Interview with Florian Homm – a reformed hedge fund manager

Florian Homm in his “locust” heyday

The day after Thanksgiving, I spoke at length on the telephone with Florian Homm, who used to run a multi-billion dollar hedge fund, before disappearing in 2007. He has since repented of his greed and I explain some of this in this interview in The Financial Times today.

His book is available on Amazon and is chaotic but fascinating and as a financial memoir, utterly unique. 


Time to Stand Up for Middle Managers

My Financial Times column 10/11/11

The death of the middle manager is one of those headlines like falling house prices or rising university tuition that seem purpose-built to wreak mental havoc on swaths of the professional middle class. What other curses do the economic gods have in mind?

These thoughts were prompted by a recent column in the Harvard Business Review titled “The End of the Middle Manager” by Lynda Gratton, a professor at London Business School. Prof Gratton argues that new technology means the end for the middle manager as we know it. There is no longer any need for the manager filling the gap between senior executives and the people who do the work or, in Prof Gratton’s definition, those with the “shallow general skills that kept things running smoothly rather than created and innovated”.

There appears to be plenty of support for Prof Gratton’s view. Middle managers have become the whipping boys of the corporate world. While senior executives have taken advantage of the rise in financial leverage to reward themselves with ever larger compensation plans, middle managers have seen their salaries stagnate.

Middle management is no longer seen as a route to the top. They can toil away for years hoping for a promotion, only to see the top jobs filled by ex-consultants or fresh-faced MBAs. There is the all-consuming work itself, worsened by the 24-hour global working day, which corrodes personal lives. And then there is Generation Y, who consider middle managers losers and have no truck with 20th-century anachronisms such as meetings and weekly reports.

Prof Gratton says technology is now the general manager. “It can monitor performance closely, provide instant feedback, even create reports and presentations,” she writes. Meanwhile, the innovators in companies no longer need managers. They can self-manage and report to the executives at the top.

At first sight, it is hard to argue with all this. But there is something obnoxious about the dehumanising idea that companies will soon be made up of self-managing creative teams and executives, with nothing in between.

Steven Spear, a senior lecturer at MIT and author of The High Velocity Edge, says the difficulty with Prof Gratton’s argument is that it is based on an outdated view of middle management. It is the view articulated by Alfred Chandler in The Visible Hand, the classic account of the growth of US corporations from the 19th to 20th centuries.

According to Chandler, the middle manager fulfilled two roles: he conveyed information back and forth between the executives and the workers on the line; and he drove functional efficiencies, in the system designed by the executives – for example, better managed sales forces, lower pricing and better channels of distribution.

Of course, Prof Spear says, all of these traditional managerial roles have been under siege for years from technology, from systems that are cheaper and more efficient than humans.

What Prof Gratton fails to acknowledge is how companies’ needs have changed. While they may no longer need middle managers who meet Chandler’s definition, they do need middle managers who can manage the complexity of modern corporations.

Prof Spear has spent a lot of time at companies such as Toyota, Alcoa and Intel, as well as studying the healthcare industry, and he has found repeatedly that middle managers are as vital as ever but in a different way. Technology is yet to give the chief executives of these companies a clear view from top to bottom of their operations. They still depend on managers to tell them what is going on. As Prof Spear describes them, these must be “agile managers capable of dynamic problem solving and solving local problems locally”.

Abundant evidence of this need was provided during the financial crisis when it became clear that many bank bosses had no idea of the risks being taken inside their own organisations.

Prof Spear offers two persuasive analogies with armies and the human body. For all the sophistication of modern warfare, armies still need non-commissioned officers and officers to provide the link between generals and privates.

The human body also has layer after layer of middle management, across cells, tissue and organs, leading up to the brain. Remove any of those layers and ask the brain to talk directly to cells and you have something quite different and less efficient.

