The Culture of Collaboration

Fidelity’s Amazing, Disappearing Star Fund Manager?

The era of the star fund manager is waning.

Fidelity Investments may replace a star-oriented fund management system with a collaborative approach after a consultant's report. As is so often the case when organizations suddenly consider—and often embrace— a more collaborative structure and culture, exigent circumstances precipitated the potential move. I call this phenomenon The Bounty Effect, and I’ve written extensively about it in the book by the same name. The Bounty Effect occurs when an event or circumstance creates a fundamental shift, changes the game and accelerates collaboration.

The Bounty Effect for Fidelity occurred because of two exigent circumstances:

Last year Fidelity reportedly fired Gavin Baker, manager of Fidelity OTC Portfolio, for allegedly sexually harassing a junior female staff member though Baker denies the allegations. This happened against the backdrop of the #MeToo movement. The apparent firing prompted Fidelity to conduct a “cultural review” of its stock picking unit.

The other exigent circumstance is the reported outflow of $40 billion from Fidelity’s actively-managed funds in 2017, according to Morningstar, as investors have increasingly embraced exchange-traded funds (ETFs) and passively managed index mutual funds meaning those linked to the performance of a particular index such as the S&P 500. Active fund management essentially means one star manager with a supporting cast of analysts attempts to beat a particular index. Fidelity built its reputation in the 1980s around successful active managers including Peter Lynch who managed the Fidelity Magellan Fund.

The decline of the “star” fund manager mirrors trends in other industries and throughout workplaces. Before the rise of human resources as a valued discipline, swashbuckling managers made hiring and tactical decisions based on gut and sometimes whim. Executives often made strategy decisions in a vacuum.  As HR has become more data driven, the era of the swashbuckling manager has ebbed. Leaders make few decisions without input or at least without consulting HR, finance, IT, communications or some other function. Companies measure everything and everybody which, incidentally, can short circuit collaboration.

Fidelity would likely argue that “star” managers never made decisions in a vacuum but rather consulted Fidelity’s extensive research team and worked with analysts assigned to each fund. Nevertheless the funds industry—including Fidelity—has historically embraced star culture. And so have such industries as sports, food and beverage, medicine, journalism, the film industry and so many others. The media still goes to bizarre lengths to reinforce star culture, because media decision makers believe that personalities sell newspapers and drive viewership and eyeballs translating into advertising dollars. I’ve even read stories on “star” butchers. And while I appreciate the skill involved in selecting and cutting meat, putting certain butchers on a pedestal feeds a misleading perception that the vast majority of butchers fail to measure up to the so-called stars.

When we turn athletes, chefs, doctors, television hosts, movie producers and others into stars, these so-called “stars” start believing the rules that apply to everybody else never apply to them. This breeds bad behavior. Star culture has also diminished the contributions of people who work with “stars” which makes these people feel sidelined and less likely to provide valuable input. In short, star culture costs organizations dearly. In contrast, embracing a collaborative culture and structure creates value.

If Fidelity abandons its “star” manager system, the question is whether the move is window dressing or real structural change. We may learn that one person never really “managed” Fidelity’s actively-managed funds and that fund management was always an inherently-collaborative process among colleagues despite Fidelity’s marketing so-called “star” managers.

Fake Data and the Death of Star Culture

The recent rash of sexual misconduct accusations against prominent men provide a lens through which we can view the death of star culture. For generations, we have bestowed God-like status on so-called stars whether they’re politicians, chefs, entertainers, executives, athletes or show hosts. This exalted status makes “stars” believe they are special.

The #metoo movement is a proxy for rejecting star culture. And now this cultural shift is manifesting in other ways. Viewership for last Sunday’s Grammy Awards dropped 24 percent compared with viewership for last year’s Grammy Awards. We’re tired of stars.

If “stars” like Bill Cosby, Harvey Weinstein, Matt Lauer, Mario Batali, Kevin Spacey, Charlie Rose, Steve Wynn and so many others get a pass on just about everything for being stars, our star culture is responsible for their transgressions. We elevate them to status so rarified that they may believe laws and standards of fairness and decency do not apply to them.

Star culture reinforces the false notion that we achieve great feats by ourselves. Whether the so-called star is a movie producer, chef, tv host, actor or executive, the reality is that he or she succeeds because of others. Nobody achieves great feats entirely on their own. Behind the scenes, many people work to make the movie, the meal, the talk show, the team, the business a success regardless of the “star.”

In The Culture of Collaboration book, I describe the Myth of the Single Cowboy. This is the notion that one self-suf­ficient, rugged individual can achieve smashing success without help from anybody. When we perpetuate this myth, we make so-called stars feel that they’re a breed apart and can conduct themselves without consequences.

Star culture reinforced by the media and society at large also infects organizations. The result is that contributors who are not considered A-listers get sidelined. Their input and ideas are lost, and value creation suffers. Plus internal competition to become a star increases bad behavior such as sabotaging others and hoarding information.

Our excuse for star culture and for tolerating transgressions is that stars supposedly create more revenue. There is evidence, though, that the financial performance of stars is often overstated. NBC’s Today Show picked up more viewers after the network fired Matt Lauer.

