A Study in Economic Cycles & History

In Our View…

It seems as though many organizations woke up a year ago to discover some major problems with their “navigation system”. They were either unprepared or
unconditioned (perhaps both) to deal with a detour over some particularly hazardous back country roads.

We can all choose a favourite villain at whom to point our angry fingers and there are more than a few easy targets. However, I would rather focus on the future and learn from those who have responded appropriately and opportunistically. I suspect they will successfully navigate themselves back onto the superhighway, in even better shape, and will be quite a way down the road before some others have even rounded the first turn.

An Egalitarian Meltdown

Misery loves company, but it is of no consolation that this meltdown has been indiscriminate in how it has impacted the economy, and society in general. It doesn’t seem to matter whether you are at the top or the bottom of the social-economic scale, you have been hurt in exactly the same way. In that respect, this recession has been very egalitarian.

Perhaps that is because we all made the same bet, based on the same flawed premise.

It has been said before, but “the quest for easy money is as old as money itself”. A belief in endless growth, serial expansion, infinite resources and endless plenty was sure to end with a painful dose of reality. Well – it certainly did! In fact, the lies we told had grown some pretty long legs well before the 1987 crash.
The Irish author and philosopher Charles Handy was correct ten years ago when he coined the phrase, the “Age of Unreason”. It seems that, in order to sleep well at night, we have all acquired an aptitude for the art of forgetting. We certainly have some rich history in terms of panics, recessions, depressions and meltdowns to learn from – if we so choose.

To list just a few:

Amsterdam Tulip Mania 1637 | South Sea Bubble 1720 | Panic of 1837
Panic of 1901 | Bankers Panic 1907 | Wall Street crash 1929 | Black Friday 1987
Savings & Loan Crisis 1990 | Japanese Housing Bubble 1996
Dotcom & Enron 2000 | Peoples’ Panic 2008

Manifest Destiny…

To anyone under the age of twenty, Manifest Destiny is the name of a heavy metal band. To the rest of us, it refers to a particular political and economic philosophy that heavily influenced American policy in the 1800’s and that, some believe, continues to do so right up to the current time. It is a policy of aggressive growth and expansion based on:

Untamed capitalism I Unabashed nationalism I Universal right and mission

It is a flawed mindset. It is as flawed as the belief we could use leverage and complexity to hide the risk of imaginative financial transactions, and then expect to get away with it. It does not consider the human and environmental costs of unrelenting expansion and greed, nor the long term consequences of mortgaging our future to satisfy immediate urges.

Think about it:

  • Individuals own roughly two thirds of all the stock on the market
  • Institutional investors own the remaining third

While that may not be bad in itself, the fact that 80% of all stock transactions come from the institutions tells you something about motives, greed and manipulation. It seems our normal human flaws and imperfections have been made worse by a toxic combination of Technology, Culture and Circumstance.


Gridlock is a term we usually use to describe the inability to move in traffic. A situation in which outlets, escape routes or intersections are blocked, preventing us from moving in any direction. It is a situation in which we have no options or, at best, none that are desireable.

We regularly see organizations who find themsleves in the equivalent of this dilema. It is as though they wandered aimlessly into a trap, turned a corner and found themselves stuck behind a long line-up of others in exactly the same predicament. It is not a great feeling and it doesn’t help when all you can do is lean on the horn and wait – impatiently.

While you are wating, why don’t you take a moment and think about the most common types of gridlock we see in organizations and their leadership teams. Use the time to commit to avoiding these types of serious navigation errors in the future.

Psychic Gridlock

  • The bad mental models and lack of perspective that result from a failure to avoid the predicable bumps due to poor peripheral vision.

Decision Gridlock

  • The way in which critical decisions end up being either ill-defined, deferred or ignored – let alone watered down.

Process Gridlock

  • The overwhelming dead weight anchor of process slavery that may serve you in normal times, but not in these times.

Bounded Rationality…

The American economist, phycologist and Nobel Prize winner Herbert Simon first used the term bounded rationality in 1957. He observed that the rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make decisions.

The bottom line according to Simon?

We don’t make the best decisions at the best of times, let alone in times where our information is particularly limited, the uncertainty greater and the time exceptionally short. Simon’s colleague Daniel Kahneman (another Nobel Prize winner) reminds us “people form judgements when they are uncertain of the facts”.

Perhaps it’s time to revisit the quality of your portfolio of judgments.

  • Fear can be a constructive emotion that keeps us alive, sharp and thinking or it can explode into panic. How are you using this emotion to advance your business objectives in a positive manner?
  • Myths, delusions and bias lead to gridlock and can consume you if you don’t take steps to puncture them. What are you doing to ensure that those in your organization who have the ability to call out the truth are listened to, protected and rewarded?

From the Dock…

I have to admit it – I recently took a week off to do nothing but sit by the lake and think. No doubt it was a very selfish pleasure in the midst of the current squall, but I did it anyway. To assuage my guilt, I took six books with me and set myself the objective of trying to better understand the current situation, what got us here, what we can learn from it and what we can do to get out of it. It was very therapeutic, and more than a little instructive.

I have summarized what I learned from those six books on the following two pages. I was careful to include views and opinions from both the left and the right and from both new and old sources. Here is where it netted out.

It seems the people I chose to learn from all believe we are headed for a collision between:

Nature and Human Nature | Individualism and Community Wealth and Commonwealth

While they may differ in terms of their political leaning, the blame they lay or the exact prescription they espouse, they all agree we need to do something fairly major to compensate for the fundamental mistakes, short-sightedness and misrepresentations that have contributed to an unsustainable economic recipe.

The challenge is – where will the leadership to change come from?

