The dark side of investment management failure

Tuesday 26 March 2019

Adrian Furnham

Author: Adrian Furnham

There are four “dark side” traits that are usually responsible for the failure and derailment in fund management and other careers, writes Adrian Furnham.

There is no shortage of people who ‘fail and derail’ in the financial sector. Recent high profile examples include Bob Diamond, ‘Fred-the-Shred’ Goodwin, and Bernard Madoff. The latter surely scores the highest points for being accused of, charged with, and sentenced for advisor fraud, mail fraud, wire fraud, money laundering, false statements, perjury, making false filings with the SEC, and theft from an employee benefit plan, according to The Wall Street Journal.

Derailment however, is different from incompetence, though both lead to failure.  The incompetent manager is lacking something: the skills, the energy, the courage, or perhaps the insight to do that which is required of a good leader. ‘Derailment’ has come to mean the demise of an otherwise successful business or political leader who seems to have too much of a good thing, like self-confidence, boldness or courage.

Whilst there are over 70,000 books in English with the word Leadership in the title, still very few researchers look at leadership failure and derailment. The central question is: why do so many carefully selected, well-educated, high-flyers fail?

It is important to note that failure is not uncommon. There are a large number of leaders who fail and derail: about 50%, of managers of medium to large western companies fail, so really, failure is as common as success.

However, leadership derailment is more likely to occur when you have the following conditions: leaders with a derailment profile; people who are prepared to follow derailing leaders, and environments which allow it to exist.

Dark Side Traits
One question is whether managers derail because of a dark personality. Psychologists are interested in personality traits; psychiatrists in personality disorders.  Psychologists interested in personality have made great strides in describing, taxonomising and explaining the mechanisms and processes in normal personality functioning.    Both argue that the personality factors relate to how people think, feel and act.  It is where a person's behaviour deviates, markedly from the expectations of the individual’s culture where the disorder is manifested.  The psychiatric manual is very clear that "odd behaviour" is not simply an expression of habits, customs, religious or political values professed or shown by a people of particular cultural origin.

The anti-social, obsessive, compulsive, passive-aggressive and dependent types are particularly problematic in the work place. People with personality disorders have difficulty expressing and understanding emotions.  It is the intensity with which they express them and their variability that makes them odd.  More importantly they often have serious problems with self-control.

Perhaps the greatest progress in this area occurred with the development of The Hogan Development Survey (Hogan & Hogan, 1997). The idea was to use categories of personality disorders but to conceive of “dark side” tendencies rather than disorders. The test now widely used and contains 168 true/false items that assess dysfunctional interpersonal themes.  These dysfunctional dispositions reflect one’s distorted beliefs about others that emerge when people encounter stress or stop considering how their actions affect others.  Over time, these dispositions may become associated with a person’s reputation and can impede job performance and career success.

There are four traits, or subclinical disorders which have been consistently implicated in managerial derailment:

Table 1: Four Derailing Characteristics
DSM Labels Theme Scale  Theme  Scale  Theme 
 Narcissistic  Arrogant and haughty behaviours or attitudes; grandiose sense of self-importance and entitlement  Arrogance  Self-absorbed; typically loyal only to himself/herself and his/her own best interests  Bold  Unusually self-confident; feelings of grandiosity and entitlement; overvaluation of one's capabilities
 Antisocial  Disregard for the truth; impulsivity and failure to plan ahead; failure to conform with social norms  Untrustworthiness  Impulsive; dishonest; selfish; motivated by pleasure; ignoring the rights of others  Mischievous  Enjoying risk taking and testing limits; needing excitement; manipulative, deceitful, cunning and exploitative
 Histrionic  Excessive emotionality and attention seeking; self-dramatizing, theatrical, and exaggerated emotional expression  Attention-seeking  Motivated by a need for attention and a desire to be in the spotlight  Colourful  Expressive, animated, and dramatic; wanting to be noticed and needing to be the centre of attention
 Schizotypal  Odd beliefs or magical thinking; behaviour or speech that is odd, eccentric, or peculiar  No Common Sense  Unusual or eccentric attitudes; exhibits poor judgement relative to education and intelligence  Imaginative  Acting and thinking in creative and sometimes odd or unusual ways

