Author: supermoxie

  • The No Asshole Rule at Berkshire Hathaway: Confirmed in Snowball

    My last post asked if anyone could confirm that Charlie Munger had said that Berkshire Hathaway applied The No Asshole Rule from early on.  I am delighted to report that, thanks to Bill's comment, I now know that it comes from an interview with Charlie Munger that is quoted on page 388 of Snowball, Alice Schroder's current bestseller on Warren Buffett.   I had started reading the book, but had not got that far!

    The quote comes at the bottom of page 388 and the context is that they had bought 20% of a troubled investment firm called Source Capital at a discount from "two assholes who were the sellers," but then they started packing the board with talented managers who were not assholes.  Munger's quote is, to confirm,  "We had the no asshole rule very early. Our basic rule is that we don't deal with assholes."

    A few comments:

    First, as I have said from the start, I did not invent the no asshole rule.  It has been around for a long time, The book — and this blog — simply meant report how it is used in different settings, provide evidence to show why it assholes are so damaging, and to show that it is possible to be successful in business and still apply the rule.  I am especially delighted to hear that Buffett and Munger — two of the most successful capitalists of our time — have used it for years.

    Second, note that Munger and Buffett use the word asshole — not something else.  I know it offends some people, but no other word carries the right cultural meaning for me –and a lot of other people.  "Jerk" or "bully" just wouldn't do in this case.

    Third, reading this quote in context is interesting because, in making this investment, Munger and Buffett realized that they were in fact violating their own rules. When he heard about Source Capital, Buffett joked "Now I understand the two-asshole exception to the no-asshole rule."  My take on this is that, in business and in life, there are times when for practical reasons of all kinds, your will end-up violating the no asshole rule.  The question, however, is what happens during and after the transgression.  If you do it knowingly and believe that it is worth dealing with assholes to get something you want or need, there might be times when it is worth making a deal with one of these devils — so long as you don't become one yourself. Indeed, such self-knowledge alone can help you resist catching the asshole poisoning from them.  Moreover, in some cases, such knowledge can put you in position to reverse the nastiness down the line — in this case Munger put talented and civilized managers on the board to offset those two creeps.

    Finally, to rain on my own parade a bit here, although companies in Berkshire Hathaway portfolio are generally well-managed, it is unreasonable to believe that all of these companies have and enforce the no asshole rule. Note the comment on my prior post from "Living with an asshole" that makes this point.

    Thanks again to Bill. And now I can add Berkshire Hathaway to my Honor Roll of people and places that enforce the no asshole rule.

  • Does Berkshire Hathaway Use The No Asshole Rule?

    If you are a regular reader of this blog, you know that I maintain an "honor roll" of organizations that espouse and apply The No Asshole Rule.  I was pointed to this quote in a corner of the web I can't identify from Charlie Munger, who is Warren Buffet's right-hand man and Vice-Chairman of the renowned Berkshire Hathaway.  I found it here, and it is "We had a no-asshole rule very early.  Our basic rule has always been that we won’t deal with assholes."  I would love to add Berkshire Hathaway to my honor roll, but as there is no source given for this quote, I don't know if it is legitimate or not.  If anyone knows the source or has ideas about how to find it, I would be appreciate it.  Thanks.

    Also, more generally, I am always looking for more organizations and groups to add to the honor roll, so if you know one — or are part of one — please drop me a note.

    P.S. I have started reading The Snowball: Warren Buffett and The Business of Life. I have given up looking for direct evidence of the rule in the book but am enjoying it a great deal — Buffett has had quite a life. 

