Aidan Prior, a long term Sparknow associate, refracts our thinking around heroism and counterheroism a bit further through the lens of David Tuckett’s work on emotional finance.
Our thinking about counter-heroism has been developing over a number of years but it upped a gear after our response to the Salz Review of Barclays.
The final report was published yesterday and Salz comments that Barclays came across as “too clever by half” and that pay “contributed significantly to a sense among a few that they were somehow unaffected by the rules.” We would suggest that those same heroes are also too clever at times for themselves. In other words their ‘heroism’ can mask them from reality and expose both them and the institution to undue risks if that culture of heroism isn’t understood and taken into account in risk mitigation.
One of the main sources of our thinking around ‘heroes’ is David Tuckett. In his book ‘Minding the Markets’, he combines his initial knowledge and training as an economist with his later expertise in sociology and psychoanalysis to take a different and deep look at the causes of the 2008 financial crisis. He also suggests how that understanding of emotional finance (a term he pioneered) is crucial in considering the policy and structural changes needed to make markets and banks safer.
He describes in depth the psychological nature of financial business that makes it particularly prone to split hero/villain mindsets. His detailed examination of how the rational, quantitative and risk management apparatus of those markets may help cover over problems rather than expose them leads to the conclusion that a group of people in a heroic mindset is not in a learning mindset.
We are concerned that Salz’s report may be filed in a ‘historic crisis’ drawer and considered ‘not relevant to us’ now. We would suggest that while financial institutions may have all the apparatus of risk control and cultural change in place, that may be misleadingly reassuring because the indicators are being assembled and interpreted from within cultures that commonly ignore the heroic/split mindset. It’s hard to do justice to the depth of Tuckett’s thinking in a short blog, but here we continue to outline our take, as it relates to Sparknow’s interest in getting under the skin of the deeper questions that need to be answered if we aren’t to need another Salz review in five years’ time.
After interviewing 50 senior fund managers in 2008, he observes a world in the most part blind to the magnitude of what was about to happen. We know that sentiment, gut feel and ‘telling a convincing story’ are part of the emotional and intuitive survival techniques used to get through with a consistent philosophy or ‘position’ in fund management and elsewhere in finance, but Tuckett goes into the kind of depth required for us to be able to see what needs to be done to succeed in ‘counterheroism’. He explains in psychoanalytic terms why one might need to be a ‘hero’ to survive and operate around a high level of day-to-day risk and uncertainty. He also observes that heroism shields or masks one from consideration of all of the contexts and facets of a ‘position’ in an ‘uncertain’ world.
Buy scripts are an initial attempt to manage the conflicts sufficiently to create the ‘spontaneous’ urge to action (Keynes 1936)…but the assets still have to be held in an ongoing emotional relationship in conditions of uncertainty and asymmetric information.
In other words, you need to act partly on gut feel to act quickly and ‘buy’ but then the inevitably complex emotional feelings of holding a position that may not consistently perform well are far more problematic in an environment where your own and your team’s performance is constantly judged against tough performance targets.
This commonly leads to what psychoanalysts term a ‘divided state’: experience teaches us that there are consequences to taking risks, but we don’t always like the consequences when we apply constraints to ourselves, with the result that we split:
When individuals pursue excitement with no thought of loss…they are thinking within a ‘divided’ state of mind. Reality is then not objectively perceived but distorted. In this way a state of mind acts so to speak as a frame. ..rather than experiencing emotional conflicts directly, individuals cut themselves off from direct awareness of them and make themselves ‘unconscious’.
This ‘divided state’ if maintained over an extended period of time when the evidence available suggests that you might have judged your position incorrectly, causes further problems:
…maintaining a divided state of mind in the ‘face of the facts’ requires a great deal of ongoing unconscious mental work selectively to continue to perceive and assess only those aspects of matters that an individual can bear to perceive. Psychoanalysts call it ‘splitting’ (Laplanche and Pontalis 1973). Individuals are, therefore, continually forced to engage in mental operations to deny what doesn’t fit, in order to keep pushing away the emotional consequences they would otherwise face….the more ‘phantasy’ and reality get divorced, the more extreme splitting must become.. One consequence is that anxiety may break through and make itself felt in physical symptoms, jitters, unease..
