Lessons from Madoff's Minions
Most people who met Bernie Madoff, the man who seems to have out-Ponzied Ponzi,became minions. Even skilled and seasoned investors became fawning followers who fell all over themselves to hand their money to a man they did not know. Well, they did know Madoff; that is, they knew him by reputation, and that reputation was sterling. So far as important people knew, he was an honorable, decent and hard-working man who happened to have a golden touch. Not only did Madoff make money, people said, he never lost it. Not a nickel.
But to this general rule there were exceptions. He did not hold all in thrall. There were some, both in Europe and in the United States, who resisted conforming to the crowd, who tried to caution the crowd that Madoff and his money were less promising than the consensus.
We now know the Swiss bank Union Bancaire Privee kept hundred of millions of dollars of its clients' money in Madoff's grip - even though members of its own staff had warned against it. The bank's research team had generated a whole list of worries about Madoff, including the absence of basic information, such as how his investment strategy actually worked. But to no avail. Apparently the concerns were discussed and then, in line with what everyone else was doing, dismissed.
Similarly, in the United States, investment officer Harry Markopolos spent fully nine years trying to persuade the Securities and Exchange Commission that Bernard Madoff had to be a fraud. Why? Because, as Markopolos pointed out, given Madoff's own stated strategy, his investment performance was mathematically impossible. Still, no one listened.
As Bob Woodward noted in his column on lessons from the Bush years, presidents generally hear what they want to hear. That's why it's so important for executives of every stripe, in business as well as government, to build a culture of skepticism and doubt. For the rest of us, who may not be at the top, the lesson is this: Going against the prevailing wisdom is as hard as going against the prevailing wind. To do so successfully asks not only guts but smarts.
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