From the Left…

The Transformation of Business, Democracy & Everyday Life
Robert. B. Reich

Reich argues that, while the U.S. has grown stronger as a capitalist economy, it has grown weaker as a democratic nation. He looks at political and economic history and how democracy is threatened, as Americans become more engrossed in their roles as consumers and investors and less so as citizens. He suggests the spread of capitalism to a global level hasn’t corresponded with a spread of democracy throughout the world and has led to some negative social consequences at home, including widening inequalities and a shrinking social safety net. While praising the spread of global capitalism, he laments that supercapitalism has brought with it alienation from politics and community.

The Social Virtues & the Creation of Prosperity
Francis Fukuyama

Fukuyama examines the impact of culture on economic life, society, and success in the new global economy. He argues that the most pervasive cultural characteristic influencing a nation’s prosperity and ability to compete is the level of trust or cooperative behaviour based upon shared norms. In comparison with low-trust societies which need to negotiate and often litigate rules and regulations, high-trust societies are able to develop innovative organizations and hold down the cost of doing business. He proposes that it is the social capital of a given country (or even area within a country) that defines how its economy functions.

The Shock Doctrine
The Rise of Disaster Capitalism
Naomi Klein

Klein advances a truly unnerving argument: historically, while people were reeling from natural disasters, wars and economic upheavals, savvy politicians and industry leaders nefariously implemented policies that would never have passed during less muddled times. As Klein demonstrates, this reprehensible game of bait-and-switch isn’t just a relic from the bad old days. It’s alive and well in contemporary society, and coming soon to a disaster area near you.

From the Right…

The Story of Modern Financial Insanity
Michael Lewis

Lewis takes readers on a spin through notable recent financial catastrophes including the 1987 stock market crash, the Russian default and related failure
of hedge fund long-term capital management, the Asian currency crisis, the Internet bust and the recent sub prime debacle, and the problems caused by the new complexities of the financial markets. He explains the mood and market factors leading up to each crisis and then, with hindsight, reports on what actually happened.

Why we Fear the Things we Shouldn’t
Dan Gardener

Gardner explores a new way of thinking about the decisions we make. In part, he claims, this irrationality is caused by those who promote fear for their own gain. Working with risk science pioneer Paul Slovic, he sets out to explain just how we make decisions and run our lives. We learn that the brain has not one, but two systems to analyze risk. One is primitive, unconscious, and intuitive. The other is conscious and rational. The two systems often agree, but occasionally they come to very different conclusions.

What is America?
Short History of the New World Order
Ronald Wright

The argument at the heart of this book is that the New World made the modern world and now threatens to undo it. Wright outlines the long record of collisions between nature and human nature and seeks to understand the rise of the United States from small colony to world power, while raising the larger question of what has been neglected.

Mindset of a Winner…

Although we are in a period of stress, anxiety and negativity it is, paradoxically, a great time to think long and hard about what it takes to be a winner and for you to figure out what you are going to do to build winners throughout your own organization. The mind tends to get a little sharper when pressed by events that represent a threat to what we have always held to be true.

It’s that kind of time.

We know winner’s posses a powerful success formula – a balanced mix of results, creativity and character. However, the issue is not what it takes, but why we don’t have more success in developing deep reservoirs of talent, especially leadership talent. At The Beacon Group, it seems to us there are some reasons, and a recent 5-year study we conducted, based on the results of over 10,000 360-Degree Feedback Surveys from a broad cross section of industries, helps shed some light.

Here are the highlights:

  • Self Assessments were higher than the overall feedback 58% of the time
  • Managers/Supervisors were the lowest rater 50% of the time
  • Peers were the highest raters 0% of the time
  • Direct Reports were the highest raters 67% of the time

Building Leadership Capacity…

It’s likely the recent Portfolio.com summary of the Best and Worst CEO’s of all time caught your eye. It sheds some light on what makes the principle difference between a great leader and a not so great leader. In every case, one of the key factors was whether or not they took their responsibility for managing human capital seriously.

The point?

  • Leadership matters
  • There is a shortage of good leaders
  • Organizations have an obligation to build leaders
  • Competitive advantage comes from the quality of leaders you build

We don’t want to give you yet another list of the qualities or attributes of great leaders – although we certainly have one and you, no doubt, have your own. The real issue is why do some leaders believe in it, act on it and shape talent, while most don’t take it seriously.

Here are some of the reasons people use to deflect their obligation to build leaders:

  • It takes time
  • It takes candour and courage
  • It takes confidence, conviction & commitment

Steps to Take :: Actions to Consider

In our last Report, we listed five things you can and should do as a leader to not only adjust to the current reality, but to master it and ensure you and your organization emerge in better shape – more focused, more strategic , more thoughtful and better able to execute.

Invest in creating your own future

  • Don’t build the new tomorrow on the faulty foundation of the past

Change the way you assess talent, measure leaders and reward high performers

  • Don’t tinker with changes around the edge when you need to fix the core

Abandon the very premise of achieving sustainable advantage

  • Build you strategy for constant manoeuvring and serial opportunism

Change your thinking process

  • Focus on more strategic thinking, not more strategic planning

Spend more time with your best brains, your deviants

  • Focus hard on how you will emerge from the meltdown

The way we see it, the closer we come to the end of the downturn, the more urgent the responses should be from those who wish to take advantage of the opportunities that lie on the other side of the divide we are experiencing. Here are some more ideas:

Topgrade your Talent

  • Don’t be afraid to force rank your leaders in terms of performance and potential

Tackle the Wicked Problems

  • Use the current crisis to galvanize energy to address your most difficult challenges

Solve the Unresolved Conflicts

  • Turn your back on compromise and resolve to address the underlying tensions

Abolish the Bad Tradeoffs

  • Review your choices and filter them through a new lens that raises the bar

Rebuild Poor Networks

  • Build a genuine outside perspective and banish the inward focus that kills success