Meritocracy in the corporate world can be defined as hiring and promoting employees into positions based solely on their competence without any favouritism such as to relatives, known as nepotism, or to benefactors, known as cronyism. Meritocracy is such a strongly held concept in terms of the successful execution of any endeavour that nations have embraced it as a central tenet of their civil service where employment and placement are based on rigorous competitive exams. Singapore, arguably the poster child for successful emerging nations, has meritocracy as a basic national guiding principle. If nations are paying attention to meritocracy, should not businesses do the same?
Is Hiring Any Different Than Pure Guessing?
I must admit that I have found the recruitment process challenging in every single position that I have had. As a senior executive I have often been involved in hires by other managers and frankly they do not seem to fair any better. As far as I can tell there seems to be no correlation between the interview process and the quality of the hire. First pick hires often end up adding no value and at times even destroy value. Fourth picks often end up flourishing and becoming stars. Is there any reason to have an interview as part of the recruitment process? Continue reading
Lack of SME Lending Harms Large Corporates, Creates Shadow Banking
The existence of an SME credit gap, the difference between demand for loans by SMEs and provision of those loans by commercial banks, and its effects on SMEs has been discussed in detail in a separate article on this blog. The effects on large corporates is no less serious. Using some simple statistics from the earlier article, if SMEs are the source of greater than 50% of GDP and their share of bank lending is only 4% then either SMEs are super efficient, big corporates are super inefficient, or somebody else is financing these SMEs. I think that we can safely agree that it is highly unlikely for the SME sector to be super efficient or big corporates to be super inefficient. That leaves some, or all, of the USD 260 billion SME credit gap funded by a segment of the economy other than banks. Let’s unravel this mystery.
Saudi Oil Price Redux
In an earlier article I corrected some common misconceptions on what is happening with oil prices and how it affects the economy. This generated some feedback and further questions that I will address in this article. In particular I will focus on understanding the role of a cartel, the long term incentives of an oil producer and why oil prices have risen.
Let’s start with the concept that OPEC is a cartel. It isn’t because it lacks a major feature of a successful cartel: legal enforceability of quotas. To understand OPEC’s actual role in the history of oil, you need to start with the Texas Railroad Commission (‘TRC’). The TRC is the original cartel that controlled global oil prices and was an agency of the State of Texas that controlled up to 40% of US production until the late 1950s. Their power was derived from an oil production boom that saw prices plummet and Texas oilmen demand a cartel system of enforced quotas. The TRC served as a model for OPEC. The irony is not lost upon this writer. Continue reading
Disinformation in the Investment World
The main documents pertaining to the state of a business are either legally notarised, such as the memorandum and articles of association, or are heavily regulated, such as the audited financial statements and analyst reports. This information, however, is not enough to understand the business and quite often colour needs to be added in the form of written and verbal commentary from management. Regulation of this commentary is either light or easily circumvented allowing management to present a picture that is at best optimistic and at worst fraudulently manipulative. I had the unfortunate experience of being exposed to several such companies. Continue reading
Leaders are the Drivers of Corporate Change
The Change Management industry is doomed. Change means uncertainty. Uncertainty means risk. Risk means danger. Humans are genetically coded to avoid danger. Therefore they will always resist corporate change.
Change management consultants (‘CMCs’) will advise that winning employee buy in is critical. But how do you do that? How do you convince employees that an unknown future is better than a known present? Maybe if the present is really bad, but by then things are usually too late. Continue reading
Negotiation: Playing Chicken
This article is part of the Negotiation Series.
Chicken is a famous game by which two drivers drive their cars towards each other at high speed. The first driver to swerve to safety is deemed a “chicken” and the loser. If neither driver swerves then a high speed collision results with serious injury and even death. This negotiating style has gained popularity as the strategy that a hard nosed negotiator uses, it has become sexy. This is a problem as it is completely destructive and after any game of negotiation chicken the working relationship between the parties involved become irreparably harmed. Continue reading
Adaptive Strategy Construction
In a previous post, Deconstructing Strategy, I discussed some of the difficulties in developing a strategy. In this post I present a method that has worked well for me. The philosophy behind this method is based on the two ideas that the Pareto principle, also known as the 80/20 rule, applies to business strategy and that strategies must adapt to new information and changes to the business environment.
Breaking Negotiation Deadlocks: Pricing the Free Option
This article is part of the Negotiation Series.
Implicit assumptions in an argument are assumptions that are assumed true by one or more parties to the argument but not explained or proven to other parties to the argument, especially the decision makers. A simple example, used by parents against their children since time began, is: “If all your friends jumped off a building, would you do that as well?” The implicit assumption is that the friends in this case are not capable of making rational judgments and that if they are jumping off a building they must be foolish. The idea that there may be a good reason to jump is assumed away. We do not expect children to be able to identify such a subtlety. Unfortunately adults would have a hard time identifying this implicit assumption. Continue reading
Negotiation: Appeals to Authority and the Burden of Proof
This article is part of the Negotiation Series.
Have you ever been in involved in a discussion or argument, knowing that you are correct and/or the other person is incorrect but had a hard time proving that you are right or the other person wrong? It is extremely frustrating. It can also be damaging to your career. The frustration comes from your difficulty in expressing logical arguments and, more often, recognising the logical fallacies in your opponent’s arguments. I’ll use an example of an executive who used false logic to try gain access to a large amount of funds. I will highlight the fallacies used in negotiation and how to counter them. Continue reading