Monday, April 1, 2013


Motto: It is not because things are difficult that we do not dare, it is because we do not dare that they are difficult. Seneca

For a long time, I did not consider myself a risk taker, but a rather conservative person with habits and expectations, reasonable fears and a prudential approach towards life. One day however it came to me that I was so used to taking small risks on daily basis, without actually paying attention to the fact that I was actually taking risks. I purely called them actions, decisions, choices … but not risks.

I started to see there is a distinction between treating personal and professional decisions.

More exactly, in my private life I have a tendency to take actions that can easily hurt me, for the sake of various arguments – basically connected to my feelings, preferences, personal comfort and moral principles. In my professional life I am more prudent and cautious, as most decisions will change other people lives. When comparing the two approaches, I see that they are basically built around the same principles (whoever said there is no business ethics but just ethics was right!), my approach being more conservative whenever the decisions impact other people – their money, career, life in general.

I was recently talking about this strange feature of my character with a friend, wondering whether this sounds normal or not. Lucky for me, he understood very well, as he admitted to (re)act basically the same. Maybe this is a joke played on us by nature. Darwin would turn in his grave seeing how we contradict his basic thesis. Humans are supposed to be self-protective and fight for survival under the most adverse conditions.

A couple of weeks ago I was watching BBC World, broadcasting a round table with successful turnaround managers (here is the audio version). They participants seemed to have had in common the same risk taking profile, respectively their own image or survival as managers did not matter for them more than doing the ‘right thing’ for their employer. Later on in the week another story, of yet another similar characterThe famous turnaround cases (national post, national railway company) were similar - complex deeply troubled situations, which needed drastic and unpopular measures. Those men invited at the helm during the difficult times were hated by employees and trashed in the local media back in those days. But now, 10 years down the road, they are regarded as geniuses. A world in crisis is seeking their advice.

Their most important messages were that you first have to stop pretending everything is fine; then you should be enthusiastically curious and ask the right questions to the right people (which are usually not the ones at the top of the company), to get to the root of the problems; then you just need to correlate and act. One of the most interesting things one of them said was that usually the lower management levels knew exactly what was wrong within the organization, but could not give solutions for that. It was natural, as solutions can only come from the top, after all roots of the problem are correlated and a strategy is decided. Without knowing where you want to go, you cannot achieve a successful turnaround.

Today I was watching a CNN broadcast, again with some guest participants talking about the financial crisis. One of the participants started explaining her view about why banks should not be blamed for the excessive lending. She said that if the bank would offer financing for a house or a project which you as a borrower knew you could not afford to repay, it would have been your moral responsibility as a borrower to say “no” to that bank. She was saying that the guilt should be shared between the banks and the society, as it is not only about mistakes of some lender giving away too much money without proper assessment, but also about individuals and companies which were knowingly signing on loans they knew they would not be able to repay. The truth is, as always, probably somewhere in the middle. One should have not taken too much, the other should have not given. And the main trigger was most probably the changing perception of front office bankers about banking, which gradually became a reward-driven sales business, with a rather easy task - selling money to people who do not have...

Without further judging the 'blame' logic of the lady too much, I started to think of my last ‘roots’ edition (The Waste). I was writing then about our human nature, being inclined to buy more than we need and often even more than we can consume. Actually this is the basic and predictable behavior that sales and marketing are based upon. Marketing has scientifically gained such a manipulative power that can easily induce false needs nowadays. The approach is towards consumer-oriented lending in the last decades, which has less to do with financial advice and more to do with pure selling – products, promises, dreams… it has become not much different from the sale of clothing, energy drinks or electronics. And more than that, it has one intrinsic characteristic which makes it the most powerful and dangerous of all the consumer products – the lending ‘product’ can be associated with and exchanged for any other real ‘product’ already aggressively marketed, thus multiplying its penetration rate by thousands of times.

The aggressive sales of all types of products create an artificially inflated … need of money. And this is when the banking products come in the picture and they don’t even need to be too creative about it. Just link the loan to the idea of shopping or housing or exotic holiday or whatever is ‘trending’ on the market and … here you go! You have a loan. I remember one which was saying something like ‘if you cannot afford a house don’t be sad, we can lend you the money!’ Right! What about affording both the interest and the house price in this case? ...

And so I come back to the topic at hand today – the risk taking. In every decision we take in our life, risk assessment is involved. For every choice there are alternatives and for each alternative a risk-return (or risk-result) judgment must be passed. Every person has a unique decision-making mechanism which translates into lower or higher risk taking profiles.

