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Monday, October 27, 2008

Investment Risk vs. Volatility

 

Financial Advisor Magazine October, 2007

By Patrick R. Chitwood
A definition of risk must include an investor’s own perception of it.
    It is common today to find that investment risk is frequently expressed in terms of the annualized standard deviation (SD). Because the consequences of such usage are significant to portfolio construction and investment decision-making, we must carefully examine our premises and our definitions.

    In his landmark text A Random Walk Down Wall Street (1973), Burton Malkiel defines risk as follows: “Investment risk, then, is the chance that expected security returns will not materialize and, in particular, that the securities you hold will fall in price. … Thus, financial risk has generally been defined as the variance or standard deviation of returns.” 

    In two short sentences this groundbreaking publication has transferred the concept of risk to a number. It is interesting to note that even Markowitz (1953), dodged defining measures of volatility as risk.

    From Malkiel, Fama and French, Treynor, Black and Sholes, Sharpe, etc., the study of portfolio construction centered around enhancing return while decreasing “risk” as defined by SD. “Risk” by this definition is completely dependent on SD values. Uncertainty is only a byproduct of the dispersion around a mean. 

    Unfortunately, investment risk requires a decision maker—a human, in the case of investing. To the extent that events are important to the decision maker, one could posit that those events may impact the likelihood of making an undesirable decision. Because these events may be entirely unrelated to the underlying investment, risk is clearly much more than the volatility component of an investment.

    Addressing FAME in February 2002, Peter Bernstein stated: “What do we mean by risk? It’s a very messy four -letter word. Volatility is the most popular proxy for risk. It’s a good one. First of all, intuitively, it makes sense. When something is jumping around, it hits you in the gut, you’re not comfortable, none of us is comfortable with volatility. If we have a sense something is going on we don’t understand, we don’t know where the limits are. There are plenty of intuitive reasons for using volatility as a proxy for risk. Volatility is also nice because it’s a number, standard deviation or variance, it’s a number, and that means we can manipulate it mathematically. All those beautiful equations wouldn’t be there unless we had a mathematical concept for risk. But volatility cannot deal with fat tails, with non-normal distributions, with nonlinear relationships, with nonstationarity, with multiperiod analysis, and there’s more. It gets messed up, it doesn’t hold together. So we have to think about different kinds of risk models, and more elaborate kinds of risk models, and the more elaborate they get, maybe the further away we get from the basic ideas. And for long-term, buy-and-hold investors, volatility is essentially irrelevant. So our definition of risk, the thing that we use the most, is in a sense a floating crap game. Uncertainty means—this is what Keynes and Frank Knight were very clear to explain—uncertainty is something we cannot quantify, we do not know what is going to happen, we don’t know what the probabilities are.” And later in the same speech: “How well do we really understand investor responses and how they weigh the trade-offs between risk and return? How do we define risk aversion? How variable and how stable are utility functions? These are very important in making policy decisions for long-term asset allocation. We need some sense of this, and it’s very slippery because it is so intuitive and so internalized.”

    If the standard deviation does not represent risk but rather is simply a measure of volatility, what then is risk and how do we define it, or do we even need to do so? A critical part any risk definition necessitates that we understand that investment risk requires human behavior. That behavior is unique to the investor. 

    Put much more eloquently in the words of Glyn Holton (Financial Analyst Journal, Vol. 6, 2004): “The definition (of risk) depends on the notions of exposure and uncertainty, neither of which can be defined operationally. … All we can hope to define operationally is our perception of uncertainty. Consequently, it is impossible to operationally define risk. At best, we can operationally define our perception of risk. There is no true risk.”

    So then, we are left with the factors that influence an investor’s perception of his investment risk. This is the embryonic domain of behavioral finance. As professionals we must strengthen our ability to determine the risk for each individual, recognizing that the same investment has different risks in the hands of different investors. Because of the extensive dynamics of an individual life, risk determination is dynamic and potentially complex. Perhaps it is for this reason that there is such unfounded allegiance to quantifying risk with the proxy of a standard deviation. 

    As a point of discussion I would like to propose the following operational definition. Investment risk can be defined as the exposure of capital to a future decision based on the perceived value of an investment at the time of that decision.

   Notice that the exposure of capital is to a future decision, not to an investment. Also, that the decision is based on perceived value, and that perception is based on several factors such as observation frequency, deviation from expectation, volatility and current life factors, to name a few.

    It is not the purpose of this article to propose a strategy for assessing risk and recommending investments as a result of that assessment. Nor is its purpose to address the components associated with risk and how those components can be impacted by investment work.  What I do hope to accomplish is to further motivate a dialogue for investment professionals to open their thinking to other ideas of assessing risk and to question, (in the words of Ken Fisher), “What is it that I believe that is wrong?” 

    To quote Bertrand Russell, “In all affairs it’s a healthy thing now and then to hang a question mark on the things you have long taken for granted.”

Masters of the Breakthrough Moment

strategy+business

by Sally Helgesen
For 50 years, Edith and Charles Seashore have taught people how to make organizations productive by confronting conflict and misunderstanding head-on.