George Soros, for example, used his occasional backaches as a way to spot unease and wait until he could explain his doubt.
Reversing an opinion when one has been in a ‘divided state’ and subject to ‘splitting’ is usually a dramatic and emotional process as it is an uncomfortable reversal of what the ‘hero’ had convinced themselves (at least on the surface of their mind) to be ‘true’.
In Tuckett’s view, financial organisations then may inadvertently be amplifying this affect with an over-reliance on mathematical modelling:
Evidence suggests that a strong trend in the finance industry has been to use mathematical modelling to manage anxiety rather than to sharpen enquiry…the production of hourly, daily, weekly, and quarterly information dissemination within the financial market…functions to manage anxieties about what is going to happen.
Taking responsibility on oneself might be ‘heroic’ and relying on the models might be inviting, but it doesn’t help individuals or organisations to learn from mistakes.
‘Telling a good story’ is a necessary attribute of many commercial endeavours but what might these stories be masking? Research by Roger Shank (1990) shows that people apprehend the world in terms of stories they have understood. Their stock of stories is the reference point for new events or problems, a ‘fast and frugal way to recognise what is happening and to know what to do’.
In talking to the managers about their explanation for failures, Tuckett found this had the effect of providing cover stories, with which the managers made sense of their actions, maintained their morale and ducked the more difficult questions that might bring up uncomfortable feelings:
Such rationales made sense of their selections and thought processes and appeared to enable them (and, in their minds, also those of their superiors and their clients) to feel that what they were doing was coherent. It cut the universe of information about which to be concerned down to a manageable size.
So, as we’ve learnt, when explaining misfortune or a loss, the hero may necessarily have to stray from the ‘truth’:
In psychology there is an extensive discussion of how individuals respond to inconsistency (Laird-Johnson 2010) and in psychoanalysis theory about the differences between learning from experience and expiating it via blame and pseudo guilt (Bion 1962; Riesenberg-Malcolm 1999). An overwhelming finding from these perspectives is that human beings have an almost endless capacity to fit patterns and explanations to events – often to advantage but sometimes at the cost of the truth.
The majority of his respondents are seen by Tuckett as wanting to maintain an illusion of control by placing themselves, the ‘hero’ at the centre of ‘blame’:
…the story they told was designed to make retrospective sense in a way that enabled them to feel responsible, but that was not based on sufficient introspection to guarantee that it would lead to preventative changes in behaviour.
Tuckett came to the view that explanations of misfortune were coping devices, rather than ‘taking responsibility to investigate what had happened’, and as such helped maintain a sense of order for a while longer for both individual and organisation, at the expense of learning from mistakes:
To learn from mistakes you must first to acknowledge that you’ve made them. But this is no simple process. (Melanie Klein 1940)
Tuckett then adds that from a psychoanalytic perspective…
…learning is always emotional as well as cognitive. Learning requires the mind to engage with accurate or ‘truthful’ feedback and this may create feelings that are not easily tolerated. Learning from experience, therefore, occurs through a process analogous to that Freud (1914) called ‘working through’ which was subsequently elaborated on by Melanie Klein (1940).
I have experienced this first-hand. I was telemark skiing with two friends above the arctic circle in Lapland in February. It was -40 degrees centigrade and windy and there was absolutely no mobile signal. We suddenly realised that we had been skiing up the wrong valley and were at least five hours away from safety. None of us had made a snow-hole in anger before – only in training in perfect conditions – and we didn’t fancy severe frost-bite so that option was ruled out. But which route should we take back? We ended up skiing back to the lake we’d started out from in the dark via a frozen river but protected from the wind most of the way! It was the right choice but our friendships suffered the row it took to ‘work through’ the problem to get to it. What is more, none of us has the same memory of events. Our pride and egos have altered events neatly so that we aren’t individually to blame and were all ‘heroes’ rather than impulsive, competitive, macho middle-aged adventurers! I have no confidence that we wouldn’t do the same again.