Many note the paradox that whilst dark side traits may help managers up the greasy pole of management they do, in the end, derail people. There is certainly evidence that a person’s dark side profile relates, independently of their skills and values, to the jobs they are attracted to and thrive in. 
There is also evidence of the relationship between the dark side factors and many managerial behaviours including trustworthiness, work attitudes, leading others, decision making and problem solving, achievement orientation, dependability, adaptability/flexibility and interpersonal skills. 

So why are they selected?
A central question is why managers who fail and derail get selected? Often a lot of money is spent with head-hunters, expert psychometricians and experienced HR experts to ensure a good selection is made.

Selecting out: Good selection involves both ‘selecting in’ and ‘selecting out’: evaluating traits you want and don’t want. Yet most people select in, looking only for what they want, and select-out criteria are often dismissed as ‘not enough of the select-in criteria’ (i.e. not decisive enough) rather than as something distinct.  If people are asked to explicitly list what they do not want in a new recruit they usually have no difficulty in answering, but these characteristics are not always covered in the search criteria. Often very senior people are not screened on competency-based methods, as a new graduate may be, and this could in part account for why their dark sides are not spotted.

A check-list of questions measuring the dark side may give useful insight into potential derailers. Questions may relate to how they describe and explain failure; how they build trust etc. But the challenge is that often dark-side managers are particularly skilled at interviews where they can display their impressive impression management – they enjoy it. Much better to question those who have worked with and for them (of which more later). This is the power of 360 data.

More is not always better: When selecting for particular competencies or traits, selectors often erroneously assume that more is necessarily better. Thus, while high self-esteem is good and healthy, this might tip over into sub-clinical narcissism and then clinical narcissism. Being rated as a ‘very strong team player’ may indicate someone who ‘hides’ in teams and is dependent rather than independent. A ‘strong analytic thinker’ may easily suffer from ‘analysis paralysis’. Someone who is rated as a ‘mover and shaker’ may be dysfunctionally impulsive and a bully. Recruiters should look for optimality rather than ‘maximality’. 

Other Necessary Conditions
Being a dark-side, derailing-prone, difficult manager is not enough to guarantee failure. Other factors play an important role. The first is organisational culture and processes which can allow, even encourage, management failure. Toxic cultures allow toxic people to survive even thrive. Healthy corporate cultures tend to screen them out.

The second is employees or followers who are prepared to go along with, and obey the derailing leader. That is bad people need willing followers: though from a variety of motives (fear, greed, insecurity) are prepared to follow an insincere or corrupt person down a very rocky road.

It is not until recently that it has been recognised how many leaders fail and derail. As a consequence there is now an academic literature on the topic. One, but only one, factor that is often implicated in this is hubris; hence all the stress on the “servant” leader and the benefit of humility.
There are various important take home messages from the research. The first is the paradox that a person’s dark side profile often explains in part how, when and why they climbed the greasy pole of management life but also how they slipped down it so dramatically and (for many people) quite unpredictably. It seems almost as if one needs “a little mud at the bottom of the pool” to succeed.
Second, there are four “dark side” traits that are usually responsible for the failure and derailment. Beware the hugely self-confident (narcissistic), mischieviously, risk-taking (anti-social), attention-seeking (histrionic), quirkily creative (schizotypal) leader. Whilst they might seem very attractive initially their dark side will emerge under-pressure and potentially cause mayhem.
Third, this understanding of the causes of derailment can be used profitably in both selection and coaching. This means having a “select out” system: looking for the danger signs. Given the huge cost of derailment to all stakeholders it is surely worth the investment in a dark-side detection system.
Adrian Furnham is the principal behavioural psychologist at Stamford Associates in London, and author of several books on behavioural psychology.

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