The War for Talent

As a hedge fund manager I am self-evidently smarter than most of the rest of humanity combined. Nonetheless there are occasions when I am only too happy to give credit where it’s due, and recognize genius in others.

Case in point: the hiring strategy implemented by my colleague Howard.

Let me start by giving you some background. My own management philosophy is fairly simple. Hire the best people you can find, pay them well, teach them all you know, encourage them to ask questions, then let them loose. Give them lots of responsibility and allow them free rein to solve their own problems. This strategy is not without risk: mistakes will be made, but hopefully nothing that can’t be undone. 99% of what fresh hires produce is going to be dross, but the remaining 1% can hold some real nuggets. Pretty straightforward, really.

Of course, such a philosophy is a non-starter at a place like Sopwith. Sopwith is the enemy of innovation, of individual responsibility, of managerial flexibility, of anything that disrupts the comfortable and complacent existence of the higher powers. New hires at Sopwith – talented and motivated individuals, all looking to leave their mark on the world of high finance – would come up with numerous exciting new plans, not a single one of which ever saw the light of day. This was obviously somewhat dispiriting for the new hires and they lost no time in seeking greener pastures. And why wouldn’t they? Sopwith was clearly a firm that was going nowhere fast.

The exodus of talent reached such a state that at one point Sopwith had acquired a reputation for being an excellent finishing school for junior traders: Lehman Brothers alone poached 3 traders a year from us for 3 years in a row. (And now look where they are! Ha ha). This reputation certainly helped us in the eyes of investors, but it was not particularly conducive to our day-to-day productivity.

This was the situation my colleague Howard stepped in to remedy. He analyzed the problem, thought deeply about market conditions, surveyed the state of the industry, audited our requirements, and came up with these distilled words of wisdom: Hire Dumb People.

We decided as an explicit corporate policy not to hire the best applicants for any job, on the grounds that these best applicants would quickly jump ship. Instead we hired people who were ‘just good enough’ to do what we needed them to do. Furthermore we wanted people who knew that they were just good enough to do their job. Such people would be neither capable nor desirous of finding gainful employment elsewhere.

The new policy worked like a charm. This was one of the most brilliant strategies I had encountered in a lifetime of observing brilliant strategies.

The new hires never once entertained feelings of disloyalty; furthermore they were paid peanuts. Their ‘lead handcuffs’ were so strong that we could pay them minimum wage and get away with it. (Let’s not kid ourselves here: this is Wall Street minimum wage, enough for a Beemer but not a Ferrari). And they stayed with us for years and years.

Hats off to Howard.