  • Washington Mutual and Perverse Incentives

    The causes of the mortgage meltdown are diverse and complex, and anyone who points to a single cause is almost certainly wrong.  But there is also little doubt that perverse incentives, as economists like to call them, played a role in creating the mess.  I've written about how bad incentives can, over the long haul, drive people to do things that are ultimately destructive to themselves and their organizations — with a little help from a great Dilbert cartoon — and see this great list of examples on Wikipedia. I love this one:

    "19th century palaeontologists traveling to China used to pay peasants for each fragment of dinosaur
    bone (dinosaur fossils) that they produced. They later discovered that
    peasants dug up the bones and then smashed them into multiple pieces to
    maximise their payments"

    I am not among those psychologists who argues that money is a weak motivator of human behavior.  Rather, as Jeff Pfeffer and I argue in Hard Facts, the problem with using money as a motivator is that it is very difficult to get the incentive system designed so it motivates the right kind of behavior and discourages the wrong kind.  You could argue that the problem with using financial incentives is that they work too well rather than not well enough — causing people to focus their attention narrowly on a small number of things and to forget more subtle and long-term issues.  This is especially  true with individual incentive systems — which have been shown to lead to everything from garbage collectors in Albuquerque driving too fast, driving broken trucks, and missing many collections so they could finish their routes more quickly to schoolteachers in Chicago cheating on standardized tests — giving students the right answers to tests or changing the answers themselves — to get performance bonuses linked to student test scores.

    Alas, the once great Washington Mutual bank seems to have fallen, in part, because so much emphasis was placed on writing as many mortgages as possible, fitness of the borrower be damned.  Check out this story in the Sunday New York Times.  Here is a excerpt that shows how their reward system — and misguided culture to supported it — helped bring down this once great bank:

    MS. COOPER started at WaMu in 2003 and lasted three and a half years. At first, she was allowed to do her job, she says. In February
    2007, though, the pressure became intense. WaMu executives told
    employees they were not making enough loans and had to get their
    numbers up, she says.

    “They started giving loan officers free
    trips if they closed so many loans, fly them to Hawaii for a month,”
    Ms. Cooper recalls. “One of my account reps went to Jamaica for a month
    because he closed $3.5 million in loans that month.”

    Although Ms. Cooper couldn’t see it, the wheels were already coming off the subprime bus.

    “If
    a loan came from a top loan officer, they didn’t care what the
    situation was, you had to make that loan work,” she says. “You were
    like a bad person if you declined a loan.”

    One loan file was
    filled with so many discrepancies that she felt certain it involved
    mortgage fraud. She turned the loan down, she says, only to be scolded
    by her supervisor.

    “She told me, ‘This broker has closed over
    $1 million with us and there is no reason you cannot make this loan
    work,’ ” Ms. Cooper says. “I explained to her the loan was not good at
    all, but she said I had to sign it.”

    The argument did not end
    there, however. Ms. Cooper says her immediate boss complained to the
    team manager about the loan rejection and asked that Ms. Cooper be
    “written up,” with a formal letter of complaint placed in her personnel
    file.

    Ms. Cooper said the team manager told her to
    “restructure” the loan to make it work. “I said, how can you
    restructure fraud? This is a fraudulent loan,” she recalls.

    Ms.
    Cooper says that her bosses placed her on probation for 30 days for
    refusing to approve the loan and that her team manager signed off on
    the loan.

    Four months later, the loan was in default, she says.
    The borrower had not made a single payment. “They tried to hang it on
    me,” Ms. Cooper said, “but I said, ‘No, I put in the system that I am
    not approving this loan.’ ”

    My question: Problems like this crop up over and over again. What can we do to stop them?  Should we stop using individual incentives?  I think that is too extreme, but how do we design individual incentive systems that avert a narrow and misguided focus?  I think part of the answer is supplementing them with other motivators, interesting work, a system that encourages pride and praise, and leaders who set the right example — all that press people to move in the right direction rather than the wrong direction.  But when the money becomes so vivid, people don't even seem to notice long-term dysfunctions, let alone potential ethical lapses. The Enron story was much the same.

    I have no magic wand and don't believe that anyone else does.  There are cultures — I think of P&G and Google — that seem to have avoided such evils. But it isn't easy.

