THE MARCUS PERSPECTIVE

TAKE ONE SURVEY…

And Salt Lightly Before Believing

            There’s nothing like an election year to immerse ourselves in surveys. This, despite the fact that more often than not, they tell us less than we want to know, and even less than we should believe.

Everybody, it seems, wants to know the future, and it appears that the closest you can get to knowing the future is to accumulate a bunch of guesses. Great for a parlor game, but not much use for making important decisions. Everybody wants to know what other people are doing about important matters, which is a more valid reason for business surveys. Sometimes the survey informs business decision, and keeps a business from operating in the dark. Sometimes the results offer emotional salvation (According to the survey, I make more than the average of my profession)

            Surveys come in different forms, of course. There’s the big political survey that seeks to tell us where the voters stand on each candidate. There’s the advertising survey that seeks to tell us the efficacy of a new ad campaign, and there’s the brand name survey (“Have You ever heard of this product? What do you think of it?”). These are the kind of surveys mostly done by professional survey and market research companies.

            These companies are generally pretty good. They use sophisticated modeling techniques and computerized formulae to tell us (with a margin of error of 4 or 5 points either way) who’s going to win the next election and how high skirts are going to be next year. Highly scientific stuff – but, unfortunately not always right. When they’re wrong, they claim, often quite rightly, that the world moves faster, and opinions change faster, then they can survey. The problem is that they don’t usually claim it until after they’re proven wrong. Which is why  you have to take those surveys with a grain of salt.

            Then there are the attitude surveys (Why do customers (and clients) buy? What do you think of my service?). These are a problem, because too many people don’t really know what they think about a lot of things. (“I hired this firm because I needed a lawyer. But I chose this firm over that firm because …). Here’s where you get into trouble. The intellectual factors (I like their litigation track record) is only part of the answer. The other part is emotional (the managing partner reminded me of my father) is usually too Freudian to tell you much you can use in a business context. That survey requires a box of salt. 

            Then there are the localized, one firm, internally done surveys of client satisfaction. These must be taken with a box car of salt. Or as one respondent said, “If I didn’t think I was getting my money’s worth I’d have fired you.” These are too often done by marketing people with little sense of the science of surveys. The results are mostly useless.  Surveys like these are popular marketing devices, and not just the push-pulls, which load the questions to favor the sponsors’ products or services. Some surveys are reasonably accurate, but too often they’re the lazy marketer’s way to avoid original thinking. If you really want to know what your clients think of you, hire a professional who will sit down with clients for an intensive one on one discussion. Then you’re most likely to get substantive information.

            Probably the most difficult aspects of surveys are that too many people are not always objective in the answers they give. Many reasons for that – they don’t really know how they feel, they don’t want to appear unqualified to answer, they have their own agenda, they don’t always know the real reasons they do things and so forth. Many surveys delve into areas in which the answers are so rooted in the subconscious that the spoken response bears no resemblance to the hidden response.  Look back on your own choices in buying services. Are your reasons always the right ones? Do you really believe your brand of tomato juice is better than the other brands, or is it just that it’s the brand your mother bought? Clearly, the most suspect surveys are those that try to fathom the depth of motivations. We don’t always know why we do things, but we’ll answer those questions anyway.

Now, I grant you that surveys, even the home grown ones, are not universally bad. Some surveys are thoughtful and useful, with answers you can reasonably rely on. But most of them should be taken with a grain of salt, and using that grain of salt can be an art in itself.

            If you read the results of a survey just for a general idea of how people think about a subject, the inaccuracy of the results doesn’t really matter. But if you make decisions based on the results, then the survey had better be an accurate reflection of what the surveyed really think or did.   Those are the times when your intuition or experience supersedes even the most professional surveys.   

            Still, many surveys serve a purpose, if they’re taken with that famous grain of salt. Never, never, in judging a survey, abdicate your own intelligence, experience and intuition.

A survey may be useful if…

·        You understand the methodology. How was the survey done? Never trust a survey in which the methodology isn’t made clear. Written surveys are the most suspect, because too many valid respondents don’t bother, or don’t take it seriously. In-person responses that arise from intensive personal interviews by a trained professional interviewers are at the other end of the validity spectrum – the responses you can most trust.

·        If it’s a survey by a reputable publication or web site in which participants are invited to submit answers to a specific question.

·        If the respondents’ qualifications are strong. The best way to judge advertising, for example, is whether respondents are willing to make buying decisions based on it, or by name recognition. The worst way is on aesthetics, which only experienced professionals can judge with any reasonable validity.

·        If the sample is valid. It should be broad and based on the nature of respondents. For example managing partners know about partner compensation (but don’t always tell the truth, which is why you need a very broad sample).  They know about plans for the future, but sometimes hedge their responses for competitive reasons.

·        If the responses give you a valid sense of trend. A sample that’s too small is useless, regardless of responses. 

·        If you can trust the objectivity of the survey’s sponsor.

·        If you can trust the survey result sufficiently to use it in your own planning. 

·        And ultimately, if the survey has only a toe in the past  and two feet into the future.

