The Principles of Talentism: Part 1 - Why We Need Talentism

Corporations are systems. The fact that systems can have negative effects on an individual system member's behavior is well understood by anyone that has ever studied sociology, psychology, economics or history.

You don't have to put your nose in a book to realize this simple truth. Just look around you. We have all experienced "good people doing bad things because of systems" in one way or another. One of my earliest corporate recollections is of the "Bad CFO."

It was my first big corporate full-time job. The CFO was a dour man whom seemed the very epitome of an automaton doing whatever he could to turn a buck. He was easy to dismiss as a feckless corporate thug who was putting in his time so that he could go admire his piles of money at night.

One day I was in a meeting with this generalized bean-counter when he made a pitch for some non-profit funding that was not only heartfelt but also amazingly prescient and wise. My eyebrows suitably arched, I took the time to hunt down some former associates of this enigma and asked them about their previous experiences with him. Lo and behold this guy was actually quite the saint. At previous companies he always dressed up as Santa and distributed presents to all the disadvantaged children from a nearby shelter; presents he had bought with his own money. He was always the first to volunteer to do the dirty jobs, always the last to stay to clean up.

What accounted for the before-and-after paradox? I surmised that it was probably the culture of the companies for which he worked. At prior companies he had been supported and admired for his tendency to be a softie, whereas in the moral cesspool that was the employer he and I were both sharing at that time you could get yourself fired for being a nice guy.

Systems have a funny (as in "ironic", since most systems are set up to do good) way of making good people bad (and sometimes, but rarely, bad people good). Present corporate systems make frugal people profligate, intelligent people stupid and serious people silly. If we had something else that was reasonable to compare it to most of us would think that the modern corporation is some cruel mistake hoisted upon us by those mutton-chopped monopolists of long ago.

The present corporate system is broken. Hard-core business people who would willingly die for the ideas of capitalism and free markets will routinely shill for petty dictatorships and Stalinist planning and control inside their organizations. Nobody likes it, but we all just grin and bear it. We have all become so ingrained with the idea that our modern economic system is (to paraphrase Churchill) "the worst form of economics, except for all the rest" that daily experiences that would cause people to rise in righteous indignation if they were undertaken by a body of government are blithely accepted as inconvenient fact.

This twilight-zone experience goes beyond the black-and-white of moral and ethical treachery. The modern corporation isn't even especially good at its stated purpose: to increase shareholder value. All the pollution that you choke down? Resources turned into waste. The company that produced the pollution took shareholder's money and put it into your lungs , your drinking water and your food. Shareholders may be happy that they got better than their average savings rate for their investment, but you have to wonder how many times they considered the fact that a lot of the waste generated with their capital could have been avoided  (and quite possibly turned into a better return for them).

To wit: I was once approached by a major software company to bid on a job to replace some key architecture components in their software. I got four of the smartest software people I know and came up with a bid of $100,000 plus 3 servers (about $30K). My company had successfully completed this type of project before so our confidence level was very high. In fact, we thought that it would really only take $20K worth of work, but we wanted to be careful so we padded the estimate by 500%.

The potential customer was suspicious. Their business was manufacturing software and they routinely spent millions on development for relatively minor changes. As much as I tried to explore their discomfort, it was never quite clear whether they were uncomfortable because their bloated, overweight development and test processes would be shown to be the bureaucratic sub-optimizing mess that they really were, or whether they just couldn't comprehend a bid that low. Either way, they went with a competing bid: $3 million plus $400K in hardware. The project was canned after $2 million in expenditures. To this day, that software firm still has the same architectural deficiencies that they were trying to solve 4 years ago. Waste, pure and simple.

One more time with feeling: the corporate system is broken. Companies do risky and expensive things in the name of being safe and saving money. Since there is usually no connection between the people spending the money and the best interests of the shareholders, emotional comfort and a desire to further one's career can easily take precedence over common sense and delivering value. Passing out stock options was supposed to solve this problem, but it turned out that most investors (individual and institutional) are just as clueless about what drives success and value as the average employee. So the shareholders turn to numbers that are really art and make decisions by holding their fingers in the air and hoping that the analyst-du-jour will blow hard enough to reach them.

In the creative age the modern corporation diminishes individual contribution and maximizes resource and production inefficiencies. The root cause of both of these phenomenons is the same: people in a modern corporation must be homogenized inside a system of dictatorial paternalism so that the corporate leaders can keep a straight face when they tell Wall Street "your cash is safe with me." It's really no more complex than that.

This means that the modern corporation prizes capital over talent and acts daily on the belief that a corporations primary objective is to manage their shareholder's risk rather than maximize their investor's return.

Talentism is an attempt, however humble, to turn this bad system into a good one. I believe that a voluntary gathering of like-minded people all focused on creating value for informed markets, minimizing waste and prizing talent growth above capital conservation is the only sustainable way to both increase investor returns and make the world a better place. So, hat in hand, I hereby undertake to publish "The Principles of Talentism."

Tomorrow: "The Principles"

Comments

[Colin Kingsbury]

Jeff,

Forgive me if I'm repeating something that's implicit in this discussion. Individual corporations are broken but American* capitalism doesn't optimize for corporate longevity. If an individual company makes consistently worse decisions than competitors it will eventually get wound up. This creative destruction is the macro-scale feedback loop and has a pretty good track record.** So what we're really talking about here is, how do we heal an individual company that has gotten itself stuck on stupid. Do I have that right?

To the extent that you are right that "talent is more valuable than capital," (which I believe is extremely true in certain parts of IT, less so elsewhere) the answer to the question is that there is no saving these companies. Capital and cash flow are the advantages of the incumbent. Talent is the advantage of the upstart, who brings a fresh and as-yet-unstupid approach.

Perhaps the real problem here is that we as managers treat the corporation as a single sick person whose life it is our job to save. An individual human is irreplaceable. But a single honeybee in a hive is not. The hive is the organism whose survival counts.

In the past it took hundreds or thousands of people to build and sell a products that can now be done by ten or fifty. Is there any way we could take ten little honeybee companies of ten or fifty people and link them together into one hive of 500? Then we stop worrying about the health of the individual. This is admittedly a radical and downright strange concept to be sure. But crazy ideas sometimes help illuminate the situation.

* I say "American" capitalism because France, Germany, and Japan do all pursue corporatist principles which benefit incumbents' longevity. Whether they lead to better products for consumers, better jobs for employees, or better returns for shareholders is another question.

** This is not to say the macro system is necessarily perfect. Environmentalists for instance critique the fact that the system does little to take negative externalities like pollution into account. Part of the reason is that calculating the impact of these externalities is an enormously tricky question.

[Gautam]

I'm signing up for your revolution Jeff ! Waiting for the manifesto !

As I discussed in my blog sometime ago, if Wikipedia was the ideal of a talented workforce working for minimal reward to benefit the many, then the following would be the building blocks of a "Talentism System"

- noble purpose

- freedom to contribute wherever one's interests may range

http://gauteg.blogspot.com/2006/02/rewards-dont-motivate-true-knowledge.html

regards,
Gautam