The real test of character occurs when the unexpected happens — when things don’t go according to plan.
This holds true both for individuals as well as for organizations.
As the behavioral economist Tim Harford has explained, the pianist Keith Jarrett gave one of his best performances on a piano with several broken keys. And London commuters found more optimal routes to their offices a few years ago during a tube (subway) strike.
It turns out that difficult, unexpected situations can actually show us ways to innovate and improve. There are a couple of factors that lead to this kind of success: urgent circumstances and the character not to give up, as well as the creative spark to find ways to improve.
Similarly, banks need to make sure that their employees are able to handle situations when they go wrong — when a system fails to meet expectations, or an acquisition does not yield the expected value.
We have recently passed the 10-year milestone since the 2008 financial crisis. As someone who was at Bear Stearns at that time, I can testify to the fact that I, along with my colleagues, were like deer caught in the headlights. People tried to do something, if only to demonstrate that activities were underway to address the issues, but often it was like the flailing of so many drowning men.
When one reviews the actions of banks, the government and chief regulators at the time of the crisis, it was clear that they did not have a plan and had to improvise. How did they do?
Those individuals who did rise to the occasion had very specific characteristics. First, they had very good and detailed knowledge of the business they were in — for example, risk managers with very long experience in the types of credit-based securities that were going into default. Second, those who succeeded had excellent communication skills, and they were able to convey to senior leadership what was really going on in language that could be easily understood. Third, they were brave, unafraid to speak up and let people how bad a situation had become. It seemed to me that in a short space of time, employees who met these criteria were quickly able to take up leadership positions far beyond their nominal rank.
Yet the ability to work through an unplanned situation is one thing at the individual level — it is very different when you’re talking about organizations. The financial crisis demanded a response from the U.S. government and the Federal Reserve as well as financial institutions themselves. The country had not seen turmoil on this scale since the Great Depression, and there was no playbook for the government to pick up. Nevertheless, government officials developed a number of creative solutions that helped stem the downward spiral of the markets at the height of the crisis. The Troubled Asset Relief Program, for example, allowed the Treasury to purchase illiquid, difficult-to-value assets from banks and other financial institutions in ways that it would not otherwise have been able to do.
Another of these improvised solutions was the acquisition of Bear Stearns by JPMorgan Chase in March 2008. This was, of course, not the first time that JPMorgan had been involved in a merger or acquisition — but clearly this was a very different situation. It was a shotgun marriage forced upon the bank by tumultuous market events with very little time to plan out the transaction. Despite this, and the extraordinary circumstances prevailing at the time, JPMorgan’s team was able to quickly work through the issues at hand to deal with the situation relatively successfully — even if the long-term results of the merger have been more mixed. That says a lot about the company’s culture and its ability successfully navigate the unexpected.
Brian Eno, the music producer, believes that the way to get creative people to produce their best work in the studio is to create the conditions of an accident. Accidents can be terrible, but the conditions of the accident and the exigencies of the situation lead to a sense of focus, a hypersensitivity to the moment, that can bring out the best in a person.
Banks can excel by simulating such an accident to create the necessary conditions for employees and teams to practice their reactions to a real disaster. The problem with having to think through everything as an event unfolds is that mistakes can be made. Tackling a possible problem ahead of time provides a chance to practice a so-called pre-mortem — as the neuroscientist David Levitin calls it — or thinking through an event before it takes place.
Yet just as important as a plan to deal with future disasters is a culture that can roll with the punches, manage unexpected failures and innovate through them. The more banks can do that, the better prepared they will be for whatever the next crisis brings.