In a conference room in Columbia, Md., 78-year- old Edith Seashore sits among 24 young men and women, about half of them U.S. Navy officers or civilian employees working for the Navy. The group, seated in a circle, has come together for a course called “Working with Differences.” Ostensibly focused on diversity, the session is really set up to teach people how to confront the unspoken conflicts, fears, and resentments that make life in organizations painful and unproductive. And as if on cue, right off the bat, two of the participants have gotten into a dispute.

Photographs by Steven Edson

It seems that Patrick, a naval medical center commander, was deputized to act as timekeeper during the session’s “check-in,” or opening introductions. Now the group is running behind schedule. When another participant, a consultant named Michael, asks him to account for this, Patrick shrugs and says he didn’t let anyone run past the allotted two minutes. Michael persists in questioning him, and after a few minutes of argument, Patrick assumes the authoritative tone that one associates with a naval commander: “I believe we’ve covered this. It’s time to move on.”

People nod, relieved to bring this tedious dispute to a close. But then, as the group begins to analyze its first case study (a difficult conversation that one member needs to have with her boss), a feeling of awkwardness remains in the room. People fidget in their chairs or cross their arms. Finally, a participant breaks in: “I have to speak up!” She turns to Michael. “I know we’ve moved on, but I can’t help feeling irritated by how you handled the business with Patrick.”

Michael, she says, had himself been so abrasive and authoritarian in manner that the rest of the group felt intimidated. Another group member seconds her view. A third asks why Michael himself didn’t make his point earlier, when it might have hurried things along. Someone else remarks that Patrick never gave a satisfactory answer to Michael’s question.

Edith Seashore — small, poised, and confident — sits silently and observes. Although the group is splintering into disarray and contention, she seems immune to the typical group leader’s instinctual urge to jump in and set things right. Indeed, like her husband, Charles Seashore (they are known to students and colleagues around the world as Edie and Charlie), Edie is a connoisseur of disturbance, a master of those awkward moments of conflict and unease that most of us prefer to gloss over, move past, get beyond. But it takes time for such moments to surface in a typical group, so Edie holds back, allowing the tension to build and watching as misunderstandings surface.

When at last she speaks, it’s with a quiet but clear authority that pulls the whole group back from the melee. “I think we’re all noticing a couple of things here,” she says. “One is that Patrick and Michael have both been acting on the assumption that they’re right. This often happens when people are in conflict; each one keeps asserting his position. It upsets people around them, as we see reflected here. And the upset doesn’t go away just because the group tries to ignore it. So everyone ends up in a difficult conversation, even though they are trying to avoid one. It’s a little thing, but it’s a big thing too.”

Michael says, “This is what makes groups so difficult.”

Edie laughs. “This is what makes groups so interesting!”

Before long, Patrick is musing with the group about the episode. “Being a military officer,” he says, “I’m trained to move on quickly, because I always have to be prepared for the next action. And some of my staff say I seem unapproachable. I think this may be part of the reason.”

Deborah, an administrator at the hospital that Patrick commands, cuts in. “I’ve been uncomfortable all morning,” she says. “I kept wishing Edie would intervene. But she held back. She had the confidence to let things get really messy.”

Edie asks, “And what does that teach you?”

“It teaches me that being a leader doesn’t mean avoiding the mess of conflict, but helping people learn from the mess.” She beams. “This is why I came here today!”

Patrick nods. “I think I could say that too.”

It’s a typical Seashore moment — a small thing, as Edie might say, but also a big thing. Her patience in waiting for the right moment to intervene, and her skill in helping the group members see themselves as an outsider would see them, have led to a breakthrough. Suddenly, people like Patrick and Deborah recognize how their habitual ways of speaking and acting shape their relationships with co-workers, and thus set the direction of their overall workplace.

This type of experience is the primary building block of group awareness. It feels surprising when it happens: Participants sometimes refer to it as the “big aha.” But in fact it is the intentional result of a refined set of practices used to make interventions in groups. For more than 50 years, Edie and Charlie Seashore have been developing and honing the subtle art of helping people learn from difficult conversations. They are pioneers in, teachers of, and probably the most influential living advocates for the art of the breakthrough moment. Productivity and creativity in the workplace, in their view, occur when members of a group or team wade together into the muck of confusion and unspoken assumptions in order to surface concerns and conflicts that get glossed over in the rush of daily life.

“Organizations can’t change unless people change,” Edie explained not long after the workshop, “and the most efficient and powerful way to help people change is in small groups. You can affect the whole system if you work with the group.”

The design of virtually every prominent effort in recent decades to make organizations more productive — organizational development, the famous GE Work-Out program, high-performance teams, 360-degree evaluations, diversity awareness, the recent management interest in peer coaching — can be traced back to this fundamental insight. There are, of course, hundreds of people who have experimented with small groups and used them to make organizations more productive, and many of them are influential: Edgar Schein of MIT, Chris Argyris of Harvard Business School, Warren Bennis of the University of California at Los Angeles, and Jerry Harvey of George Washington University are a few of the well-known management thinkers who emerged, at least in part, from the same tradition. But the Seashores have been at the center of the field for so long that they are uniquely identified with it. Their patience, persistence, and sheer passion for working with small groups — thousands upon thousands of them, decade after decade — have spread the practices they’ve honed over many years into the mainstream, in organizations as diverse as the Defense Mapping Agency, the National Institutes of Health, IBM, and AT&T. In courses the Seashores have designed and taught at American University, Fielding Graduate University, and the National Training Laboratories (itself the original seedbed of organizational development), they have influenced thousands of people who have made fixing organizations the core of their professional enterprise.