    I once heard a group of CEOs argue that there would be far fewer ethical lapses and they would be much better at doing the right thing in the long-term if the system was changed so that they reported earnings once a year rather than four times a year.  The world is pretty much going in the opposite direction, of course, with people wanting updated information constantly — but I think it is an interesting thought experiment.

    Other thoughts?

  • On Failing to Notice

    I was reading a great chapter on wisdom by Karl Weick (in here) and ran into a great quote from R.D. Laing,

    "The range of what we think and do is limited by what we fail to notice. And because we fail to notice that we fail to notice there is little we can do to change until we notice that how failing to notice shapes our thoughts and deeds."

    One of the best defenses against failing to notice is to surround ourselves with people who think differently than we do, know different things than we do, and therefore notice different things as they  travel through life — and to listen to them.  And when they don't speak-up, we need to stop and ask them what they are noticing that is wonderful, beautiful, strange, seems out of place, or is wrong.  Unfortunately, too many of us seek to be around people who are just like us in as many ways as possible.

  • Idee Strampalate Che Funzionano: Weird Ideas That Work is Published in Italian

    Ideestrampalate_high

    Idee Strampalate Che Funzionano
    was just published in Italy.  They tell me the translation is "Ideas Weird That Work."  The publishing industry works in weird and mysterious ways. Weird Ideas That Work came out in hardback in the U.S. in 2002 and paperback in 2007. But after the success of Il Metodo Antistronzi, as they call The No Asshole Rule in Italy, my publisher Elliot (a scrappy start-up) decided to purchase and publish Weird Ideas in Italy.   I am quite curious to see what happens — the little staff at Elliot are more impressive and relentless than any big publishing house I have ever worked with — especially when it comes to marketing.  You can read a bit more about them here, as I wrote a trip report after I went to Italy to do some book promotion.  Il Metodo Antistronzi actually sold more copies in Italy during the first year of publication than copies of The No Asshole Rule were sold in the U.S. during the first– and it was a New York Times bestseller here, on the BusinessWeek bestseller list for 6 months, and of all books published in 2007, it was the #32 bestseller on Amazon (and the #8 business book).  So these people can hustle. 

    I wasn't surprised when they were able to land a big story in L'Espresso on the book, which they described as sort of like the Time Magazine of Italy — you can see at least the first page of the article here — Download lespresso.JPG.  But I was shocked — and then amused — to realize that a long email  interview that I did with a reporter from the Italian version of Marie Claire (and I think some text from the book) was used in a joke calender (that contains a blend of English and Italian). If you speak Italian, I would love to know how they used my text — I can read the English like "Trouble. Luck can last a lifetime unless you die young" with a picture of a cheetah chasing its prey.  Here is a pdf of the entire calender if you are curious — Download marie_claire.pdf

    I squirm a little when I see things this over the top, but then I realize that there is no reason to take myself so seriously.  And I've also learned that when you have the luck and privilege to work with people who are creative, work very hard, and not afraid to take some risks, it is better to go with it, enjoy the ride, and realize that change and innovation is about pushing the edge.  And when you feel a uncomfortable, that is a sign you are doing something new.

    Creativity happens when people are in their discomfort zone and they entice others to join them on the unsettling and uncertain ride.  Indeed, this one of the main messages of Weird Ideas That Work.

    P.S. As an important footnote, another message is that creativity, taking risks, and pushing the edge are things that should be done under conditions where it isn't possible to do much harm.  Having a silly calender published in Italy, at worst, will leave some people with the impression that I am not a sufficiently serious management thinker.  But if the same approach is used by the pilot flying your plane, the surgeon who is taking our your spleen, or the people who are managing our investments can lead to disaster.  As Diego says, a great question is "Where is your place for failing?"  Every organziation needs one, but you need to pick a place — or a set of problems — where the learning and upside can be high and the potential damage is low.

