cost remains very low.

Algonaut asks whether the Financial Services Oversight Council will have a direct line to banks’ chief risk officers; I’m sure the answer is yes. But I also think that won’t be enough. What I’d love to see — and this could be put in place directly by the major banks, without the need for any legislation at all — would be a regular formal meeting of all the big banks’ chief risk officers, where they can talk about all the systemic risks they’re worried about which require coordinated response. Does anything like that exist? Is there some way in which the FSOC or the Fed could use its moral suasion to make it happen?

Update: It turns out that the IIF has a Markets Monitoring Group, chaired by Jacques de Larosière, which meets 2-3 times a year with the aim of “bringing together observations and assessments of various developments to build a systemic picture of current risks and their potential negative impacts and seeking to mitigate those risks by encouraging member firms to take the Group’s findings into account in their risk management and collaborating closely with the official sector”. (From page 108 of this document.) Chances of it doing any good at all? Very slim, I’d say, but then again I’m biased against the IIF so I’ll admit I’m not an impartial observer.

I went along to an event featuring Roger Nierenberg today, despite the fact that I’m constitutionally allergic to anybody who comes out with managementspeak like this:

The Music Paradigm will benefit organizations dealing with a period of exceptional challenge or change. The most typical issues include: restructuring or reorganizing, change initiatives, cultural transformation, innovation and creativity, globalization, new leadership, merger or consolidation, cross-functional teamwork, new mission or strategy, and high performance.

Nierenberg’s shtick is that he takes 75-100 “leaders” and seats them next to members of a chamber orchestra he’s conducting. He then draws unconvincing parallels between sections of an orchestra and business-world teams, or between an orchestra’s conductor and a company’s executives.

That said, it’s quite an experience, all the same, sitting between the cellos and the first violins (in my case), experiencing first hand what it’s like to be inside the music-making machine that is an orchestra. How that can possibly translate into book form I have no idea, but many thanks all the same to Penguin Portfolio for inviting me along to this event.

I was struck by one thing Nierenberg said: that both musicians and conductors are rare examples of people who get instant and obvious results from what they do. That’s one of the most addictive things about blogging, too: press the button, and it’s up, immediately, for all the world to see. And I think that’s one of the great attractions of Twitter: not only do you get the instant gratification of seeing your tweet in public, but you also get responses incredibly quickly from the people who are following you. The world is getting faster, and more immediate, and, in that sense, more like an orchestra. Which doesn’t mean that Nierenberg’s “Music Paradigm” is a great buy. But if your company invites you to attend one of these things, do go — it’s a pretty unique experience.