I will use an over-simplified classification today, structured around two characteristics of a risk taker – the attitude towards risks affecting the self and risks affecting the others. More bluntly, people frequently pretend to ‘do the right things’, but they usually act as per their own interests and desires. Greed and social acceptance are the greatest drivers of excessive life styles and consequently, spending.

I would then group the people as per their self-protective vs. others-protective actions.

First, there are the genuine risk-adverse folks. They permanently think (if taken to the extreme - too much!) about protecting both themselves and others around them, sometimes passing good opportunities and ignoring basic needs, because of their fear of failure. They live their life apparently safe, away from the dangers of a nasty world. They are most likely not among those who triggered the crisis, but they may very well be a large part of the victims, as they most probably placed their life savings in some “safe” investments... One of the basic flaws of the current banking systems is that it uses the ‘multiplication’ approach on all types of financing sources, therefore at the same moment when the risk-adverse folks use banking services for managing their cash (salary, deposits etc.), they unknowingly become risk-takers, as their money are used to leverage the system.

Second, we have the self-protective folks which do not care much about protecting others. Those people ready and willing to take almost any risk as long as it does not negatively reflect on themselves (either in terms of money or other resources, image, comfort, or security…). If we look upon the outcome of their actions, on the positive side of the spectrum we may find some genius entrepreneurs or charismatic leaders, who manage to build exceptionally successful businesses. In the middle we have either silly day-dreamers who don't take much action because other do not entrust them with their resources, while on the negative side of the spectrum we find criminals or plain crooks. There are famous movies about this character profile, usually the story of success which came out of nothing (“don’t ask about the first one million…” kind of tales), but also a lot of bad-loan borrowers actually fit into this profile. And one of the most hazardous situations comes whenever this type of character benefits of a legitimate personal gain scheme directly connected to the level of risk taking he can advice. I believe this is also a strong point in the classical debate about misuse of bonuses in the financial world.

Third, we have the ‘hero’ profile, respectively the self-destructive (or self-careless or at the very best the self-neutral) people, who care about protecting other people. Some of them made history, others just died anonymously throughout our history. I read once a practical psychology book of F. Lelord & C. Andre (How to manage difficult personalities). I found one of their suppositions very interesting: we may be genetically predisposed towards paranoia, inherited from our ancestors. They were saying that the brave and fearless heroes usually died young with little time and chances to generate a succession line, while the prudent and paranoid ones lived longer life and had bigger families, with descendants in our days. Interesting, no?

Fourth, we have the absolute dummies, who do not care either about themselves or about others. I strongly hope this is a rare species, as they either hurt themselves really early in life and migrate to any of the other categories or become purely medical cases and we don't see them too often walking freely among us... so I will not insist on those guys.

Finally, we have a ‘reasonable mix’ risk-taking profile, stretching across all the above four categories, in a moderate manner. Here I include those people who combine a healthy self-protective profile with a good sense of responsibility for protecting others. People who fall in this category take decently calculated risks and assume the consequences of their decisions. Ideally, most of the active population should fit into this category. Practically, I still wonder on a daily basis...

Actually, there is a fine border between those over-simplified types of risk takers. The same person may present different types of reactions to different types of risks in different moments and in different positions (or relationships) in his or her life.

I believe that in today’s world too little importance is given to psychological profiling when people design their career plans, but also when companies recruit staff. From both sides (the employee and the employer) there is much more weight placed on education (watch out – I did not say knowledge, but education!...), monetary and status considerations, both on the side of the applicants and the recruiters. Education on the other hand is also frequently driven by family expectations, young students prepare themselves for jobs that pay better and offer quick growth prospects. Mature people become trapped between their own dreams and the social pressure, start making questionable compromise quite early in their professional life, in an attempt to fit into models that don’t even suit them.

Profiling should address many issues, from ethical principles and moral standards to aptitudes and talents. It should be encoded in our educational system and later on in our career planning. And for those professions that are highly exposed to risk taking and moral hazard, such tests should be a prerequisite not only on managerial, but even on entry level. I know it sounds like utopia, but we have to start thinking outside the box if we wish to change things for our children. Just because a young graduate is good with numbers does not guarantee he or she does not leave the University with the mindset of a crook. Technical background is not enough to succeed in a sustainable way, not if we want to redesign the financial sector and put some trust back into the system.

And the same conclusion applies to almost any industry, even if the financial world is currently the most covered by media. It is natural to be in the spotlight as it runs through the entire system and connects all other areas (just like the blood in our bodies). Still, it is definitely not the only one corrupted because of moral hazard. Food and drugs, sports and entertainment, politics and social service, research and education – if you search the news you will easily see that the ethical roots of the current crisis are spread throughout almost every area of our life.