Prof Spear’s final, resounding point is that, given how fast business changes these days, human beings remain the most adaptable management tools any executive could want. They can learn, lead, change, haggle, calculate, persuade, emote and inspire. Middle managers will survive because they give a great company its pulse.



Management Gurus Up for Review

My Financial Times column 01/03/11

Whatever economic trauma besets the rest of Japan, its pop culture never ceases to throw up surprises. The latest is a novel about high school baseball shot through with lessons from Peter Drucker. Yes, that Peter Drucker, author of The Effective Executive; Management: Tasks, Responsibilities, Practices; Managing for the Future and fistfuls of other managerial rip-snorters. The book, titled What if the Female Manager of a High School Baseball Team Read Drucker’s ‘Management’, by Natsumi Iwasaki has sold 2m copies in the past year and is being turned into a manga comic and anime television series.

On my first visit to Japan a couple of years ago, I was amazed to see how Drucker’s books still dominate the business sections in Tokyo’s bookstores. In the US and Europe, one is hard-pressed to find managers under 45 who have more than a passing acquaintance with Drucker. In Japan his works are holy writ.

There are swaths of Drucker’s encyclopedic oeuvre that no longer resonate. They reek of the hair tonic and smoky rooms of 1950s manufacturing companies. But The Essential Drucker, edited and introduced by the man himself, is still remarkably fresh. The essays, a series of incontrovertible meditations on the art of management, are shot through with humanism. Drucker was never a headbanger and rarely a bore.

His enduring popularity started me thinking about the difference between those Gods of Management who endure and those who go stale. Who deserves to hold their place on Olympus alongside Machiavelli, Sun Tzu and Drucker, and whom do we throw off the mountain?

My top candidate for eviction is Jack Welch, the former chief executive of General Electric. It seems an eternity ago that Fortune magazine named him the best CEO of the 20th century. His yappy, aggressive style is woefully out of sync with contemporary business culture. And his status as the champion of shareholder value was destroyed when he made off from GE with a retirement package both outlandish and petty. Did a man worth hundred of millions of dollars really need to insist on his former company paying for the electricity at his various holiday homes? Welch once seemed a guru for the ages but is now fossilised.

No business writer has had greater influence over the past decade than Malcolm Gladwell. The ideas contained in The Tipping PointBlink and Outliers come up in conversations between businesspeople as often as the travails of Tiger Woods. Sheer Tipping Point exhaustion, and a streak of writer’s jealousy, had me pondering Gladwell’s status on the managerial Olympus, but then I felt obliged to keep him up there. As a storyteller and synthesist, he is peerless. He provokes a huge audience to think in original ways, without being bossy. My guess is that in 50 years, people will be reading The Essential Gladwell and the Japanese will have turned him into animé.

Gladwell, like Drucker, has the advantage of not being a business practitioner. He can observe impartially. Jim Collins, the author of Good to Great and most recently How the Mighty Fall, is similarly impartial, but the case studies in his books, as in many of those written by business school professors, risk ageing poorly. He would do well to follow the example of Tom Peters, who wrote In Search of Excellence in 1982 but has never stopped reinventing himself and developing new material, becoming a blogger and Tweeter at an age when many gurus would rather retire to their herbaceous borders. Peters is on Olympus. Collins has more to prove.

Gary Hamel may now be one of the world’s most sought-after strategic advisers, but his career was nearly snuffed out after he acclaimed Enron as a model of strategic innovation. Hamel, though, earns his place on the coat-tails of his frequent co-author C.K. Prahalad, who brought us both core competence and the fortune at the bottom of the pyramid.

Last year’s Rework by Jason Fried and David Heinemeier Hansson has the rare virtues in a management book of brevity and provocation. Big company managers should worry. Their entire management models are going to be kicked apart by companies following Rework’s refreshing creed, which says ignore the hyperbole and hyperactivity that consume many businesses. Fried and Heinemeier Hansson earn junior divine rank.