As Professor Bennis puts it, “Their major impact has been far more important and has had a much wider horizon than any single discipline. They helped to create, from the time they started in the 1950s and ’60s, a new social awareness in organizations. And on a personal level, they are two of the most transformative figures I know — change agents, if you will — who have inspired all around them.”

Toolkits for Democracy
It’s a few days after the “Working with Differences” workshop, and Edie Seashore is recounting the breakthrough moment to Charlie in their kitchen. They live in a penthouse apartment in Columbia, a planned community conceived in the 1960s as a mixed-use, racially diverse D.C. suburb. Being with the two of them is like spending time with a pair of highly intelligent stand-up comics who couldn’t look more different from each other, but whose routines and timing have been perfected over the years. Edie is smartly dressed and vivacious, with the quick wit and rapid-fire speech of a New Yorker (she grew up in northern New Jersey). Charlie, at 74, is tall and rumpled, with tufts of white hair standing on end, a slow-burn Midwestern pace, and a mischievous desire to constantly provoke a laugh. Earlier today, he stopped at a deli with a female visitor who ordered a meatloaf sandwich. Charlie turned immediately to the teenage waitress. “According to my research,” he said good-naturedly, “only 12 percent of women ever order meatloaf. Would you say that’s what you find here too?” An impromptu mock-academic colloquium ensued, with customers and other staff members getting drawn into a discussion of gender and lunch preferences, until everyone in the restaurant realized the absurdity of the situation and joined in the laugh.

Now, back at the apartment, Charlie recounts a mentoring session he conducted with a student at Fielding Graduate University — a school for mid-career professionals seeking advanced degrees in the behavioral sciences, on whose faculty he has served since 1985. The student had misinterpreted an assignment. “She said, ‘That was a terrible thing I did!’ And I agreed, yes, it was terrible. It was so bad that I wouldn’t be surprised if you ended up going to jail. But please don’t be too worried, we’ll help you find the best lawyer. In the meantime, is there anything I can do?”

Charlie explodes into laughter. Edie rolls her eyes. “Can you imagine, 45 years of this?” Pragmatic and down-to-earth, she is prone to quick retorts and sharp, incisive comments, whereas Charlie — who spent much of his early adulthood performing as a unicyclist, ladder walker, juggler, and clown — is more apt to draw out the absurdity of a moment in improvisations that operate, as he puts it, “at the edge of goofiness.” In his serious moments, Charlie’s relaxed and deliberately informal manner immediately puts others at ease.

“His gift is for asking those real-time questions,” says Cindy Miller, a Ph.D. candidate at Fielding who is training director at a major California biotech company. “Charlie will say, ‘This is what I think is going on, but I’m wondering if I’m just imagining it?’ It sounds simple, but it’s the hardest thing to do because you have to be aware on a moment-by-moment basis. Most people don’t take time to do that in complex organizations where everything is moving fast. But without that quality, most so-called leadership development is merely coaching for behaviors. Being aware of yourself and how you affect everyone around you is what distinguishes a superior leader.”

When visitors join them in their Maryland condo, Edie is quick to ask about their personal lives — marriages, children, the personalities of family members. Charlie is likely to leap into a long and thoughtfully detailed discussion of how attitudes toward groups have changed over the last half century. During this same afternoon at the kitchen table, for example, he begins diagramming the cultural history of group dynamics. There was the upsurge of interest in small groups following World War II, when people were wary of hierarchy because of fascism’s legacy; the fear of small groups as Communist cells during the Cold War; the flowering of group consciousness in the 1960s and early ’70s when grassroots activism took hold and people made a point of questioning authority; and the growing suspicion of small groups in our own era, provoked by public fear of terrorist nodes. Threading through Charlie’s graph is the trend of individual empowerment; the use of small groups, in the Seashores’ view, has made individual decision making more competent and helped organizations become more open to it.

Over the course of their long careers, Charlie and Edie have been instrumental in shaping three managerial disciplines. The first emerged in the business world in the 1950s: group dynamics, or the study of small group interactions as they occur in real time. The second, dating to the 1960s, is organizational development (OD), the practice of making organizations more effective by building up their members’ individual and collective capabilities. The third, diversity awareness, started in the 1970s and ’80s, when people of different races, sexes, ages, sexual orientations, and backgrounds needed help in working together and charting their careers. These three fields have gone in and out of favor with managers and leaders through the years, in part because they have often been practiced unevenly. They have at times been dismissed as ineffective, difficult to implement on a large scale, or simply “soft.”

Yet at their best, these disciplines have introduced a reliable set of methods for achieving authentic relationships in the contemporary workplace. During the “organization man” era of the 1950s and early ’60s, most organizations were secure, stable, and multilayered bureaucracies — almost designed to avoid authentic conversation in the name of standardization and the mass economy. But the rapid technological changes and fierce global competition that characterize today’s intense and evolving environment have forced many organizations to rely on the speed and creativity of high-performing, self-organizing teams, rather than on the command-and-control of traditional hierarchies.