If I was to put together what I have learned in the past few months (be it from industry turnaround managers, financial gurus, famous journalists or striving regulators), it seems that we are running in circles. The world is trying to put more technical rules into various systems which are actually sinking because of moral hazard and excessive risk taking, personal gain and creative number manipulation. The approach is partially correct, but unfortunately incomplete. Whenever new and more restrictive regulations come into any market, it takes that market probably around 6 to 12 months to re-adjust to those rules, by introducing new controls and adapt the statistics it generates. However the core (dis)functionality of that market will not be steered if intervention tools remain on paper and limited to technical standards. The way out of this crisis can only be paved if the intervention of the regulators will start focusing on the people. And to be honest now - we should not want to see a collapse in the current financial system before we have created something that can reasonably function in its place. Unless we are ready to go back several hundred years and fight some nasty wars in between.

How can we change then? Well... we will need lots of authentic turnaround managers to show us the way. I see now that with my ‘roots’ series I have been positioning myself in the category of lower management who can see parts of the problem but cannot solve it. I believe this is a good start ... for the time being!

Georgina Popescu


  1. So,you should seek and find your suitable position right into some top management, somwhere...and sometimes in the future, someone else will share its own opinion from the "lower management" position towards the top management one....and so on!

    1. Dear Liana, such forward looking and at the same time practical view of things brings a smile to the corner of my mouth. So be it! :)

  2. It is not about taking risks, or calculated risks… risks that you know are lower than the expected reward (I will not say profit, because it is not always about money). In fact, it is about having courage to do something that changes your life and others’ life, for the better (you wish) or for worse (if your calculations were not correct or the conditions become adverse).
    I need to say that top management always knows what’s wrong in a company, and the lower management knows its own business, in its area… any person which does not have a view over the whole picture is tempted to make judgments, decisions and take actions based on his/her expertise and information, without taking into account other facets of the same truth… More than that, the top management is at war in times of crisis, so they have to sacrifice the life of a few (or more) for the benefit of the company and its future. Some win, others lose… life is complicated.
    Of course, this is only the opinion of a humble non-management person, still a person that makes decisions and takes actions in her own line of work, based on her own expertise… and in line with the decisions of top management, which in turn are based on her expertise and on the information she gives (among others like her).
    In personal life… I take little risk, because I may change the life of dearest ones… those who are in fact my whole life… :-) But life changes, and we all have to make changes to maintain what we have.
    P.S. In one’s life, there are plenty of opportunities to change the employer, the industry, everything, there are courses that help you gain knowledge, there is information everywhere… tutorials… etc. if you don’t like what you do, you can change that, only if you WANT to…
    Life brought you in a lower management position. You are there to make decisions in your mini-climate. I take decisions in my micro-climate. Top management does the same, only it is for more people… different roles and responsibilities. You can accept that or fight it. But before you take any risk, ask yourself one simple question: does it worth it?

    1. Dear Nico,

      I agree with your opinion about top management - for those good managers of performing companies, the long term survivors. I was talking about the ones in trouble, and for those usually the top management IS the problem... :-)

      Thank you for taking the time for reading this - was a long one :) highly appreciated.

  3. I always enjoy your blogs, even if I don't comment on them. This one falls under the same umbrella, only this time I feel the need to comment on something. Funny enough, it is not something you said, rather something you implied in your text. And that would be that we humans would have been "blessed" with a certain moral code, which I assume most people think would differentiate us from other animals. See, I have some trouble with this concept for some time now. I have been following a course for animal experimentation and the only thing they went on and on with was ethics, which in fact implies that a certain moral code exists. And here is where my problem starts: if this code is something absolute, are we born with it? Well, I think people who have children and were awaken 3-4 times a night by a crying baby, while they were already half a zombie fighting to keep their eyes open and function to a bare minimum, would understand that I have trouble accepting this notion of natural moral sense :). So was it acquired later on? By education? If yes, then I think we have a problem, because who has defined this moral code and especially how? And how do we know it is a good one?
    Maybe it will lead us to a sad end, like communism....or maybe it will make us fanatics, like some religions....or maybe it will make us grow and grow in number until nature will decide that enough is enough....oh wait, maybe that is what's already happening? Nature solving itself by means that we humans et the end of the evolutionary process, are not even able to understand? :)

    1. Dear Andreea,

      You have some tough questions there. Good luck in finding ... if not answers, at least some clues that would fit your own morale code. But do not question what you already have, and that is your balance! :-)