As does Freek Vermeulen of the London Business School for his ornery and entertaining book Business Exposed, a rigorous challenge to many business assumptions from the hollowness of strategic planning to the value of indecisiveness.

I realise I have admitted more gurus than I have expelled. Blame it on the lingering Christmas spirit. If I were Jack Welch, I’d have fired the bottom 20 per cent.


Simplicity and the storm before the calm

My Financial Times column 12/27/10

Lew Wasserman, the Hollywood mogul who ran MCA, used to wait in his office until everyone had gone home and then walk around looking for papers left on his agents’ desks. If he found them, he would sweep them into the bin. A messy desk, he thought, implied a messy mind. I have always coveted this kind of organisational stringency but somehow never managed to achieve it. But this is the time of year to dream again of personal organisation and productivity.

Personal organisation is the weight loss industry of business. Everyone wants it and everyone knows how to achieve it. But we are always looking for the next gizmo or system that promises to make it easier, from Filofaxes to iPhones, from Stephen Covey’s Seven Habits of Highly Effective People to David Allen’s Getting Things Done.

But just as we know the answer to weight loss, eating less and exercising more, so we know the key to personal productivity. Do more by doing less. It sounds rather Zen but the idea is simple. The most successful professional lives are those that are highly focused. They are not a cacophony of conflicting obligations, deadlines and political machinations. They involve the streamlined pursuit of a single goal.

One might begin with Steve Jobs. Apple’s success over the past 13 years since Mr Jobs returned as chief executive might be reduced to a single idea: making the complex simple. For a company of its size, it has a remarkably small line of products, with just a few variations on each theme. It is evidence of Mr Jobs’ habit of saying “no” much more than he says “yes”. Organisationally, Apple’s executive team, centred on Mr Jobs, Tim Cook, his chief operating officer, and Jonathan Ive, his design chief, have succeeded in achieving vast scale from a relatively small core group based in Cupertino, California. Decision-making is highly centralised and the organisation flat. Apple is no corporate democracy but the effect from the customer’s perspective is that you always know exactly what you are getting.

Mr Jobs’ clarity of thought and purpose is reflected in his dress, the jeans and black turtleneck; his car, always German, always silver; even the washing machines in his house. In an interview in Wired in 2007, Mr Jobs explained the process for choosing his washing machine. He and his family were dissatisfied with their American machine. So they spent two weeks discussing the problem over dinner. They talked about design, function, water usage, environmental impact and finally decided on buying appliances from the German manufacturer Miele. Imagine how many distractions you have purged from your life to focus so intently on the design and function of a washing machine.

For many of us, our days are like whack-a-mole, flailing at problems as they emerge, hoping that one good wallop does the trick but fearing that nothing is ever well and truly solved. Multi-tasking is another term for it. It often seems that the division between those who focus on one task at a time and those who multi-task is a theological one; each side claiming to be more productive. Academic research, however, suggests that the relationship between multi-tasking and productivity follows an upside-down U-curve. A little multi-tasking improves our productivity. But then we plateau and too much multi-tasking, too much work and too many relationships to manage slows us down. We would be better off taking Mr Jobs’ washing machine approach, taking a problem, going deep to solve it once and for all and then moving on.



Friends who moved from Connecticut to California this month told me of the relief they felt as their moving truck took away all their possessions. They had sold their house and were moving into a rented apartment above their office, and could not wait to start afresh without the burdens of ownership. Which manager does not crave that elusive sense of mental lightness, the clean break, the clean desk, the same old problems finally dealt with and only new opportunities ahead? Mr Wasserman tried to impose it with his nightly desk purges. But it is not the only way. 

The English writer Patrick Leigh Fermor found a different path in his wonderful book A Time to Keep Silence, when he goes on retreat to the Abbaye of St Wandrille de Fontanelle in northern France. At first he is frustrated by the silence and inaction, his mind still racing at city speed. Then he is overcome by tiredness and sleeps longer than ever before. Finally he reaches a state “full of energy and limpid freshness”. His “desire for talk, movement and nervous expression” had “languished and finally died for lack of any stimulus or nourishment”. By the end of his stay, he was in that state every manager wants to be in January, free of the “hundred anxious trivialities that poison everyday life” and suddenly more productive than ever.