In their work with groups, notes Warren Bennis, “Edie and Charlie breathe and exude transformation as seriously as Buddhist monks practice their teachings.” They are known not just for sparking moments of insight, but also for teaching others to do the same. In 1997, they incorporated many of these techniques into an influential book called What Did You Say? The Art of Giving and Receiving Feedback (coauthored with computer scientist Gerald M. Weinberg; Bingham House, 1997). They see this practice as a way to cultivate not just capability in organizations, but democracy — the spread of skills, power, and decision-making authority throughout an enterprise.

In the 1980s, for example, Edie Seashore served as a consultant to the major general who directed the U.S. government’s Defense Mapping Agency, helping him rethink the role of the central bureaucracy. The mapping officers at headquarters had long seen their role as disseminating battlefield images to the soldiers on the ground. Edie helped them understand that the soldiers on the front lines were the real experts and decision makers. They needed the mapping officers to serve as a service bureau — gathering information from field reconnaissance and translating it into simple, straightforward maps that soldiers could use in rapidly changing conditions. To the Seashores, decentralized authority, although it is messy and difficult to control, continues to thrive because it works. But it is always under pressure from leaders who fall into authoritarian habits, even if they pay lip service to change.

“We keep hearing that OD is dead,” complains Edie Seashore at the kitchen table. “We hear that change management has replaced it. But change management is about driving change from the top, and reasserting hierarchy. It’s a way of talking about change but not changing anything.”

Charlie adds, “What’s really needed is to create enough managerial agility to enable people throughout the organization to keep learning so they can adapt to an unpredictable environment. And the way you do that is in groups.”

Roots of Perspective
The idea of the small group as the premier vehicle for fostering organizational change can be traced back to the guilds and monasteries of the Middle Ages, and was influenced both by the cooperative movement of the 19th century and by 20th-century psychological research. But for 50 years, the most influential center for studying the role of groups in organizational change has been an institute called the National Training Laboratories (NTL). Kurt Lewin, a social psychologist who taught at the University of Iowa after fleeing his native Vienna in the Nazi era, designed the institute with several of his students in 1947. Professor Lewin saw small groups as ideal laboratories for observing forces of cohesion, disruption, and challenge in microcosm, since such forces were too complex to discern in larger social systems. He and his students envisioned an experimental setting where researchers could in a systematic way lead groups and study the forces that held them together or drove them apart.

Charlie and Edie Seashore on their property in Bethel, Maine.

Though Professor Lewin died of a heart attack several months before NTL opened, his students started it on schedule and ran it every summer from 1947 through the late 1960s. Purposely remote in a far western corner of Maine in order to provide a “cultural island” uncontaminated by daily concerns, NTL offered intense three-week sessions called “T groups” (T for training), led at first only by the most eminent social scientists in the field. Participants included up-and-coming academics, along with senior executives from major companies (TRW, Digital Equipment, Esso, various oil refineries, and the wonderfully archaic-sounding Doughnut Corporation of America) who could afford NTL’s hefty fees. Many well-established practices of group process were pioneered at NTL: giving feedback, conducting “check-ins” to begin meetings, sitting in circles, using flip charts, scribbling on big pieces of paper taped around the room, collaborating on visions for the future, and forming “fishbowls,” or groups set up in the center of a larger circle to interact while those around them observed what they were doing. The institute’s leaders, called “fellows,” established organizational consulting practices and thus carried what they learned to corporations, educators, military units, health-care providers, religious leaders, associations, and communities around the globe.

The personal history of the Seashores is inseparable from NTL. They both came as students. The then Edie Whitfield had been student body president of Antioch College, a prestigious liberal arts college in Ohio. She was also a protégé of Antioch’s President Douglas McGregor, who was author of The Human Side of Enterprise, a pathbreaking 1960 book about humanistic management. Introduced to NTL in 1954 by her mentor, Edie was an instant hit — a self-possessed college girl thriving among the accomplished and idealistic, but somewhat stiff, professors who congregated there. Charlie Seashore arrived a few years later with a more conventional resume. He was a Ph.D. candidate at the University of Michigan, from a family of well-known psychologists; his grandfather had been instrumental in bringing Kurt Lewin to the University of Iowa. Charlie was a group dynamics natural; he disliked the detachment of conventional social science research, wherein experimenters were so intent on remaining “objective” that they would barely talk to their subjects or help them with their problems. What good was a social science research project if it didn’t improve people’s lives?

Neither Edie nor Charlie was typical of NTL. Charlie’s love of clowning and laughter could lead others to miss his underlying seriousness of purpose. And Edie, while popular, was “basically a mascot,” she recalls. “I was cute and funny and the guys liked having me around even if they didn’t know what to do with me.” For nine years, less-skilled and less-experienced trainers were named fellows while she was turned down, partly because she had no Ph.D. (the prospect of getting one bored her) and partly because she was a woman, a condition to which fellows could then still openly object. “T groups were basically devised by men,” she later recalled, “to teach other men the kind of collaborative skills that often come more easily to women. I think the men feared that once they let women in, women would run away with the program.”

