Monday, December 12, 2005

Financial Services, Part 2: Sustainable Growth through Creativity

In the context of sustainable solutions for creativity in business, it seems appropriate to offer a second part of a previously posted conversation with a Partner in a Financial Services Firm.

Curiosity and Tenacity: Key Factors in Hiring

This high-level executive looks for curiosity, tenacity, and the kind of education that offers underlying discipline and confidence for effective problem-solving.

Here's a bit more on how his firm channels creativity to improve the bottom line:

AK: What concrete business case do you have for requiring curiosity in employees?

P: It's an equation that works like this: Problem-solving is a by-product of curiosity. You’ve got to be curious enough to deliver an effective outcome. That's how you make money, simple as that.

It's harder to sustain than you might think. You have to make sure the people who work for you are supported in their curiosity.

AK: So you're saying success in business involves taking care of employees? There's a lot of rhetoric around this in the business world, but how does it work? And is it really profitable?

P: Absolutely. Sustainability in a business model that people pay for. So I’ll pay a bigger multiple of earnings if I think your growth and innovative capacity is going to last forever. If I think the employees are well taken care of and earn stock, if they are supported, it's a big part of my decision to invest.

There are other issues as well that might help me make a decision. If the company has great corporate governance, if the management is super ethical, if they don't dump chemicals or kill trees, all these things are meaningful to investors.

These things were all overlooked for a while -- the economy was chugging along, but the world becomes increasingly complicated and interconnected.

AK: I'd like to hear more about how you support your employee's curiosity to sustain innovation and grow your business.

Would you elaborate on the ways your firm encourages or demands that employees find new ways of looking at the world to this end?

P: Sure. We put a lot of effort into providing opportunities to learn, and not just directly related to finance per se.

We support our people in going back to school and get advanced degrees, or take classes just because they're interested in a subject. The courses feed their curiosity and also provide ways to do better due diligence in the subject area.

In the end, we see the benefits for our company and our investors.

AK: Your employees get higher degrees in subjects other than straight business or economics? Can you give me an example?

P: Sure. There may be someone here who is fascinated by technology. He’ll go to a professor in NYU and learn how all the latest, hottest applications work. In the process, this person is also learning about the current state of industry, which products work, and how companies do customer service -- the whole gamut.

Once they get degrees, this employee is not just a finance guy -- he's also technologists. He can go out and question the industry and make investment decisions with having a real knowledge about what to ask. He has a sense of what's credible -- in your words -- and useful in a way that someone who just studies business would never get.

AK: Are there other benefits?

P: Sure. Knowing how to do this in one field is transferable to others. Like you said, learning is associative -- once you learn a process in one context, you can apply to a field that's unfamiliar. That's very useful to us.

AK: You said earlier that looking at patterns in one field can trigger curiousity in another about what doesn't fit and requires more investigation. Can you elaborate?

P: Here's an example. If you have a public company that declares its earnings, you have to understand that there are different possibilities of what’s true. Presentation of information that looks credible may have something behind it other than what it seems.

The specifics change from situation to situation. It's important to be able to be flexible and curious enough to investigate patterns when the data changes -- it's a creative process.

AK: This seems to go back to what we were saying about the value of making new connections among seemingly familiar pieces of information.

P: Right. This is an evolving industry on Wall Street. I mean, look at values-based research, for example. It's socially responsible investing -- looking at companies and their compensation and corporate governance and employee healthcare which typically people didn’t look at before.

More and more, there are research firms doing off pieced research products. This can tell you so much more than the basic income statement, value sheet, earnings, growth, and all that that we’re used to seeing.

AK: So what these firms are tying to do is get people to look at the market in a new way, to see it new.

P: Short-term thinking doesn't work long-term. Sophisticated investors understand that, and we help our clients recognize the value.

At the end of the day, a company's earning growth is not sustainable if it hasn't got good corporate governance and doesn't support its employees.

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