There’s a lot that comes with a big title. More pay, more responsibility, more control, and more recognition.

But there’s one thing that doesn’t come with a title: the ability to call yourself a leader.

Titles don’t make you a leader. Your people do.

Leadership can’t be decreed, no matter how much power comes alongside a fancy title. While titles are awarded from above, respect is earned from below. It’s colleagues under the boss that will decide when leadership is earned. It’s never given on day one.  

Noted Silicon Valley coach Bill Campbell, in the book Trillion Dollar Coach, explains:

If you’re a great manager, your people will make you a leader. They acclaim that, not you…You need to project humility, a selflessness, that projects that you care about the company and about people.

One test of organizational health is how often titles or positions are used to justify decisions. As in, “I’m the boss and I’m telling you what to do.” Or, “I’m the highest ranking official in the room so it’s my call.”

Underperforming organizations rely on titles, rather than discussion, to make decisions.

A structure without redundancy is called fracture critical, meaning that a single broken component can collapse the entire structure.

Fracture critical extends beyond engineering to describe many firms in the finance industry:

• Hedge Funds: Excess leverage on top of bad trades

• Banks: Illiquid long-term assets funded by fleeting short-term deposits

• Funds: Illiquid assets with daily redemptions

• Allocators: Overcommitment to illiquid/opaque strategies

• Managers: Reliance on the one-person, “star” investor model

• Firms: One person holding together critical IT, treasury, or operational functions

We know the names of firms that suddenly blew up: SVB, LTCM, Sowood, Amaranth, etc. Why do firms choose this model when the lessons are evident?

Because it’s optimal in the short-term. It’s optimal when you believe you know what the future will hold. It’s optimal when you surround yourself with very talented people that have only experienced success. It’s optimal when the press and investors reward you for excessive risk taking in an up market. Operating in a fracture-critical environment is seductive because disaster never seems close.

No investor desires underperformance. Not the managers delivering it and not the investors receiving it.

You can’t get away from it. You can’t solve it. You can’t eliminate it. It’s not a flaw in the system. It is the system.

In 2019, Warren Buffett underperformed the S&P 500 by 20.5%! In 2020, he followed that with a 16.0% underperformance. Despite his tremendous track record, Buffett still underperforms at times.

So if Buffett hasn’t figured out how to eliminate underperformance, what in the hell makes you think your manager can?

I hear this every time I’m at a conference: allocators demand that an underperforming manager “fix” their underperformance.

“What are you doing to address the underperformance,” they proclaim to the manager. As if the manager just needs to find the one bad formula in excel that’s screwing everything up. As if the manager just needs to resolve to work harder by putting in 16-hour days instead of 14-hour days. As if the manager just needs to find a new formula or crystal ball that will magically crank out winning stocks.  

At the end of every argument or debate, the “winning” side has a choice. Accept their win with humility and graciousness. Or go in for the kill shot by humiliating their opponent.

We’ve all been in heated disagreements where emotions ran high and we said something we soon regretted. Even though we may have “won” the argument, we still felt the need for some instant retribution by humiliating the other side. The immediate desire is overwhelming during a conflict.

But be careful how you proceed after victory. While it may feel good to humiliate the other side when they are at their weakest, you may create an enemy for life.

FBI Hostage Negotiator Gary Noesner, author of Stalling for Time: My Life as an FBI Hostage Negotiator, describes how General Grant handled his victory of General Lee at the end of the Civil War:

No one…wants to be humiliated. I was always moved by General Grant’s gesture to General Lee in allowing the Confederate leader to keep his sword during the surrender at Appomattox that ended the Civil War. That small but symbolic act cost Grant nothing, yet gained so much by allowing the venerated Lee to maintain his dignity and positively influence his loyal followers. Many of the individuals we deal with are hardly venerated warriors, but they are repeat offenders. If we treat them poorly when they surrender, they may not be so willing to cooperate with us the next time they’re in a jam.

Purposeful urgency is a powerful indicator of organizational health. But don’t ask about it. Instead, observe it. Organizations will say anything that sounds good. But look at how people behave, and you’ll uncover the truth.

Behavior can’t be bullshitted. In the short run when people are being observed, people will work extra hard, show up early, stay late, and appear to move with a sense of purpose. But it’s not real and it won’t last. As soon as people stop watching, they’ll revert to their normal, sluggish state.

