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Beth A. Brooke

Beth A. Brooke

Beth A. Brooke is Global Vice Chair of Public Policy, Sustainability and Stakeholder Engagement at Ernst & Young and is a member of the firm’s Global Management Group and a member of its Americas Executive Board.

Reversing 'Group Think'

Wall Street firms need to look at incentive structures that put a great deal of an employee's compensation at risk. Why? The high-risk, high-reward pay structures over time drive diversity out of a workforce. Only those who are willing to put a huge percentage of their pay at risk will be attracted and that will tend, as it did on Wall Street over time, to produce a homogeneous group of personalities resulting in dangerous "group-think."

While the president will surely talk today on Wall Street about the regulatory reforms that his administration believes are needed in our financial system, I suspect those reforms may overlook one critical factor that would serve all companies well, especially Wall Street.

That factor is the need for diversity in the leadership of companies, diversity in the senior management and diversity among those developing the products that can build risks into our financial system. To build a long-term focus into any organization's culture and its decision-making, one of the best things a company can do is to invite and embrace diverse perspectives, collaborating to make key decisions and to innovate new products.

Diversity among gender, ethnicity, age, function, and culture will ultimately produce better outcomes for all as it is proven research that a diverse group of experts will outperform a better qualified group of homogeneous individuals every time. We underappreciate the value of such diversity in society and in organizational leadership and continue to perpetuate group-think at our own peril.

By Beth A. Brooke

 |  September 14, 2009; 12:34 PM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
Previous: Incentivize the Long Term | Next: The Answer Lies in Washington


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Beth does make a good point about negative impact of the high-risk, high-reward pay structure. I would agree that the vast majority of people willing to work under these structures are risk takers. We could stand for some diversity in those ranks by adding more people who are prudent and consider all of the angles on the risks of programs many of those at fault for the crisis admit even they don't understand.

A fundamental problem with the bonus-based incentive culture on Wall Street is the morphing of the ratio of base salary to bonus in the last few decades. Employees are paid at a very low, relatively, base compensation rate, work the expected 70-100 hour weeks, and expect to see the compensation for those efforts in the annual bonus. This is completely out of whack.

Base pay should be equal to compensating for the expected workload, whether that is the standard 40-hour week or the ridiculous 100 hour week. Bonus should be just that – above and beyond compensation for those who go above and beyond their colleagues in effort. When nearly every employee receives significant bonuses, this differentiation is clearly lost.

Better ideas for recognition and reward than cash bonuses is discussed here: http://globoforce.blogspot.com/2009/02/have-you-been-wasting-your-money-on.html

Posted by: DerekIrvineGloboforce | September 15, 2009 11:50 AM
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does the writer think that predominately
black gay or women run companies or organizations produce better outcomes.

or do they produce the exact same groupthink and refusal to integrate with the outside world?

there is no more smarts or mroality in a black container or a gay container or a female container etc or a white female or male container.

Posted by: JohnAdams1 | September 15, 2009 7:17 AM
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The belief that diversity will produce better outcomes is itself the result of the very "group think" Brooke condemns. Or rather, to put it more precisely, this group think differs from the current Wall Street group think only in insubstantial particulars. But both this melting pot group think and the Wall Street group think are just that: group think. They are both equally fallacious and for the same reason.

Brooke has given zero evidence that this lauded 'diversity' will actually produce this "better outcome". I am confident that the reason she gives no evidence is because it is not even possible, since there is no evidence. It is just a pipe dream.

Surely the real heart of the problem lies deeper than any "group think", though clearly there is a dangerous group think on Wall Street. The real heart of the problem is that individuals in the position of making decisions with huge impact on the health of both their companies and the entire economy have too little incentive to look out for these healths, and far too much incentive to demand huge bonuses while driving their companies into the ground.

The "group think" that has got to stop is the buddy-buddy relationship between execs and board members, where board members vote huge compensation packages for execs NOT because they are really worth it to the company, but because of some other reason, such as that they are trading favors with the executive candidate.

I can't imagine why diversity would have any impact on that.

I am not sure what a truly free market in executive talent would look like, but I am sure it would be as different from today's market as it is from Brooke's vision.

Posted by: Syllogizer | September 14, 2009 8:41 PM
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