The final morning session of a conference whose agenda is packed from dawn to dusk could well turn out to be the graveyard slot. Especially when many delegates are trying to conserve energy for the Rugby Sevens which start that afternoon and are always an exhausting (in a good way) weekend. But Credit Suisse neatly solved this issue at last week's Asian Investor Conference by scheduling Malcolm Gladwell on Friday morning.
Gladwell, the author of bestsellers such as "Blink", "Outliers" and "The Tipping Point" was introduced by Ali Naqvi, Credit Suisse's head of equities for Asia-Pacific. “Like all good things in life you have to wait to hear Malcolm speak,” Naqvi said as he walked the audience through the poll Credit Suisse had been conducting daily before the sessions started. Not surprisingly, the majority of the participants remained fund managers from Hong Kong. The keynote sessions were found most useful by 42% of respondents, followed by the stimulating conversation while waiting for the elevator, which got 22% of the vote.
“I don’t know how close you came to not having a speaker,” said Gladwell when he started his talk. “If keynote speakers had not won I might have been forced to stand down in protest.”
The topics Gladwell chose to focus on were the nature of innovation and attitude of entrepreneurs to risk. The choice was driven by Gladwell’s conviction that innovation is the need of the hour in most economies and we need to understand entrepreneurs better to foster innovation. The lesson he draws from a study of entrepreneurs is that banks need to radically diversify the kind of people they hire if they want to attract innovators and social risk-takers.
Gladwell highlighted the work of some people he considers innovative and entrepreneurial. His first example was Professor Emil Freireich. Freireich was a 20th century haematologist who undertook pioneering research in the 1950s into childhood leukaemia, which at the time was a common cause of death for young children.
The outcome of his research was a suggestion that the children be treated with a cocktail of four drugs which were until then being administered individually. “Freireich did not know better so he approached his research with an open mind,” said Gladwell. “Think of the four drugs as the army, navy, air force and marines. Using them together means you may win a battle which you will otherwise lose.”
The approach championed by Freireich has transformed oncology, said Gladwell. However, he cautioned against reaching the obvious conclusion that Freireich was successful because he was a risk taker. Indeed, Gladwell suggested that in some senses Freireich was not taking a risk at all as leukaemia was at the time fatal for most children.
“It was an asymmetrical trade in your language,” said Gladwell. “Limited downside, unlimited upside – all of you would do it.”
Gladwell conceded that the social risks for Freireich were high as he could have been ostracised from society, had his suggestion worsened the condition of the children. He described this as bimodal risk taking – the professor was operationally risk averse but socially incredibly risk taking and was willing to place his reputation on the line.
“Successful entrepreneurs show a cycle of bimodal risk taking,” said Gladwell.
To reinforce his point, Gladwell cited two other entrepreneurs. Ingvar Kamprad, who founded Ikea around the same time Freireich was finding a cure for childhood leukemia. Kamprad’s revolutionary approach to marketing furniture made him run afoul of Swedish labour unions so that no-one was willing to work for him. He decided to manufacture in Poland where labour costs are a quarter of that in his native Sweden and natural resources are abundant.
“The operational risk Kamprad took is very small but the social risk is huge,” said Gladwell. “The Cold War was at its height in 1961 and he was vilified, considered a traitor and subject to abuse.”
Ted Turner was Gladwell’s final example. Turner inherited a thriving billboard business from his father. However, rather than run it as it was he chose to buy a loss-making television channel as he saw synergies between the businesses. Turner went on to establish a hugely successful media conglomerate on the back of his decision to buy Channel 17, which his advisers cautioned against at the time.
“The cognitive advantage these three people had was that they hit upon uncommon insights,” said Gladwell. “But they were willing to be excluded from society, which is very unusual.”
Entrepreneurs generally work harder, earn less money and are happier in their work are conclusions drawn by Gladwell from his study of what makes a successful entrepreneur. They are willing to be social outcasts, he said, which is something 99% of us cannot bear.
Gladwell contrasted the risks taken by Freireich, Kamprad and Turner with the risk taken by the Rolling Stones when the band played a kind of music hitherto not heard.
“There was an operational risk [that no-one would like the music],” he said. “But no social risk at all. Every 19-year old girl from LA to London wanted to sleep with them – I submit to you that is a trade which every man in this room would willingly do,” he added to uproarious laughter.
The financial crisis was also woven into Gladwell’s hypothesis on risk-taking. “All traders betting on subprime took huge operational risks as they bet their entire enterprise, but they took no social risk as everyone was doing it so at some level they were just part of the club,” he said. Gladwell also suggested that outsiders might have been more willing to highlight the risks growing within the organisation, rather than playing along.
We need outsiders, postulated Gladwell, because they are more willing to be outcasts. “Not just people of a different colour or shape but people with profoundly, culturally different perspectives,” he said. “Banks need to go beyond MBAs and quants and maybe hire biologists or pilots – anyone who sees the world differently.”
If we want more entrepreneurs we have to find more people who will not deviate from their chosen path, no matter how much scorn or derision they face, he concluded before throwing open the floor to questions.
Asian cultures discourage people from being social risk-takers, said one delegate. And Gladwell agreed saying that this is a crucial issue for hierarchical cultures where respecting elders and sublimating desires to those of superiors are the norm. However, Gladwell suggested that the cultures we inherit are not permanent and it is possible to create the kind of organisations and institutions which foster obnoxiousness -- a quality that is necessary to build a risk-taking organisation.