Urgency reveals the underlying energy and excitement of a culture. Is there an underlying force propelling people to do great work? Because if you see people moving fast, it’s because they want to.

Managing by mandate and decree can force compliance, but not purpose. It’s superficial. Progress occurs at a glacial pace, as people appear to move fast at everything but what’s valuable.  

Let’s discuss the wrong kind of urgency: It’s not running around in a manic, anxiety-fueled state. It’s not overreacting to every setback. It’s not putting out fires. It’s not packing your day with meetings. It’s not working 16 hours a day. It’s not activity for activity’s sake.

Nullius In Verba. Translation: Take Nobody’s Word for It. Pretty good advice for life, and even better advice for investing.  

The investing world is full of people that say many things. And many get paid specifically to tell you certain things that may or may not be true, accurate, or a complete representation of reality.

CEOs, investment managers, salespeople, consultants, and regulators all tell you a story, but rarely give you the whole fact pattern.

So take no one’s word for it:

• Do your own homework

• Read the footnotes

• Call references

• Recalculate the numbers

• Evidence, not confidence

• Written language, not spoken promises

• Source documents, not summaries

It’s almost always a classic appeal to authority fallacy. Trust me, because of my company/my background/my title/my school/etc.

If you ask people how to become successful, the default answer is to “get better.” It certainly makes sense, but there’s another way:

Find weaker games.

In his paper, Alpha and the Paradox of Skill, Michael Mauboussin shares the experience of Jim Rutt, former CEO of Network Solutions and the Santa Fe Institute.

Mauboussin explains:

He [Jim Rutt] mentioned that he played a lot of poker when he was young, became pretty good at it, and made some money. Rutt assumed that the best way to ensure continued success was to improve his skill, so he worked diligently at honing his game by learning the probabilities of each hand and studying other players for clues about the strength of their positions. At that point, an uncle pulled him aside and doled out some advice. “Jim, I wouldn’t spend my time getting better,” he advised, “I’d spend my time finding weak games.”

Great ideas don’t matter. It’s great ideas, actually shared, that matter.

Many people have great ideas. But because they hold back, they can’t be debated, discussed, or implemented.

Some people hesitate because of social anxiety. But most people hold back due to cultural expectations: those who get to speak are the “senior” people. People with the most experience. People who have “paid their dues.”

What an outdated, awful way to find the best ideas.

In her book, Rebel Talent: Why It Pays to Break the Rules at Work and in Life, Francesca Gino tells the story of Mellody Hobson, president of Ariel Investments:

I received precious and unforgettable advice on my first day at work from Ariel’s founder and CEO John W. Rogers Jr. He said to me, “You are going to be in rooms with people who make a lot of money and have big titles. But it does not mean your ideas are not as good or even better. I want to hear your ideas. It is incumbent on you to speak up.”

Every investment manager, since the beginning of time, promotes the success of their winners while deliberately distracting investors from the losers.

I get why they do it. They want to look good. It makes perfect sense. I’d probably do the same if I were in their shoes. Just highlight the good stuff and hope no one notices the bad stuff.

At the risk of sounding naïve, I wish managers would own their mistakes and talk to us about problem investments. Don’t bury it on page 107 of the annual report. Don’t conceal it in the appendix.

Emphasizing how great your realized investments were? That’s fine. But acknowledge the mistakes with the same amount of detail and description.

Be up front and explain what happened. Talk to us about the mistakes, what you learned, and what, if anything, will change going forward.

We see the overall return data. We know by cherry-picking a handful of winners there’s likely an equal number of losers dragging the fund down. Don’t pretend like it doesn’t exist.

Organizations struggle to hire talent, mostly from self-inflicted mistakes. Talent sourcing is relegated as an afterthought, a second-tier priority at best. It’s an unwelcome distraction when there’s so much other work to do. At no point do companies treat talent recruitment as a strategic skill.

It’s done by gut, intuition, and feel. In other words, it’s mostly made up.

How well does your company hire talent? Struggling to attract great people?

Fortunately, Tyler Cowen has several insights on how to change the hiring process. Tyler is an economics professor at George Washington University. He’s as close to a renaissance thinker as I’ve come across. He’s the founder of the popular blog Marginal Revolution. He hosts an exceptional podcast, Conversations with Tyler. He’s the author of several books (I count 13).