Therefore, without an understanding of that ‘emotional’ context both individually and organisationally, Tuckett argues that it isn’t possible to methodically and slightly uncomfortably ‘work through’ what has happened in an honest and reflective manner. Without that ability to ‘work through’ why something went wrong it isn’t possible to learn the lessons that are there to be learnt. Not to be a hero is to admit to oneself that one isn’t always in control – circumstances just didn’t work out as one anticipated maybe for reasons or because of events that no-one could have been expected to have anticipated. Admitting that your considered judgment was ‘wrong’ is uncomfortable!
The overall premise of the book is therefore that a
better emotionally informed understanding of financial markets is much more than an academic pursuit. It is a vital tool to underpin the motivation to act now to reform markets to reduce the likelihood of further catastrophe and to equip regulators and the management of banks and asset management companies they regulate with what they need to ensure sound integrated state judgement in the future.
How does this thinking take Sparknow forward? Three connections with our other research and thinking jump out:
- ‘Working through’ to a realistic and ‘better emotionally informed’ understanding of any institution means working with all the evidence there is, and emotion is part of the evidence, not comfortable, but necessary. That also means being willing to strip away the cover stories that are defence mechanisms, not just at the level of the individual decision maker but in the way the whole organisation operates.
- There are links to other key works and thinking that we have been drawing on. In her book on wickedness, Mary Midgley refers to the ‘shadow side’. Some of the heroes in Tuckett’s book would be seen by Midgley as having denied their shadow sides. She refers to Jung’s thinking that ‘the shadowy parts of the mind are an essential part of its form. To deny one’s shadow side is to lose solidity, to become something of a phantom’ – Tuckett suggests that the fund managers he interviewed are not deliberately denying their shadow sides, but that the divided state in which they are making decisions, exacerbated by the structures in which they are operating, makes it extremely hard for them to access that insight. There’s some hard work to be done to allow both organisations and individuals to get to ‘sound integrated state judgment’ .
- Kaptein and Lempe, in their work on ethical auditing and the balanced company, discuss the benefit of looking at individuals’ ‘dilemmas’ as a way of explicitly examining ‘values’ in order to audit the integrity of an organisation, and for Sparknow, consistently, working at the level of examining multiple small moments and decisions that are enacted right across an organisation
As David Tuckett’s book has shown us, this is very hard in banking and finance because those dilemmas are hidden, they remain in the shadows and sit in the unconscious in the majority of cases. The ‘balanced company’ that Kaptein and Lempe talk about is, in effect, their version of the company in an ‘integrated state’. They also acknowledge that reducing ethics to a purely personal matter (an investigation of the mistakes of the hero in extremis) does not do justice to the fact that ethics are socially embedded.
So the challenge is to have some kind of open-minded scrutiny in place in organisations, acknowledging the emotional context and hidden dilemmas, which shifts the gaze to everyday patterns and the steady state systems and cultures and how they might reinforce or mitigate future disasters of heroic proportions.
About Aidan Prior
Aidan has been involved with Sparknow since the late 1990’s. In particular he and Victoria worked on an 18 month project looking at risk and knowledge management in legal and compliance in a global investment bank. They co-authored a paper on it which you can read in Sparknow’s publications here. Aidan has played a key role in orchestrating our response to the Salz Review of Barclays and in sharpening and shaping our thinking around our ethical auditing offer.
This is the third in a series of blogs exploring the theme of heroism and counterheroism in the context of financial services. You can read the first blog by Alicia Pickering here and a response by Douglas Board here.
The references to Midgley and Kaptein and Lempe can be found in our references list here.
We’ll be responding to the publication of the Salz Report in more detail soon, and we’ll also be linking this to the research by John Coats on neuroscience and testerone