The fear was not unfounded. In the mid-1950s, rather than subject the male participants’ wives to one more shopping trip through Maine’s woolen mills, the faculty decided to start a spouse group. It was the only women’s group at NTL during its first two decades, and it struggled until Edie volunteered to take over. “The participants said, ‘So this is group work? We can do this!’ They ended up entering the field, teaching NTL sessions, getting Ph.D.s, divorcing their husbands, completely changing their lives,” she says. Women consultants, tiptoeing quietly out of the NTL closet, suddenly found a distinct managerial role in organizational development work — a role that is taken for granted now, but was revolutionary then.

Edie set up shop as a consultant in New York in the 1960s, her serene confidence in her own instincts her most formidable asset. At first she worked primarily with religious and community groups — then considered suitable work for a woman — but she soon began to make her name with business and then military clients. She often had dinner in New York with Douglas McGregor, who was then consulting for Standard Oil. One evening, Edie asked him the secret of his success, and he gave her the advice on which she would build the rest of her career. “I listen, and I listen, and I listen,” he said, “and then I come up with one good idea that impacts the organization and makes me worth every penny they pay me.”

Edie adopted “one good idea” as her personal motto. Fred Miller, CEO of the Kaleel Jamison Consulting Group, who has worked with Edie Seashore for many years, sees her success as rooted in this approach. “Edie dispenses wisdom in short doses, little insights that people can assimilate as they go along,” he notes. With her self-invented career and indifference to academic qualifications, Edie, says Mr. Miller, “is credentialed by her practicality, and by her engagement.”

Edie was Charlie’s first trainer at NTL. They worked together occasionally in the late 1950s, while she was building her business in New York, and he was finishing his Ph.D. in Michigan. In 1961, Charlie proposed to a woman named Sandra, using this line: “If you married me, your name would be Sandy Seashore.” She turned him down. Later that summer, working with Edie, he mused absentmindedly: “If you married me, you could work and travel as much as you liked.” It was a novel suggestion in an era when women were expected to quit work after marriage, and though they weren’t dating, Edie agreed on the spot. Charlie then tried to back off, claiming he had been speaking hypothetically, but with characteristic directness Edie told him it was too late, she had already accepted. Unlike Sandy, Edie found the prospect of being known as Seashore irresistible. “Who could turn down a name like that?”

They settled in Washington, D.C., where NTL had begun a variety of programs, mostly for federal clients, and Charlie accepted a position as program director with the institute. He also began a long association with the National Institutes of Health, building collaborative networks that sought to break down barriers between physicians and staff. Edie, whose one good idea decisiveness made her a natural for hierarchies, worked with the Naval Academy, which was suddenly required to admit women in 1972. “The captain didn’t want to hire me because I wasn’t Navy and I was a woman. He stood up when I entered his office and barked, ‘Okay, what should I do?’ I said, ‘Put women officers into the plebe summer program.’ He picked up the phone, barked at someone else, and said, ‘Done! Now what else?’ I said, ‘That was my one good idea. I’ll get back to you with another. Meanwhile, let’s sit down and talk about it, so we can get it right.’” This was the start of what would be an eight-year contract.

Over the next two decades, Charlie and Edie designed and taught courses at Johns Hopkins, American University, and Concordia in Montreal, bringing group process and techniques into traditional academe. They bought a house in Washington’s Rock Creek neighborhood and filled it with friends, dogs, piano music, and children. Their daughters Becky and Kim were born in the 1960s (Edie threw a dinner party the night before she delivered one of the girls). Edie often took her children along on business trips, pioneering the role of professional mother. “Our work and our lives were the same thing,” she recalls, “and the girls were part of it. They always talked about how their friends’ parents seemed to hate to go to their jobs because they weren’t much fun. We were having fun.”

Among the Horsepersons
Then, in the mid-1970s, NTL once again catalyzed a new kind of management thinking: diversity awareness. But this time, it happened almost by accident. NTL was facing acute financial difficulties. The “T group” business was declining — in part because of new competition from the less rigorous “encounter group” movement, in part because some of its own most popular leaders were defecting to start their own consulting practices, and in part because as the business environment became more competitive, managers could no longer justify spending three weeks in Maine on “group dynamics,” especially if the results could not be easily quantified. At the same time, the institute had acquired a sprawling Victorian mansion, known as the Founders House — a picturesque setting for workshops but a money pit.

In 1975, Edie joined with three NTL veterans to form “The Four Horsepersons,” a task force charged by the board with trying to save the institute from financial collapse. The other three horsepersons were all longstanding OD consultants: Hal Kellner, who died in the mid-1980s; Peter Vaill, now based in Minnesota; and Barbara Bunker, who works in New York. Together they persuaded 67 associates to donate two weeks each year for the following two years to keep NTL programs running. Edie was then selected as president. “Without the dedicated work of the Seashores at this time,” recalls NTL Fellow and MIT Professor Edgar Schein, “the institute would probably not have survived.”