One of those books is Talent: How to Identify Energizers, Creatives, and Winners Around the World.

Below are 12 ideas from Tyler to change how you hire talent…

The CIO role is the pinnacle for most institutional investors. The prestige, the pay, and the ability to lead a team is a big draw.

However, the challenges of leading an investment team are rarely discussed. Your success or failure as a CIO isn’t determined by the glamorous parts. It’s determined by all the organizational and team issues you’ll inherit as you step into your new role.

As if investing alone isn’t hard enough, it becomes a nightmare when you join an organization that is completely different than what you were “sold” during the recruiting process.

What is not being addressed with clarity and honesty?

How can I separate the sales pitch from reality?

What’s being hidden from me?

No one is going to offer you the ugly truths. You must ask for it. And keep asking until you get it.

While the CIO role is the desired endgame for many investors, the question is, are you sure you want it?

Remember, you don’t get to just choose the exciting aspects of the job.

You must take the good and the bad. And often the negatives will dominate the positives.

So how do you know what you are walking into?

Here’s what I’d be asking:

Sam Zell passed away earlier this year but left no shortage of wisdom and one-liners.

Sam shared many lessons in his book, Am I Being Too Subtle? Straight Talk From a Business Rebel.

But you won’t find any lessons on cap rates or property types.

Instead, they are foundational ideas on being a good investor, a good leader, and a good person.

Below, I’ve shared 12 of the best lessons you should take away.

If you are really good at what you do, you have the freedom to be who you really are

One of the biggest raps about me is that I’ve been known to use profanity. Sure, sometimes my real estate colleagues will make over/under bets on whether or when I’ll drop the f-bomb onstage at a conference. I simply don’t buy into many of the made-up rules of social convention. I think people often get distracted by these superficialities. For example, I’ve been wearing jeans to work since the 1960s, long before it was acceptable. And to this day, I’m usually the only one at a business conference or on CNBC’s Squawk Box set in jeans. The bottom line is if you’re really good at what you do, you have the freedom to be who you really are.

Bob and I originated the unique culture at EGI that became our company trademark. We abandoned all pretense and established a casual-dress office policy—which, believe me, was unheard of in the rigid world of finance in the 1970s. We invented business casual. Our thinking was that if you dress funny and you’re great at what you do, you’re eccentric. But if you dress funny and you’re just okay at what you do, you’re a schmuck. We were determined to show everyone that we could excel without conforming.

I normally enjoy investment conferences. But many investment conferences are in a race to the bottom. It’s become a commodity. The same topics are included because they’ve always been included. The same format is followed because it’s always been followed.

Conferences could be so much better for all parties involved. Organizers could build a sustainable model, managers could get quality leads, and allocators could get useful information and networking.

Lately, it seems like it’s all a short-term profitability maximization exercise – how can we get as many paying managers as possible, without regard to the quality of the event, the topics, or the participants itself.

I get there’s a profit-motive for the organizer and asset managers. That shouldn’t change. But how they go about it should.

The lack of thought and strategy that goes into some of these events is mind boggling.

Allocators can’t attend every event, and they’ll choose what works for THEM.

If you don’t get allocators, you don’t have an event.

So here’s my 12 ideas to make conferences better from the allocator perspective, which ultimately benefits all parties:

I recently attended ILPA’s 2023 Members’ Conference. It’s an LP only event that has a number of great presentations and discussions on private markets. It’s always helpful to see how other LP’s are dealing with the numerous issues we face as private markets investors. It’s nice to have a conference where the content is built around practical issues and solutions, not managers promoting their strategies.

Below are my notes from various panels and discussions.

On Fund/Asset Valuation

• LP’s are very skeptical on fund/portfolio company valuation. There was (and always has been) justification from the GP/accounting teams emphasizing the substantial rules, process, work, etc, of the audit process. But in my experience, there is 1) incredible variability and flexibility in valuation assumptions, and 2) GP’s know the companies much better than accountants and will craft a compelling narrative on why adjustments should shift in the desired direction. Are accountants really going to tell a GP they know the assumptions/value better than the GP? I doubt it. In my experience, auditors want to document their process and limit their liability, not push back against the GP.

• Of course, GP’s will never deliberately ask for a specific valuation to maintain certain IRRs so fundraising is easier. But GP’s are great at telling stories about why the relevant comparable set needs to be “updated” to reflect what a great asset the investment is…