  • ARSE Test Passes 170,000 Completions

    Button
    I just got a note from Emily at Electric Pulp reporting that the Asshole Rating Self-Exam (or ARSE) has recently passed 170,000 completions, 172,528 to be exact.   This is a self-test you can take to determine if you are a certified asshole — it is in The No Asshole Rule and we published it on Guy Kawsaski's blog when the book first came out.  A sample question is "You sometimes just contain your contempt toward the jerks and losers in your workplace."

    Emily also reports that the Asshole Client from Hell Exam (or ACHE) is up to 13,027 completions — a quiz to help determine if your client is a certified asshole, which I explain in more detail here.  Sample questions include  "Life is one emergency after another with these people" and "They treat me like shit."  Also, I just couldn't resist putting up the button again, it is so on target.

  • Wisdom From Steve Jobs: The Importance of Killing Good Ideas

    Huggy
    Rao,
    Perry
    Klebahn,
    Kerry O'Connor, an army of people from the Stanford d.school,
    and I are making preparations for Customer-Focused
    Innovation
    , an executive program that we teach.  This is our third year and I was thinking
    back to past years (see here and here for posts).  And I remembered
    something interesting that I heard from an executive (I won’t name his company,
    as they were trouble then and still are in trouble), who described a talk that
    Steve Jobs had given to the senior team.

    The thing I remember best was that
    Jobs advised them that killing bad ideas isn’t that hard — lots of companies, even
    bad companies, are good at that.  Jobs'
    argument went something like this:  What
    is really hard – and a hallmark of great companies – is that they kill at lot
    of good ideas.  Sure, this is tough on
    people who have come-up with the good ideas as they love them and don’t want to
    see them die.  But that for any single good idea
    to succeed, it needs a lot of resources, time, and attention, and so only a few
    ideas can be developed fully.  Successful
    companies are tough enough to kill a lot of good ideas so those few that
    survive have a chance of reaching their full potential and being implemented properly.   I would also add that this approach also
    applies to good product and experience design. 
    If every good idea is thrown into a product, then the result is a
    terrible and confusing experience. (This seems to be the problem with the latest
    version of Microsoft word, it does everything, so therefore is very annoying and confusing to
    use.)

    If
    you take this argument to its logical conclusion, it means that innovative
    companies might keep track of these two metrics:

    1. How many good ideas
    are killed?

     (If this number isn’t high enough, that is a
    bad sign.)

    2. Are people
    complaining – even leaving – because too many of their good ideas are killed?
    (The idea here is that
    if no one is complaining about this problem, then there aren’t enough being
    killed.  The complaining, and even people
    leaving, is bad. But if no one is complaining, it is a worse sign.  Creating this kind of frustration is an unfortunate
    byproduct of an effective innovation process and if your people don't have enough pride and confidence to get upset when their innovative ideas are killed, then something is wrong with them — or your culture.)   

    These
    weird metrics may or may not work, but they make sense given Jobs’ argument
    (which I find quite compelling).   His
    argument also resonates with our experience teaching in the d.school  — the groups that often do the worst work
    have too many pet ideas and can’t bring themselves to kill enough of them, so
    they don't do a decent job on any of them. Groups that can’t kill enough ideas also often
    suffer from bad group dynamics, either because multiple members won’t allow the
    group to kill their pet ideas, or because the group avoids difficult
    conversations about which ideas (and therefore whose ideas) to kill, and
    instead, tries to develop too many ideas (None of which are developed well — which results in collective failure.)   As Perry tells our students, there comes a
    point in the process where you have to kill the ideas you have nurtured and come to love, even though it
    hurts.

    P.S. A big thanks to Wally Bock over at Three Star Leadership for selecting this post as one of the top five posts of the week from business blogs.

     

  • Guy Kawasaki’s Reality Check is Shipping!

    Reality Check
    I wrote a rave for Guy's new book Reality Check a few weeks back.  I just got an email from Amazon that my copy of the book is shipping (they sent me an advance copy in paperback, but I wanted a real hardback). I think that means that, even though the website says it isn't out until October 30th, if you buy one, they ship it now.  It is a great book — I love Guy's blog but liked the book even better.