How to turn slack time into profit

My Financial Times column 12/20/10

We all have slack in our lives, hours when we could be working rather than loafing, talents that go unused and physical assets that sit rusting away in garages, lofts and storage units, which might better be sold or rented out.

If we were managers of factories, supply chains or computer networks we would call this slack “latent capacity” and try to do something to reduce it. What inhibits us tends to be idleness, lack of human networks, an inability to price the value of what we have, and the risk of letting others use it. All these barriers are being eroded by technology, creating the possibility for companies and individuals to exploit their latent capacity in previously unthinkable ways.

London’s airports may respond to the latest snow fiasco by investing millions in extra snow ploughs that will sit idle for most of the year. A better solution might be to co-ordinate all the snow ploughs already rumbling around southern England belonging to local authorities, companies and individuals, to clear the runways. Gatwick had the right idea when it flew in the Swiss to help. One lesson from the recession ought to be that we should be much more efficient with the resources we already have rather than taking on debt to acquire unnecessary assets.

A good example from the holiday season is Toys R Us, the American toy retailer. One of the hardest challenges for toy companies has always been that they do so much of their business around Christmas and yet must take on full-year leases for their stores. Toys R Us’s solution has been to open pop-up shops, 600 of them in the US this Christmas, each around 4000 sq ft, much smaller than its permanent stores, but in shopping malls and high streets where it does not have a year-round presence. These pop-up shops are staffed by 10,000 temporary workers. The abject state of commercial property means landlords are delighted to accept the renters’ terms, to fill their sites for at least a few weeks.

Pop-up shops are an evolution of the fashion trunk show, a way for a designer to take his wares to places he may not have the resources to reach otherwise and target groups of customers without the fixed expense of a store.

On a more personal level, there is an abundance of new companies seeking to use the latest web services, involving location, personal ratings and auction-based price setting, to help individuals monetise their latent capacity.

They are taking an old idea and giving it new life. You can now rent out your own car through services such as Whipcar, or the parking spot in front of your house through You can rent your neighbour’s leaf-blower or lawnmower through The sophistication of these sites, and the level of trust they inspire, varies widely, but the trend seems powerful.

Then you have companies like Solvate, an inspired means of finding freelance workers to do specific tasks. Calling itself “America’s premier on-demand workforce”, Solvate allows you to find people capable of doing all kinds of work, ranging from the purely clerical to 3D modelling and social media programming. Solvate matches a broad array of talent with those who need it in a much more efficient way than the traditional temping agency. For some of those who loan out their services through Solvate it is full-time work. But for others, it is a way of monetising their latent capacity, their nights and weekends and those talents their day job has no use for.

In manufacturing, using latent capacity is an issue of cost, efficiency and return on assets. The further you move away from the factory floor, the more latent capacity leads us to think about choice and exploiting our competitive advantage. It also quickly becomes a philosophy of resource conservation. For small companies in particular, the focus should be on providing a service or product. Instead, their managers must waste huge amounts of time on bureaucracy and building a support system. It is the equivalent of every person on a street having their own ride-on lawnmower. One would do, and everyone could use it.

For any manager considering ways to exploit their company’s latent capacity, or to employ that of others, there remain several obstacles. The first is regulation. It would be wonderful, for example, if we could buy prepared food from each other. If someone in town made terrific lasagne, I’d happily buy it from them rather than go through the agony of trying to make it myself. But there are strict rules requiring that food made for sale is prepared in commercial kitchens, which render my lasagne dream impossible. Another obstacle is our need for ownership. The number and kind of cars sold each year probably has as much to do with the primacy of cars as a status symbol as our need for flexible, personal transport. Issues of privacy and trust also get in the way. A company considering renting out spare office space or technology infrastructure may be leery of what its lessor might do. But these challenges are not insuperable, especially when the potential rewards of efficient use of our time, assets and talents are so vast.