With Edie at the helm, the NTL members took on the mission of making both the board and the membership far more diverse while also developing techniques for doing group work in diverse settings. To accomplish the former, they expelled all the NTL trainers — about 200 people at the time, many with long-standing pedigrees in the organization — and then admitted trainers one by one, insisting that there be equal numbers of white men, white women, men of color, and women of color. This created a dramatic upheaval, especially for the many white men who had been NTL fellows for three decades but now had to apply for membership all over again, with no guarantee of being chosen.

At that point in the late 1970s, a group of highly educated baby boomers — white women, and women and men of color — were entering the workplace in the United States. There were few models to help these newcomers advance, and resentments and uncertainties made it difficult for highly diverse teams to achieve cohesion. With Hal Kellner, Edie began an in-depth initiative to help AT&T, then the largest corporation in the world, deal with the consequences of a court-ordered mandate to achieve greater gender and racial balance. She saw that NTL had a great opportunity to establish itself as a standard-bearer in modeling the kinds of conversations, more difficult and daunting than ever, that were needed to surface and resolve conflicts in a diverse work force. NTL came to be a defining center for the new field of diversity training; for example, Edie was among the first to form the internal associations that would now be called “affinity groups” for women and for people of color within organizations, a highly effective way to develop collective strength and understanding.

NTL regained its economic health during the next few years, under the leadership of Edie Seashore and Elsie Cross, who became the first African-American to chair the organization. The new leaders maintained NTL’s rigorous emphasis on research, which kept it from becoming a cultlike encounter group or a sales-oriented program like Erhard Seminar Training (est). Edie and Charlie continued to reside in Bethel every summer, buying a big comfortable house next door to the Founders House, and bringing new generations of students with them to learn. Meanwhile, Edie started teaching at Johns Hopkins and at American University, where she established a degree-granting program under NTL auspices, and Charlie joined the faculty of Fielding Graduate University.

Blankets and Sandpaper
On an icy weekend in February 2006, the Seashores drive up to Bethel to conduct what will turn out to be a pivotal session at the 50-year-old NTL site, which the board has decided to sell so that it can “get out of managing real estate,” as Edie puts it. Twenty-two Fielding Ph.D. candidates have flown in from around the country to present case studies on challenges they face. Most are senior executives eager to develop their group skills so they can have a greater impact on their organizations. Charlie is leading the weekend’s session with two other Fielding faculty members.

Before the participants break into small groups, Charlie tells them: “Some of you will be blankets, providing comfort and support to others, and some of you will be sandpaper, irritants that lead the group to breakthroughs. Group process is basically a means for applying both blankets and sandpaper to a given situation.”

Calvin, a real estate developer from Boston, presents the first case study. He starts by noting that his greatest challenge is getting people to listen when he talks. Then he goes to a flip chart and starts to diagram his company. As he delves into its intricacies, he turns away from the group. After a few minutes of this, two participants begin to whisper restlessly between themselves. A third joins in. Calvin soldiers on.

At last Connie, a university teacher from Wisconsin, breaks in abruptly. “Excuse me, but would Calvin mind facing his audience? I was interested in what he was saying, but now I’m lost in the details.”

There’s a moment of silence. Someone asks why Connie feels entitled to encroach on Calvin’s time. Other participants agree that she is being disruptive. Connie tries to justify herself.

Charlie watches intently. It’s as if he can see the social forces that Professor Lewin described — cohesion, disruption, and challenge — playing themselves out with predictable regularity. Finally, he asks, “What happened here with Connie?”

“She broke in,” someone volunteers.

“And how did that change the dynamic?” Charlie asks.

“It pulled the attention away from Calvin.”

“Does anyone remember what preceded Connie speaking up?”

There’s a pause. Someone recalls that people had begun chatting. One of the chatters then admits that he had stopped listening to Calvin. “But,” he adds, “I didn’t make a big deal of it like Connie.”

Charlie asks the group to consider the role that Calvin played in provoking inattention. Calvin says, “I don’t think I played any role. I was just presenting my case.”

“You say you have trouble getting people to listen. That’s what happened here. People stopped listening, especially when you turned your back on them.”

“That’s like at work. I get absorbed in the details and I lose people. Then I feel bad because no one listens.”

“So you do have an impact when you’re talking to a group. It’s just not the impact you want to have.”

Such breakthrough moments occur with regularity as the sessions continue throughout the weekend, with Charlie performing a variety of interventions. He plays the role of one participant’s boss, and coaches another to deliver the eulogy at his mother’s funeral. By the end of the weekend, the 22 participants have become increasingly sophisticated at spotting their own evasions, more likely to jump in and say, “I see what’s happening here!” and more intentional in assuming a role within a group.

It’s not possible to tell, of course, whether these insights and epiphanies will lead to permanent changes after the participants go home. Observers such as Charlie and Edie’s old colleague Chris Argyris, an NTL veteran who later joined the faculty of Harvard Business School, have criticized the disciplines of OD, group dynamics, and diversity on the grounds that the breakthroughs and epiphanies fade away; they do not change behavior in any lasting way. Will Calvin, returning to the pressures of his job, be able to squarely face those he is seeking to influence? Will Patrick, the naval hospital commander from Johns Hopkins University, draw upon what he learned to become more patient with his direct reports? And will Deborah, his colleague, confront conflict rather than trying to avoid it? Or will they all simply retreat into habitual patterns when they are once again immersed in their office routines?

