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Michael Lewis, Wall Street, and Trust

Outsourcer?Right after Michael Lewis’s 60-Minutes appearance to promote his new book Flash Boys I wrote a blogpost about it.

The next day I received a phone call from a retail stock broker. His tone was somewhere between kindly uncle and exasperated old-timer, but his message was clear:

“That Lewis guy’s obviously got an axe to grind,” said the caller. “He lost big-time in the market and he’s trying to get even with people. And that Katsuyama guy he writes about, he’s just a spoiled baby, trying to make an even bigger buck than he was lucky to get paid in the first place. The whole thing is just a bunch of hype designed to sell books, and you’re getting suckered into it.”

If you know anything about the book (and if you don’t, here’s a good start), you know that’s a crock. In any case, my caller exhibited three traits:

  1. He’s convinced the world is of the dog-eat-dog variety,
  2. He’s convinced that everyone else believes the same thing,
  3. The default strategy therefore is do unto others before they do unto you.

My caller does not believe in people with different value systems. Let’s call such people “unicorns” Canadians.  (Did I mention Katsuyama is Canadian?)

Now, I suggest the odds of making my caller more trusting and  trustworthy through more regulations are roughly zero. The odds of making him trustworthy  through incentives, can be only slightly better (and I can’t even imagine the incentives).

The only way he’s ever likely to behave in a trusting and trustworthy manner is if he gets beat in a level playing field market by those who are capable of trusting and being trusted.

The Showdown on CNBC

The next day, Lewis and the book’s hero Brad Katsuyama appeared in a very confrontational spot on CNBC  with Bill O’Brien, President of BATS. BATS is an exchange that the book accused of being at the heart of misleading investors and supporting high frequency trading in a legal form of “front-running.”

O’Brien wasted no time throwing the first punch, leading off with:

O’Brien: Shame on you, Michael and Brad, shame on you both for falsely accusing literally thousands of people and possibly scaring millions of investors in an effort to promote a business model. It’s a very, very old tactic to try to build a business on the planks of fear, mistrust and accusation; this is certainly taking that to a new level. It reflects either an unwillingness – a continued lack of understanding about how this market operates or just unwillingness to acknowledge it, because you’re trying to launch a new business and you want to get volume for your platform…

Katsuyama: If you’re going to launch these accusations, let me ask – what market data do you use to price trades?

O’Brien:  We use direct feeds.

Katsuyama: No, you don’t. [You use SIP feeds]

O’Brien: Yes, we do [use direct feeds]

The very next day, the Wall Street Journal reported:

BATS Global Markets Inc., under pressure from the New York Attorney General’s office, corrected statements made by a senior executive during a televised interview this week about how its exchanges work…the exchange operator said two of its exchanges, EDGA and EGX, use a slower feed, known as the Securities Information Processor, to price trades.

This is what is known, in my circles as – technical term – being caught in a flat-out lie.

In any case, Mr. O’Brien exhibited the same three traits as my retail-level caller:

  1. He’s convinced the world is of the dog-eat-dog variety,
  2. He’s convinced that everyone else believes the same thing,
  3. The default strategy therefore is do unto others before they do unto you. Which of course is just what he tried to do.

O’Brien does not believe in people who believe in honesty or fair dealing; in other words, he does not believe in unicorns or Canadians – even when staring one in the face (did I mention that Katsuyama is Canadian?).

The odds of making O’Brien and his ilk more trustworthy through better regulations are roughly zero. The odds of making him trustworthy  through incentives, only slightly better (and I still can’t even imagine the incentives).

The only way he’s likely to behave in a trusting and trustworthy manner is if he gets beat in a level playing field market by those who are capable of trusting and being trusted.

And that is precisely what Brad Katsuyama is setting out to do in the development of a new exchange, IEX. Not a regulatory answer; not a new incentives answer; an answer based on the hope that enough customers in the market will actually choose to do business with an exchange that is unconflicted, that is transparent about its data, that offers only easy-to-understand offers, and that enforces a level playing field.

Will it work?  Stay tuned. There are some interesting positive signs, including even from (hold your breath) Goldman Sachs.

Trust on Wall Street

Having focused solely on trust in business for over 15 years now, several things are apparent to me.

1. The Mother Theresa Paradox is Real. The less trust exists in an industry, the less interested are the industry players in reforming it. It is the already-trust-conscious industries (and companies) who are convinced of trust’s value, and who are interested in improving it. This despite the fact that trust is an overwhelmingly powerful competitive advantage for anyone who can see it. Katsuyama’s new exchange will be a great test of that proposition.

By anybody’s measure (e.g. Edelman’s Trust Barometer), financial services are at the bottom of the trust list. Low hanging fruit, for anyone willing to think their way out of the low-trust box.

2. You Can’t Get Trust with Cheese.  The rats-and-cheese model of behavioral change through incentives doesn’t work with trust, because incentives are personal and trust is relational. Unless you can make incentives team-based and long term, they fail. Even then, they can and will be gamed by very smart rats. See next item.

3. Regulation Is a Vicious Circle. Wall Street pays much more than regulators, and many regulators go to work in the industry they regulate. Regulators have small budgets. But even if that were untrue, you can’t regulate morality. In fact, the more you make “ethics” the target of regulatory efforts, the less it becomes about morality and the more it becomes just compliance.