Family constraints have their benefits

My Financial Times column 12/13/10

One of the keenest criticisms of modern business is that it places unreasonable burdens on families. Demanding employers and the proliferation of always-on communication devices, such as the BlackBerry, plunder whatever morsels of family life remain. Children are left to scratch out their own emotional educations when both parents must work to sustain a middle-class way of life.

And yet just last week, the latest round of investment in the fast-growing Brazilian bank BTG Pactual revealed that alongside the private equity firms and sovereign wealth funds were four families: Britain’s Rothschilds, Colombia’s Santo Domingos, Italy’s Agnellis and Panama’s Mottas.

It seems paradoxical that the micro-problems of making a living while raising a family seem to be intensifying while the macro-benefits accruing to families that pile up wealth over generations seem to be expanding. Technology was supposed to threaten elites by making information and networks freely accessible. Yet families, those most impenetrable of secret societies, remain as strong as ever in the business world. What can the managers of non-family businesses learn from their success?

Randel Carlock and John Ward, professors at Insead and the Kellogg School of Management respectively, have studied family businesses around the world and report their findings in a new book, When Family Businesses are Best. The best family businesses excel at two things: balancing emotion and reason; and retaining a long-term perspective.

“Families are about love and emotions, and businesses are about making money and accomplishing tasks,” Prof Carlock told me from Hong Kong, where he was lecturing to groups from Asia’s many family-run businesses. “These two systems operate on completely different views of the world. So if a family is to run a business they must become ‘professionally emotional’.”

Non-family businesses can fool themselves into thinking that they only make decisions based on reason. A chief executive can initiate a merger telling the markets it makes hard financial sense, says Prof Carlock, when all along it’s about his ambition. Family businesses do not have this luxury as any confusion between reason and emotion can destroy not just the business but the family as well. Consequently, they are compelled to find ways of acting that are more emotionally mature.

The recent feud and resolution between the L’Oréal heiress Liliane Bettencourt and her daughter, Françoise, demonstrated how toxic family relationships can become when poorly mixed with business and questions of inheritance.

Profs Carlock and Ward argue that family businesses exist to achieve four kinds of goal: a financial one; a social one, linked to a family’s reputation and legacy; an emotional one, achieved only if the business strengthens rather than frays family relationships; and a spiritual one, linked to how we create meaning in our lives. “Public companies focus 99 per cent of their time on the financial goal,” says Prof Carlock. “Very few CEOs get bonuses based on their company’s reputation or how they make people feel,” he adds, unless the achievements are tied directly to financial metrics such as customer or employee retention.

Another way to think about it is to ask how many CEOs spare a moment to consider the effect of their behaviour on employees 20 or 30 years in the future. The founder of a family business may consider exactly this when he holds his newborn grandchild. Profs Carlock and Ward call this sense of long-term responsibility “stewardship”, a desire to create a business that is important to one’s family, employees, customers and community for many years to come.

One of Prof Carlock’s favourite examples is Beretta, the Italian firearms maker, which has been owned by the same family for 500 years. It is still headquartered in the Lombardy valley where it was founded and employs both traditional, local craftsmen and the latest technology to make its guns.

Similarly, Cargill, the Minneapolis-based multinational, is 90 per cent owned by descendants of the families that founded it in 1865. One of the secrets of its success has been the family’s detailed attention to governance, balancing the needs and interests of the family with outside expertise to deliver financial results.

Pictet, the family owned Swiss private bank, has clear criteria for family members wanting to join its management, partly because if it gave preference to underqualified sons and daughters, it would struggle to hire the best people to fill other positions.

