America’s Diminishers

In her insightful book Multipliers, Liz Wiseman distinguishes between two types leaders—those who are able to tap into dispersed organizational knowledge and those who ignore the knowledge of anyone but themselves. Diminishers of organizational knowledge, she observes, are at their core “intellectual supremacists.” Wiseman writes:

The Diminisher’s  view of intelligence is based on elitism and scarcity. Diminishers appear to believe that really intelligent people are a rare breed and I am one of the few really smart people. They then conclude, other people will never figure things out without me.

We all have met intellectual supremacists. The world is full of them, and they bring destruction everywhere they go. The effects of Diminishers depend upon how much coercive power they wield. Bob Nardelli, the former CEO of Home Depot, was a Diminisher. His impact on Home Depot was large, but his impact on ordinary Americans was small. Why? Outside Home Depot, Nardelli had no coercive power; and thus Lowe’s was able to fill the void left by Home Depot.

Lee Iacocca, the former CEO of Chrysler, was a classic Diminisher. His effect on Chrysler employees was large but, like Nardelli, his effect on ordinary Americans would have been limited if not for his ability to tap the coercive power of government. He blamed his failures on the Japanese, and his political acumen resulted in import quotas against Japanese cars and higher prices to Americans. His legacy was later felt when taxpayers were forced to bail out Chrysler in 2010.

And then there are those Diminishers whose coercive  power is so large that they bankrupt and starve a nation. Consider Kim Jong-il of North Korea whose intellectual abilities were considered godlike and who issued “field guidance” on the production and distribution of all goods and services.

Then we come to the case of Jon Corzine, former Goldman Sachs Chairman, also a former Governor of New Jersey, and recently the CEO of MF Global where his excessive bets on European bonds bankrupted the company. At least some employees at MF Global saw that Corzine had exceeded internal guidelines for excessive risk and challenged Corzine on his bond purchases.  According to the Wall Street Journal “Michael Roseman, whose title was chief risk officer, also expressed concerns directly to Mr. Corzine in meetings of just the two men and with other people present.” The result was that Roseman was forced to resign from his position and Corzine “suggested to board members earlier this year that he might leave the company if they didn't trust his judgment about the bet” on junk bonds from Spain, Italy and Portugal.

The board should have let Corzine go. Late last year, MF Global co-mingled customer accounts with their own funds. As a result customers lost over a billion dollars. Just three days before going bankrupt, MF Global transferred $200 million in customer money to their own trading account at J.P. Morgan. We can be sure of one thing: The order was not issued by a secretary.

In December, in Senate testimony, Corzine was careful to claim that he never "intended" for client money to be misused. If Corzine issued the order to confiscate customer funds, no doubt he thought this would be a temporary measure as he probably still expected his “wise” bets to pay off.  Diminishers lack humility, and they will completely ignore the evidence that they are wrong.

I write completely because many of us, as Daniel Kahneman writes in his book Thinking Fast and Slow, “are often confident even when we are wrong.” Kahneman notes that more balanced observers are “more likely to detect our errors than we.”

Some leaders understand that exposing themselves to ideas that challenge their beliefs is a good way to avoid error. Not only are they made more effective because they avoid errors, but they are more able to use dispersed knowledge in their organization because they respect dispersed knowledge.

Those who do not respect others count on their own ability to coerce or bully to carry the day. To date, no one at MF Global has been implicated for moving customer funds to corporate accounts.

On Monday a class action lawsuit was filed in Montana on behalf of all MF Global account holders. The lawsuit “alleges that Corzine and his lieutenants presided over the looting of customer securities and futures accounts at the firm.” Why Montana? Farmers routinely rely on trading futures accounts to hedge their bets against fluctuations in the prices of their crops.

Clearly, one or more individuals at MF Global misused customer funds.  Failure to find the truth will only enable America’s Diminishers to damage the economy further.