4. The Needed Values are Clear. They’ve been obvious for some time. They are:

  1. a focus on the client first for the sake of the client
  2. a belief in collaboration
  3. a focus on relationships, not transactions
  4. a default to transparency

These are key to trust. They are clearly in short supply on Wall Street.

So, how to increase ethics on Wall Street? Two answers:

One is, cheer on Brad Katsuyama’s noble capitalist market experiment in honesty, transparency and customer focus.

The other? Instead of Occupy Wall Street, how about – Outsource Wall Street! To Canada!

Within months, I suspect, we’d see lower transaction costs, less risk of flash crashes, higher liquidity, higher legitimate volume, and a reduction in the total size of the industry with no loss of value added.

All it takes is the willingness to operate based on values other than dog-eat-dog.

 

Filed Under: Trust and Culture

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Rediscovering Selling in Today’s Post-Recession World

I spoke recently with Brian Sommer, President of Vital Analysis, a technology resource firm. He had some insights about what’s happened to sales since the recession. Almost all of it applies to Trust Matters readers, so I asked him to write it up as a guest post. So, here’s Brian.

———

The recession of 2008/2009 was a bad one.  Organizations made a number of adjustments just to survive in the times that followed. Sales departments made deep personnel cuts as they had too little business for too many salespeople to chase.

Worse, the quality of the deals the remaining sales people pursued was often terrible. Every deal was brutally competitive; deal sizes were small; profit margins were non-existent; and, prospective customers couldn’t do some deals as commercial credit was almost non-existent. It was definitely a buyers’ market (for the paltry number of buyers that were actually out there).

Sales organizations and their personnel were adaptive in those times but many of those adaptations need to be halted now as those changes were a response to a market that doesn’t exist anymore.  A couple of years ago, your firm, if typical, pursued almost any lead that came in the door.  No matter that the deal wasn’t in your firm’s wheelhouse, wasn’t strategic and came from a flighty prospect, it represented the potential for revenue.  Your firm chased a lot of cats and dogs then. This needs to stop.

Selling Post Recession

Chasing Deals, and Other Sins.  Chasing bad deals isn’t the way to build a growing sustainable book of business. You need focus and you need a core set of strategic customers who work with you collaboratively. This is how you reduce sales costs, improve margins and grow your book of business with each customer. Chasing all that one-off stuff is a waste of energy and robs a firm of its future.  It’s also hard work. Building great relationships is easier and more rewarding.

Your firm may have committed other sins, too. During the recession, you probably oversaturated your existing customers with too many sales pitches, offers or entreaties just to drum up any business. No matter how many times they told you that they had no budget for anything, your sales team pursued them like a pack of wolves targeting the weakest member of a herd. It was brutal.

Unfortunately, your overzealous sales efforts have left these customers bruised and second-guessing why they ever thought of your firm as a strategic partner. They no longer like your firm like they did before the recession. Your sales efforts showed them that you valued their money and your sales more than you did their relationship. Simply put, you put your short-term financial needs ahead of their business needs and the partnership between your firms. You probably killed or severely wounded a number of these relationships.

Only now do firms realize the long-term costs that these short-sighted sales maneuvers created.  Now, firms must rediscover how to sell and sell in these new, recovering times.  Let’s hope it’s not too late for your firm. The pursuit of recession-era deals has clouded one sales organization after another and the pendulum must return to a more reasoned balance.

What must be done?

Rediscover that Customers are “Assets” not “Targets.”  Sometimes, in the heat of a sales promotion, you need to remember that there are finite limits as to what any one customer wants or needs. If you see them as assets, then you alter your behaviors and pitches to them.  If they are but a means to you hitting a sales quota this month, they’re just targets.  If a company treats me (or my firm) like a target, I see that company as a commodity supplier. I will not invest one ounce of extra effort, loyalty, etc. with that firm as they won’t reciprocate the gesture. I will invest in my partners – the businesses that value me and treat me like an asset.

Rediscover How Businesses Buy Today.  Buying has changed of late, with B2B buyers having done huge amounts of research, shortlisting, etc. via Internet resources long before your firm even knew a deal was in process. While this customer self-service activity doesn’t mean the end to relationship selling, it does mean that the way you spend the time you spend cultivating and growing your relationships is changing. Now, you have to grow relationships fast and learn how to make these last in spite of your competition putting all kinds of goodies out on the Internet that might tempt your customers away.

Rediscover that Trust Is Earned Over Time and Can’t be Rebuilt Overnight.  My commercial relationship with some firms (i.e., air carriers) has changed markedly over the last few years.  My trust in those companies was broken badly and I doubt it can ever be recovered. These firms would need a culture transfusion and/or new leadership to get my business back. At a minimum, some firms would need to replace the long-standing representative assigned to our firm as the mere sight of him/her stirs up so much animus.

You might benefit from rotating customer assignments as fatigued, weary customers might want a new face – someone who might treat them better and is genuinely interested in created a new kind of relationship.

The basics of great selling never really went away in the great recession of late. But, they, too often, got submerged beneath the dire and crushing short-term needs of that timeframe. It’s time to re-discover these basics again, while adapting them to a newer era of how selling works in an Internet fueled, omni-channel, global marketplace.

Filed Under: Increasing Sales | Sales