Tangled Up in Tasks

 

CFO Magazine - July 2007 Issue - CFO.com

Multitasking and frequent interruptions are inescapable aspects of office life, but they can exact a toll.
Edward Teach
July 01, 2007

According to Basex Inc., a knowledge-management research firm, work interruptions cost the U.S. economy at least $650 billion a year. Analysts Jonathan B. Spira and David M. Goldes reckon that 28 percent of the typical knowledge worker's day, or 2.1 hours, is consumed by unnecessary interruptions and recovery time.

Surely, skepticism is appropriate regarding such a staggering sum (amounting to 5 percent of the gross domestic product). Still, there is justified concern over what researchers call "work fragmentation," associated with interruptions and multitasking.

For example, in a 2005 study, researchers at the University of California at Irvine found that information workers at an outsourcing company spent an average of 11 minutes on a project or task before they were interrupted. Once diverted, it took them 25 minutes to return to the original task. Spira and Goldes cite a British researcher who administered IQ tests to different groups of people; the group that was distracted by E-mail and ringing telephones scored an average of 10 points less than a control group (and 6 points less than a group in another study that smoked marijuana before taking the test).

Edward M. Hallowell, M.D., a well-known expert on attention deficit disorder (ADD), says he increasingly sees people who exhibit symptoms of what he calls ADT, or "attention deficit trait."

An Inverted U
Of course, multitasking can be a boon as well as a bane. According to a 2006 study by researchers at MIT, it can lead to higher productivity. Sinan Aral, Erik Brynjolfsson, and Marshall Van Alstyne studied workers at an executive-recruiting firm, reviewing data on more than 1,300 projects over a five-year period and monitoring more than 125,000 E-mail messages for 10 months. They found that workers' revenues were "a function not only of how fast they work, but also of how much they multitask." Heavier multitaskers were able to complete more projects than others, even though their speed per project may have been slower.

But the MIT researchers also found that the relationship between multitasking and productivity is shaped like an inverted U. More multitasking means more output only up to a point, "after which there are diminishing marginal returns, then negative returns to increased multitasking." They noted that previous research has shown that multitasking is associated with "cognitive switching costs," which means that as tasks pile up, efficiency drops and errors multiply.

Another 2006 study, by researchers at UCLA, suggests that multitasking can lead to less-than-optimal learning.

These results have implications for learning in multitask situations, suggesting that, even if distraction does not decrease the overall level of learning, it can result in the acquisition of knowledge that can be applied less flexibly in new situations," concluded Karin Foerde, Barbara J. Knowlton, and Russell A. Poldrack.

A World Gone ADD
Edward Hallowell says that multitasking can be desirable, adding variety to the job. But he believes the kind of multitasking in which attention shifts rapidly from spreadsheet to E-mail to Web page to BlackBerry can be damaging. Hallowell's most recent book, CrazyBusy (Ballantine Books, 2006), offers "strategies for coping in a world gone ADD."

For those too busy to read the book, here's what Hallowell told CFO about how to calm down and regain focus. One, take control over your life, while accepting that total control isn't feasible or desirable. Two, prioritize: decide which tasks matter the most. Three, rebuild the boundaries that technology has broken down. "Close your door and turn off the cell phone," he says. "Decide that your day does have an end point, that there are places where you can't be disturbed."

In the end, getting organized, setting boundaries, and learning time-management skills aren't enough, says Hallowell. Emotions are important, too, and people underestimate the role they play in peak performance. Get plenty of sleep, eat well, and make sure you have some positive human contact during each day, he recommends.

"You're not a machine," says Hallowell. "Managing your brain is right at the heart of what success and failure hinge on." And happy brains, he observes, "think better."

Edward Teach is articles editor of CFO.

destinationCRM.com: A Green Light for Marketing

 

CRM Magazine

by Jessica Sebor

Friday, June 01, 2007

Ecofriendly marketing has gained popularity among companies in the past year, largely propelled by growing concerns surrounding noticeable climate changes and the depleting ozone layer. Organizations have found great success with ecofriendly campaigns, but many have discovered that once you go green, there is no going back.

"Within the United States today we're looking at a shifting political environment," says Emily Riley, an analyst at Jupiter Research. "As the idea of greener living in general continues, manufacturers and marketers will be part of that change and will reap the benefits of better efficiency and lower costs to becoming green." In a survey conducted in 2006, Jupiter found that 34 percent of consumers reported that they prefer to buy products that are environmentally friendly.

Marketing, with its constant direct mailings and piles of swag, has come under criticism for wasting of raw materials, and many companies have looked at ways to make their marketing efforts less ecowasteful. According to Stacee Matheson, founder and president of ecofriendly promotional merchandise and apparel supplier EcoBranders, in the past year her industry has experienced a great deal of growth, a momentum she hopes will continue. "I don't foresee companies giving up their marketing materials entirely in the name of being ecofriendly," Matheson says.

EcoBranders and similar suppliers offer choices to marketers that wish to make their companies' methods more environmentally responsible and to communicate this effort to customers.  "Our customers really appreciate those efforts and want to hear about them," says Meredith Restein, cofounder of Moonrise Jewelry, a jewelry maker whose designs and marketing materials are largely ecofriendly. 