In any endeavor, it’s invaluable to know what others think and what others are doing. But two things to keep in mind…

·        A survey, no matter how good or how well founded, isn’t gospel. It’s greatest value is as a guide to your own thinking and decision making. But it should never be more than one factor of many in your decision.

·        Your own experience, intelligence and intuition may be informed by a survey’s results, but the final decision should be yours.

Then the survey might be really useful.

IT’S THE GENES THAT DID IT

How Personality Differences On Wall Street May Have Contributed To The Current Economic Problems

            In a recent New York Times column, economist Paul Krugman suggested that bailing out the investment banking firms was one thing, but bailing out the individuals responsible for the current situation was yet another. He’s absolutely right. With all that’s been said in recent weeks about causes for the mortgage and other fiascos, very little has been said about the bankers themselves, beyond noting that it was bankers what done it. And oh yes, by the way -- a lot of them still got massive severance payments.

            Aha! In the several books I’ve written on investor relations, I noted that people not actually involved in Wall Street tend to lump all financial people in one category. They all deal with money and make more than most people, goes the popular opinion, ergo they must be smart. Not only is it not true – as someone once told me, money is dumb, it doesn’t care who it goes to. There are vast differences in levels of intelligence and personality types for those holding each of the broad variety of financial positions. It’s an old story, of course, that most clients of service industries don’t much understand what the bankers and the professionals really do to work their magic. They’re just interested in results.

            For example, differences may be found between, say, most stock brokers and most investment bankers. Each requires different skills and different personalities. And remember, there are dozens of different jobs in the financial field.

            But I’ve always found that there is a profound difference between the investment banker and the commercial banker. Over the years, I’ve done a great deal with both. And that difference, in both obvious and subtle ways, contributed and continues to contribute to the current economic problems.

            I observed, many years ago, that commercial bankers were apparently born with a risk-averse gene. So controlled were they by that risk averse gene that long after their world had changed, they were still insisting that they were dealing mostly with the depositors’ money. In fact, most of the money they had came from investment and lending income. When I wrote The Prudent Man, the first book on investing under ERISA, I learned that bankers had difficulty grasping the fact that ERISA was the first federal trust law (all other trust law was from the state), and certainly that ERISA was the first trust law that didn’t prescribe the specific instruments in which they were allowed to invest. It took a book, written with the help of about a dozen people, including several who had helped write the law, to explain the difference. In subsequent reporting on ERISA, I learned that for years afterwards, most commercial bankers still didn’t get it.

            In fact, in an article I wrote at the time for a pension fund magazine on preference between commercial banks and investment banks to manage pension funds, I quoted one pension fund manager as noting that, “Banks can’t turn around in the Atlantic ocean.”

            In 1933, in response to banks’ excesses, the SEC promulgated the Glass-Steagall Act, which prohibited commercial banks from functioning in the securities markets. But in the last quarter of the 20^th century, banks, envious of the kind of money that investment bankers were making, pushed hard against Glass-Steagall, and eventually overturned it. That’s when troubles began – and still persist. Commercial bankers thought differently about investment risk than did the investment bankers. Investment departments were established by the banks, only to find them failing. And not only because of the risk factor. The investment bankers were making more money than the bank managers were making. It was a fascinating exercise in envy.

            There were also the differences in the personalities of each group. Bankers are willing to make money more slowly than investment bankers. The investment bankers are more impatient, and their sense of urgency to seize what they perceive to be opportunity readily supersedes a sounder judgment of risk. I wrote back in the 1970s that the perspective of Wall Street ranged all the way from the opening bell of the Stock Exchange to the closing bell the same day. It took the commercial bankers a long time to catch on to how investment bankers work.

            Well, gradually the two groups have learned to accommodate to each other – but only to a limited degree. The lack of perspective allowed both groups to be blinded by greed and to ignore basic business principles. Thus, they didn’t see the danger and potential consequences of turning mortgages into investment instruments, and then granting low interest adjustable rate mortgages to people who could barely afford them. Naturally, they were so short sighted as to be unprepared for a potential rise in interest rates in the future on these promotional, adjustable rate below prime mortgages that were sold to high risk borrowers.

            Surely there’s a personality problem that allows supposedly savvy financial people to be so short sighted. If the commercial bankers contributed to this current crisis, it’s because they understand risk through some fantasy screen – they can see the future only in terms of the past, and still not understand it. The investment bankers, on the other hand, are so comfortable with risk that they’re blinded by the potential gain, and ignore the potential for loss. How else can we understand a Bear-Stearns decline into two bucks a share bankruptcy?

            There’s yet another consideration – or at least a question. In this era in which computers and other technology can quantify risk, how did Bear-Stearns, and possibly several other major investment firms, not see the risk in the mortgage business. If they couldn’t do the arithmetic on paper, they certainly had computers to do it for them. And particularly in the sub-prime business, which was in large degree a gamble on the future of interest rates?

            It’s scary, isn’t it, to know that we trust our money to these geniuses. Krugman is right. Get rid of these shortsighted, risk averse or risk inured financial wizards, and get some really smart people in there.

            Or as the famous philosopher, Yogi Berra, put it, “Ain’t nobody here knows how to play this game?