Values Investing

Last week, Benedict Carey wrote in the New York Times about a study on the performance of inner-city middle school children.  Researchers found that students who wrote a fifteen minute essay on the values that were important to them significantly improved their academic performance.  While the study was quite limited in scope, I wonder if there isn’t an application to business.

Our values are embedded in high level neural networks in the brain.  It’s been found that such networks can key the firing of ones at lower levels responsible for our decision-making and behavior.  When attention is drawn to our values by a writing exercise, perhaps it stimulates parts of the brain that make us a little smarter or work a little harder.

If so, it might make sense for managers and employees to spend a little bit of time every so often on remembering the values that are most important to them, and on clarifying the link between their work and those values. It just might help them perform at a higher level.  Even the smallest improvement would be a huge return on the investment of time required.

I realize my proposal might sound a little bit too soft for hard-nosed business people.  But the more we learn about how the mind works, the more we’re able to realize its fullest potential, and profit from it  This research demonstrates a link that even the most results-oriented of us should exploit.

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Bad News, Good News

When Jon Stewart interviewed Alan Greenspan several months ago, he asked why we need the Fed if free markets are efficient. The former Chairman’s answer indicated just how strong a role human psychology plays in the economy. He explained that our overreaction to both good and bad economic news needs to be dampened and that’s what the Fed does.

At the beginning of his term, President Obama was criticized for being too negative when he spoke about the economy.  Yesterday, he gave a more upbeat assessment.  CNN contributor Ed Rollins suggested a change in tone was necessary, given that our taxes our due today.  I suspect, however, there’s more to Obama’s strategy, and that he’s consciously managing the psychology of the American people. His example is one managers can learn from.

Brain science teaches us that the “unexpected” stops the mind’s automatic processing, and a failure or crisis is a powerful “unexpected.”  We’re stopped in our tracks, and so we stand back, reflect, and think about what we need to do differently.  This is a necessary step if we’re to change our behavior, but the accompanying fear also slows down the mind and narrows our vision.

When we’re optimistic, the mind speeds up and makes more connections. We become smarter. In tough times, we need to be stopped so that we can learn and change. But then we need to summon all of our mind’s potential to turn things around.

Managers should take this lesson to heart.  Hard times can be a great opportunity.  They prompt us to rethink what we’re doing and they make us more willing to change.  But if we’re to make the most of change, we need to be optimistic going forward.  Perhaps the most critical thing for managers to do in times like these is to express their confidence that things will get better.

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Practical Morality

Unless we were victims of Bernard Madoff, the AIG bonus flap was the tipping point. Greed is out and morality is in. As our sense of what’s right and what’s wrong when it comes to our relationships with others, our moral indignation rises when we feel we’ve been taken advantage of.

The latest discoveries of brain science call attention to the role emotion plays in our moral judgements. David Brooks sees our moral judgements as based on “rapid intuitive decisions [involving] the emotion-processing parts of the brain,” rather than our reasoning. Steven Pinker has demonstrated how easy it is for us to use our reason to justify our behavior as moral and that of others as immoral.

Evolution drives us to judge caring for our family as moral, even at the expense of others, since they share our genes. The AIG executives could certainly view their negotiated bonuses in that light. So how should we determine what’s moral?

Perhaps by recognizing that morality is practical because it ensures the good relationships with others we depend on to survive. Scientists see our oversized brains as having evolved to manage those relationships. One of the things they excel at is empathy.

We can certainly view ourselves as deserving the bonus we agreed on, even though the company is on federal life support, but our empathy should alert us that others won’t share our view.

Accepting the bonuses wasn’t immoral, but failing to empathize and anticipate how others would view the bonuses was both immoral and impractical. AIG is unlikely to get more federal money without triggering even more massive public indignation.

Executives need to consciously empathize with those they depend on to buy their products, to invest in their stock, and to come to their aid when they’re in trouble. When considering any action, they should ask how it will play in Peoria. It’s impractical not to.

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