How firing a leader may be explained in Keynesian terms

April 1, 2013

By John Keane

The firing of leaders should be clear evidence of rational decision processes. Sometimes it seems driven by irrational expectations

My example comes from the world of football in England, but it could easily be extended to other business situations.

As Easter approached [March 2013] Premier League battles for survival were heating up. Six clubs were considered most likely to supply the three who would be relegated, with serious loss in income. If a boost to performance could be achieved in the final ten games, financial disaster could be avoided. It is considerably harder for a club to fight its way back, as the relegation to the Championship has considerable consequences on recruitment of new players, sponsorship and match attendances.

On firing a leader

The decision to fire a manager seems to be one primarily taken by a powerful owner, who may or may not be influenced by others such as the manager, and (or so the fans would like to believe) the vocal protests of supporters.

One of the most powerful and wealthy owners, Roman Abramovitch of Chelsea, has a track record of removing managers in search of others he approves of more. At present his choice has already been told he is a stop gap to be replaced at the end of the season by the best manager money can buy. This is somewhat different as Chelsea is also able to buy good enough players to win trophies. They are currently European Champions, but the achievement was not enough to save the last manager from being fired.

The candidates for the chop

Managers facing relegation this year included those at Southampton, Wigan, Aston Villa, Reading, Queens Park Rangers and Sunderland. One of these (QPR) acted earlier in the season and appointed Harry Redknapp, one of the most experienced managers capable of helping ‘the great escape’. Reading, Southampton and Aston Villa pressed the trigger later. In these cases the replacement is not obviously a better manager by track record than the departing one. This is particularly the case for Sunderland, who replaced a manager of considerable prior achievements, with a controversial one with less experience.

These sorts of decisions illustrate the Keynesian view that financial decisions are driven by irrational forces and expectations. Or, as Keynesians like to say, the leaders are left trying to ‘push on a piece of string’ [to obtain supply-side wins] to achieve better results than might otherwise have been produced.

How weird are entrepreneurs?

November 17, 2008
Richard Branson

Richard Branson

The heroic entrepreneur has been the subject of much managerial myth-making. A recent study seems to be perpetrating the myth. But how weird are entrepreneurs? How much confidence should be placed in the research results?

An article in Nature this month examined the nerological differences between smallish samples of entepreneurs and general managers. I am looking more carefully at the article, which was by a team of scientists from the University of Cambridge. But already, the story has grabbed the popular headlines. Here is a synopsis of it:

The article, published in the journal Nature, asserts that entrepreneurs are riskier decision-makers than their managerial counterparts. Additionally, the type of decision-making essential to the entrepreneurial process may be possible to teach or enhanced in the future by pharmaceuticals.

Psychological and biomedical research has traditionally considered risk-taking as an abnormal expression of behaviour, as exemplified by its association with substance abuse and bipolar disorder. However, the Cambridge research, which was funded by the Wellcome Trust and the Medical Research Council, found that entrepreneurs represent an example of highly adaptive risk-taking behaviour which can result in positive outcomes during stressful economic circumstances. This ‘functional impulsivity’, the ability to make quick decisions under stress, may have evolutionary value as a means of seizing opportunities in a rapidly-changing environment.

So far so good

The results may pass down into the folklore of social psychology for one very powerful reason. They appear to confiem what many researchers already believed or suspected. That entrepreneurs are different, and that the difference has ‘something to do with’ the sort of risks that entrepreneurs take. Also, work going back many years indentified stronger N-ach (need for achievement) among groups of entrepreneurs.

But let’s not get too excited

The textbooks already tell us that entrepreneurs are risk-takers. If I remember the basic literature, they turn out to be moderately risk inclined, with more than average inclination to take risks, but in general, this is mediated with a grasp of reality. They ‘back the house’ in a way that is not utterly reckless (hardly surprising. The Cambridge study discusses the survival benefits of such behaviors, which is also not particularly surprising).

My own take on the research is that the entrepreneurial process requires a broader modelling than anything which can be detected ‘in the brain waves’.

More important are the implications of the research. There is already discussion around whether a pill could be invented to ‘help’ more people become entrepreneurial. I’ll leave that to another time. But remember that the entrepreneurial spirit, like the creative spirit, is a mischievous critter. Perhaps a pill to damp down the irrational exuberance of financial entrepreneurs might also be considered.