One of the biggest mistakes a marketer can make with a green effort is for the company's actions not to live up to its promises. Microsoft has long touted its green efforts, but when the company announced in April a promotional plan to run free taxis in London, blogs and webzines immediately attacked the company for promoting private over public transportation. This may have damaged the company's work toward a green image.

The Wealth Protection Process

By Hannah Shaw Grove and Russ Alan Prince

July, 2007 Financial Advisor Magazine

Knowing what to do is one thing; knowing how to do it—and to keep it done—is where the advisor shines.
    Operationally, the wealth protection process is comprised of the following six phases, but should not be treated as an incontrovertible process. If utilized as a broad conceptual model, it can guide the wealth manager and the client as protection objectives are established and met. The six phases are:
    • Phase 1: The At Risk Assessment
    • Phase 2: Evaluate Alternative Solutions
    • Phase 3: Select Solutions
    • Phase 4: The Action Plan   
    • Phase 5: Implementation
    • Phase 6: Follow Through 
    As with many wealth management offerings, wealth protection will invariably require the use of outside experts throughout the process.


Phase 1: The At Risk Assessment
    During this phase the basic protection concerns and needs of affluent clients are identified. Success in each of the subsequent phases of the wealth protection process is reliant on the risk assessment being as complete, thorough and accurate as possible.

Phase 2: Evaluate
Alternative Solutions
    Both asset protection and physical security will have an array of solutions and these must be considered and screened in the context of the individual or household they have been proposed for. An important method for evaluating wealth protection solutions is the following conceptual algorithm—the net value of a security solution:

Net Value of a Security Solution = 
Intensity x Duration
Lifestyle Issues x Financial Issues
    Every wealth protection solution has four variables that can be modified within set parameters. One is intensity: How concentrated should the security solution be? Another variable is duration: How long will the solution be active? The denominators are lifestyle considerations—the extent to which a wealth protection solution is an impediment to your client’s lifestyle—and financial considerations, or the costs of using a particular wealth protection solution.


Phase 3: Select Solutions
    Once the most appropriate and effective solutions have been identified, it is time for the wealth manager and the client to select those that best fit their needs and overall wealth protection goals. Using hypothetical scenarios can often help a client identify those issues that are of greatest personal concern and those areas with the greatest risk exposure.
    Some of the questions wealth managers can use during this phase include:
    • What if someone kidnapped your daughter?
    • What if you were being followed everywhere by an obsessive fan?
    • What if a teenager claimed to be your illegal offspring?
    • What if someone is listening in on all your phone calls and is reading all your e-mails?
    • What if a stranger knows how much money you have and where it all is?
    • What if someone steals your identity and empties all your accounts?
    • What if someone filed a frivolous but very real lawsuit against you for $50 million?
    • What if you found your private jet trashed the next time you boarded it?
    While these types of scenarios are unlikely, they are still possible. The following algorithm can be useful when evaluating a potential incident and its solution, as it can help affluent clients perceive each within the confines of their personal circumstances.

Need for a Wealth Protection Solution =
Probability of Incident x Severity of Incident
    Once complete, the wealth manager and the client should work together to rank the incidents by the degree of negative impact. And finally, as a generalist, the wealth manager should maintain focus on the client’s overall goals and not be persuaded by the zeal or enthusiasm of a specialist to adopt a strategy that is not the right fit.

Phase 4: The Action Plan
   Once the advisor, specialists and client agree, each solution is customized for the client and a detailed proposal and blueprint for implementation is drafted. The overriding goal of the action plan is to give the client a clear sense of the steps required to secure their financial and personal property.

Phase 5: Implementation
   The action plan can serve as a To Do list of sorts, and next steps are relatively straightforward. This phase always requires a significant amount of work on the part of the specialists and the wealth manager, and is often where the process is derailed by unanticipated issues or mired in legal and contractual paperwork. A successful implementation will require ongoing involvement and commitment from the client and all the professionals.

Phase 6: Following Through
    Both our statistical studies and our anecdotal experiences confirm that many wealth managers and their clients make a critical mistake after the implementation phase by not following through on the plan to evaluate or modify its components. Effective follow-through includes these regular activities:
    • Environmental scanning. Work with the protection specialists to stay abreast of any changes impacting both wealth protection disciplines and to what extent your clients’ plans are affected.
    • Client-driven contact. Changes in the client’s life, whether marital, lifestyle or geographical, can have a material impact on a wealth protection plan. When this occurs, the wealth manager should update the client profile and reevaluate the efficacy of the plan.
    • Ongoing and periodic reviews. Wealth managers meet with clients on a regular basis and wealth protection requires the same level of attention. Periodic meetings provide a forum for feedback and a chance to observe various protection strategies as part of the overall wealth management experience.
    Adopting a systematic approach to wealth protection can help make a serious and sometimes unpleasant task proceed more smoothly for all parties involved and ensure that the result is a plan that delivers protection and peace of mind for the wealthy client.

Hannah Shaw Grove is the author of five books on private wealth and advisory practice management. Russ Alan Prince is president of the consulting firm Prince & Associates.