    P.S. If you want to learn more about Guy's book before buying, I see that he has a free taste today on his blog.

  • Generating 600 Ideas to Get 18: Failing Forward at The Onion

    One of the hallmarks of creative people, teams, and organizations is that they accept failure and view it as an essential part of their life.  That is why, as Diego Rodriguez and I like to say, failure sucks but instructs.  There is growing evidence that people learn more from failure than from success — although an important caveat is that people seem to learn the most when they review  both successes and failures that occurred during an experience.  Regardless, whether it is venture capitalists, pharmaceutical researchers, or product designers that you are talking about, there is always a high failure rate in creative work. I used the the example of toy design at IDEO in Weird Ideas That Work.  Note that Brendan Boyle, the star of this story, is still at IDEO and they still design toys and other products (and experiences) for kids, but Skyline has now been integrated into the rest of the company.

    Here is what I wrote back in 2001:

    Brendan Boyle is
    founder and head of Skyline, a group of toy designers at IDEO in Palo Alto, California Boyle provides compelling evidence that
    innovative companies need a wide range of ideas and that success requires a
    high failure rate.  Boyle and his fellow designers keep careful track of
    the ideas they generate in brainstorming sessions and informal conversations,
    and that just pop into their heads.   Skyline keeps close tabs on its
    ideas because it sells and licenses ideas for toys that are made, distributed,
    and marketed by big companies like Mattel and Fisher-Price.  
    Boyle showed me a spreadsheet indicating that, in 1998, Skyline (which had
    fewer than 10 employees) generated about 4000 ideas for new toys.  Of
    these 4,000 ideas, 230 were thought to be promising enough to develop into a
    nice drawing or working prototype.  Of these 230, 12 were ultimately
    sold.  This “yield” rate is only about 1/3 of 1% of total ideas and 5% of
    ideas that were thought to have potential.   Boyle pointed out that
    the success rate is probably even worse than it looks because some toys that
    are bought never make it to market, and of those that do, only a small
    percentage reap large sales and profits.
      As Boyle
    says, “You can’t get any good new ideas without having a lot of dumb, lousy,
    and crazy ones.  Nobody in my business is very good at guessing which are
    a waste of time and which will be the next Furby.”

    I use this example a lot in talks on innovation because Brendan was kind enough and brave enough to give me information about his team's failure rate, but unfortunately — although I am always asking for this kind of information — most people decline to give it to me (sometimes they say it is propriety information, other times it is clear they just don't want to have information out there about their failures).  But I just accidentally ran into another example on the radio show, "This American Life," in an episode called "Tough Room," which aired in February.  Check out this podcast, notably "Act One: Make 'em Laff," which is about the creative process at The Onion, the famous fake news organization. It describes and has audio of the sessions where the writers pitch headlines for Onion stories to their fellow writers.  As host Ira Glass says, this is a tough room where most ideas being shot down immediately and, even those that strike people as funny at first usually don't make it into print.  According to the story, to get the 18 headlines they need for each week's edition, the writers usually propose about 600.  This is actually a higher success rate than IDEO's toy group (about 3% survive), but printing a bad story is a lot cheaper than launching a bad product.  I found the other nuances to be fascinating too — especially the constructive conflict and criticism in the group and the tensions between veterans and newcomers. 

    Onion List of Story ideas

    Also, I found the above picture of the white board with lists of possible future Onion stories on the This American Life website — look at all those ideas, that is what creativity looks like.  

    P.S. As you may recall, The Onion ran this story mocking researchers who discovered that assholes are bad for employee morale, which sure sounds like a parody of The No Asshole Rule to me (at least I hope so).

  • Wisdom from Harry Truman

    "It is amazing what you can accomplish if you do not care who gets the credit."

    I love that.  I would add that it is amazing what you can learn when you don't care who gets the blame!