The lesson from all these companies is a classic tale of constraints leading to better decisions. If your employees are your family, and your shareholders your grandparents, it forces you to make decisions of far greater emotional depth than if such ties did not exist. And such depth of consideration tends to lead to much stronger businesses over the long haul.


Cloud Computing is Not a Passing Shower

My Financial Times column 12/6/10

One way you can be sure a revolution is under way is when generations fundamentally disagree. Cloud computing is one of those technological phenomena that has sneaked up on the wider world of business and now has people on either side of a generational divide bickering over its value. The idea is that we can now use computer services as if they were a utility, like electricity, drawing on software and hardware when we need them, rather than each of us owning our own generators and distribution networks.

For digital natives, the cloud is as natural to computing as the keyboard. The cloud is Facebook, Zynga and Gmail. To an older generation, the cloud is WikiLeaks and data breaches. For managers trying to weigh up whether this is a fad or here to stay, where you stand may just be a function of your age.

I realised this at a recent conference where cloud computing was under discussion. The older people in the room railed about how moving a company’s operations to the cloud represented a fatal loss of control over your data. The younger audience members sat shaking their heads that anyone could doubt a technological shift with such gobsmackingly obvious advantages. There was nothing either side could say to persuade the other.

Cloud computing means dispensing with much of your own software and hardware and accessing it virtually as and when you need it. Rather than owning your own servers, you rent whatever server space you need for a monthly fee. Instead of installing a CD into your computer loaded with software, you access whatever software you need through your browser. Instead of storing your data on your computer or phone, you store it virtually and access it with a password. The likely benefits are extraordinary flexibility and access to far greater resources of people and information. In bean-counter terms, the cloud turns technology capex into more manageable opex.

So what’s the problem? It seems to be the loss of control. A manager who controls sensitive data on customers and pricing, for example, may be loath to remove that from his own hard drive and place it in the cloud. A chief executive discussing the possibility of moving to cloud services with his head of IT will almost certainly be told it’s a terrible idea. Far better to have one’s own servers and one’s own people maintaining them than relying on some abstraction like “cloud services”. Whom do you call in the cloud when your system fails?

The truth is, though, that objections to cloud computing are merely delaying the inevitable. Of course there are security issues to be overcome and technical fears to be allayed, but the basic ideas behind cloud computing seem irresistible: pooling resources to drive down cost and accelerate innovation and liberating people from the tether of physical software.

Pat Toole, chief information officer of IBM and an evangelist for cloud computing, likes to say of the cloud “it isn’t rocket science but it is computer science”. By this he means that the challenges of cloud computing for business have existed in every phase of computing, challenges around cost, utility and security. For now, Mr Toole says, some workloads are evidently better suited for the cloud than others. Work that requires collaboration, for example, can be made much easier through the use of virtual desktops and web-based services. More data sensitive areas, such as enterprise resource planning and transaction processing, may not yet be ready for prime-time on the cloud. But these are problems that companies will eventually make fortunes by solving. Until then, managers should pick and choose which aspects of their business will benefit from moving to the cloud, and which will not.

To reassure the hesitant, some large players are already all but living in the cloud. Li & Fung, one of the world’s biggest supply-chain operators, now communicates between its many clients, factories and suppliers through a web-services platform, where clients can place orders and pre-qualified suppliers can bid to fulfil them. Factories are audited in real time with hand-held computers. The company has created a platform of networked technological processes accessible to myriad participants who can now act far more quickly and at lower cost than they could via e-mail. That’s the essence of the cloud, and it is hard to see its impact not spreading.

For smaller companies, the risks of cloud computing are generally fewer. Their data is probably less valuable and less susceptible to theft, and they have much more to gain from access to technologies they could never have afforded before. They can purchase sales and customer support services on an as-needed basis, rather than investing in their own expensive infrastructure. And they can analyse customer data in a way only large corporations could afford to in the past.

These are remarkable changes and far more than silver linings.