Rejecting star culture is nothing short of a fundamental shift in our society. This shift will impact companies, universities, government agencies and organizations of all types. Smart organizations will get ahead of the curve and take the necessary steps to replace star culture with a collaborative culture

People who become stars often cheat to achieve or keep their rarefied status. Social media is a case in point. One way we measure star power is to count the number of followers on social media. Did we really think that stars are so popular that millions of people read their posts and tweets? It turns out that “stars” and wannabe “stars” pay for fake followers which create fake data on which companies base advertising and endorsement decisions.

A reporting team at the New York Times recently investigated a company named Devumi that sells Twitter followers and retweets. The company reportedly has at least 3.5 million automated accounts for rent. Customers include reality television “stars.”

So it turns out that star culture is related to another unfortunate phenomenon that compromises collaboration: measurement mania and the tyranny of data. Fake data is by no means limited to social media. In command-and-control organizational cultures that foster internal competition and information hoarding, team members get the message that the goal is winning at all costs. In this type of culture, numbers get fudged and corners get cut.

Fake data scandals cost these companies plenty. A recent glaring example is the fake bank account scandal at Wells Fargo. Companies that embrace fake data are often the same companies that promote “stars” and minimize the contributions of others.

Many companies have yet to catch up with our evolving society. Successful organizations use real data and replace star culture with collaborative culture.

Bankruptcy of Purse--and of Culture

Can an organization’s culture portend disaster?

For the answer, we need look no further than some of the most high-profile corporate scandals. Lehman Brothers, Worldcom and Enron— companies that experienced some of the largest bankruptcies in history— used accounting gimmicks which stemmed from bankrupt cultures. Command-and-control, internally-competitive, autocratic, star-oriented organizational cultures breed unethical and—in extreme cases—illegal behavior.

Now Big Law gives us a new don’t-let-this-happen-to-you poster child for embracing the right culture. Leaders of the once top-tier law firm of Dewey & LeBoeuf overstated revenue and used accounting tricks to hide losses and cash flow shortfalls, according to a 106-count indictment that a New York state grand jury handed up last Thursday. If convicted of the most serious charges, Chairman Steven Davis, Executive Director Stephen DiCarmine and Chief Financial Officer Joel Sanders, each face up to 25 years in prison. Dewey filed for Chapter 11 bankruptcy in May of 2012. The alleged financial shenanigans began as billings dipped and clients evaporated during the depths of the 2008 financial crisis.

But Dewey’s problems began long before the firm’s leaders allegedly began their deceit, as I describe in my new book, The Bounty Effect: 7 Steps to The Culture of Collaboration®. Formed in 2007 from a merger of two venerable firms, Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, the firm reportedly employed three thousand people globally at its height. Dewey’s roots date back a century, but it took roughly five years for the firm to come unglued.

Among other cultural defects, the newly-merged firm created a two-tier partnership system in which it treated “stars” differently than other “partners.” After the merger, Dewey began recruiting so-called “lateral partners” rather than promoting from within. These partners received multiyear, multimillion-dollar guarantees. Dewey’s secretive culture prevented the firm from sharing this information with all of the partners. While one lateral partner reportedly had a six-million-dollar-a-year guarantee, other partners received four hundred and fifty thousand dollars a year.

The stars were those who the firm expected would bring in the most business. Dewey considered other partners “service partners,” the ones who wrote briefs and performed or managed the legal heavy lifting. When word of the wide compensation gap spread, the service partners—many of whom had worked for the firm much longer than the newly-recruited “stars”—became resentful. Clearly, star culture had compromised trust and poisoned the organization. And, guess what? Some highly-touted “stars” were unable to live up to their hype, and therefore revenue fell short of what Dewey needed for paying annual compensation commitments to these “stars.”

The merger occurred right before the financial crisis. By the end of 2008, Dewey had more than $100 million in term debt outstanding and available lines of credits totaling more than $130 million with four banks. The firm’s credit agreements required Dewey to maintain a minimum cash flow. To abide by this covenant, the firm’s leaders and others conspired to misrepresent Dewey’s financial performance, according to the indictment.

So brazen were the defendants, according to the indictment, that they created a document called the “Master Plan” which outlined fraudulent accounting tricks. Plus they reportedly discussed the alleged fraud in a series of emails. One of these apparently read, “Can you find another clueless auditor for next year?”

Suppose Dewey had fostered a collaborative rather than command-and-control culture and organizational structure? What if Dewey had shared rather than hoarded information, harnessed broad input into decisions, and encouraged partners to work together both in developing business and producing legal work? The firm may have weathered the financial crisis rather than devolving into apparent unethical and possibly illegal activity.

Dewey is by no means the only law firm with a two-tier partnership system. Nor is it the only firm that embraces a star-oriented, command-and-control culture. Many law firms and organizations in multiple industries and sectors run the risk of financial implosion, because their cultures are bankrupt. The solution, as I describe in The Bounty Effect, is to change the structure of organizations from Industrial Age command-and-control to Information Age collaborative