And that resulted in…what??

I enjoyed this Forbes column from Jerry Bowers.  I’ve had experiences similar to the one he describes here:

Several months ago I was on the phone with the managers of a very, very large international bond fund. They wanted me to support the recommendation of the staff of an investment committee, on which I sit, to put a lot of money under their care. Their performance had been poor lately, but as a long-term investor, I didn’t hold that against them. I wanted to know how they thought, especially about risk.

But no matter what question I asked them about their way of thinking they always seemed to give an answer in terms of the intelligence, resume, or academic qualifications of their analysts. So and so studied under Barry Eichengreen at UCLA;  this guy has been analyzing bonds for X years; this other guy has lived in South America analyzing bonds for his whole career, etc. Well that’s nice. Smart is better than dumb, but right is better than smart, and right is largely a matter of fundamental principles.

I have one nit.  Smart isn’t always better than dumb.

But I like the story because I’m amazed by how often we put a premium on “smart” over actual results.

I’ve heard pitches from business consultants who tell me how smart their consultants are. They graduated from [insert top-tier business school name here] and have worked on projects at [insert Fortune 500 company names here].

Ask them to describe the tangible results they have produced and they’ll again point at their degree and list projects they worked on.

Then I ask, And those projects resulted in…??

Blank stares.

What do you mean?

I mean, can you tell me if the projects you worked on increased that company’s stock price?  Did it cause more customers to want to buy their products?  Did those projects improve profitability?  Are those companies still following your advice?  Have they asked you back or made you any job offers? 

The response to that is usually, Well, we can’t discuss specific outcomes of our other clients.  That’s proprietary and confidential.  But, I can assure you, we are the best and the brightest.  Then, they’ll usually try to throw a jab at my intelligence for asking such questions.  Besides, we can’t really measure the impact, for sure.

Unfortunately, their standard “we’re smart” pitch must work well enough to keep the work coming without having to demonstrate their actual results.  That’s too bad.  So, I was happy that Jerry Bowers didn’t buy it.

Business consulting and bond funds isn’t the only place the “I’m smart” pitch seems to make up for lack of results.   We often vote for “smart” candidates in elections.  We defer to the “smart” guys in the papers for political and economic opinions.  A few years back, we trusted those smart quants to reduce the risk of lending money to folks with bad credit histories.

When you hire a plumber or electrician you usually don’t care how “smart” the person is.  You don’t want the plumber to “figure it out” on your dime.  You expect a plumber to know because he has fixed the same problem hundreds of times before with good results.

We could avoid a lot of messes by putting more weight on actual results and less weight on how “smart” we think people are.