Re:Balance -- Jim Peterson

DSK - A Fallen Politician on What the Market Will Bare

“Clothes make the man. Naked people have little or no influence on society.”

-- Mark Twain (attrib.)

Today’s meditation – extending a series that examines clichés and maxims of importance – concerns Dominique Strauss-Kahn, who lost both his position as head of the International Monetary Fund and his presumptive inside track to the French presidency, over a much-disputed sexual encounter with a New York hotel housekeeper on May 15, 2011. 

That day’s events – combed microscopically in a trans-Atlantic media frenzy and forever irreconcilable for the inconsistencies and diminished credibility on all sides – supported competing claims and theories of criminal assault, opportunistic maneuvering and politically-motivated conspiracy.

What was not at issue, in the background, was DSK’s propensity to pursue the pleasures of the flesh down unconventional paths -- a personal history behind his two recent days in the custody of French authorities (here), giving evidence regarding a ring of highly-sponsored sex parties in the northern city of Lille.

On the sensitive question of the negotiable virtue of the participating ladies, prostitution not being illegal in France, DSK’s lawyer offered the piquant challenge, “to distinguish a naked prostitute from any other naked woman."

Here’s a theme worth considering for application in the business, professional and political worlds, where states of dress convey broad symbolic meaning.

For context, consider the metaphoric richness of the vocabulary of corporate governance and finance: “full disclosure” and “transparency,” and “covered options,” and the beguilingly oxymoronic “naked shorts.”

Or more broadly, consider:

• The continued influence and prosperity of Savile Row’s bespoke tailoring, its nuances of fabrics and buttonholes signifying the structure and power of hierarchy among London’s masters of the universe.

• The overwhelming rejection by the young professionals in my company in Paris of the chance to go “business casual” – retaining instead the formal-looking black “costume” – and the status-conferring ability to distinguish themselves on the Metro from lower-level clerks and functionaries.

• The dynamic effects of political dress codes, from Republican aspirant Rick Santorum’s sweater vests to Secretary of State Hillary Clinton’s recent failure to get the “white shirt” memo at the G-20 finance ministers’ meeting (here).  

Did DSK have a duty of inquiry? To, as it were, “look beneath the covers”? And if so, does it extend to other situations, where an interest worn on a sleeve may be difficult to discern if there are no sleeves covering all that exposed skin? 

The commercialization of the parties in Lille may, in other words, have been explicit, or more subtle.

But no less so than, say, the financial escort services provided to the board of scandal-ridden Olympus by its on-call roster of Tokyo banks.

Or the client-readiness of Moody’s and S&P to answer the come-hither whistles of the peddlers of toxic mortgage debt, looking to tart up their products in tassels and ribbons so as to transmute “X” ratings to “AAA.”

Or, come to it, the corporate executives aggressively cashing ethically challenged compensation packages that would in DSK’s model give alternative meaning to the illicitly pleasurable restraints of “golden handcuffs.”

While other comparisons no doubt occur, across scenes from bedroom to boardroom, the salient observation may be the one variously attributed to either Winston Churchill or George Bernard Shaw, answering the equivocal rejection of his proposition of a one-night stand for either a million or a mere five pounds:

“Madam, we’ve established what you are. Now we are merely haggling about the price.”

 

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Lessons from Football: Strategic Risk, Reward and Uncertainty

If the essence of strategic decision-making lies in the assessment of potential rewards under uncertain conditions, whole seminars can be taken from the last minute of this year’s Super Bowl between the New York Giants and the Boston Patriots. 

For extra flavor and pedagogic potential, both coaches in this 46^th edition of America’s great sporting spectacle had to make choices that ran against their deepest, aggressive go-for-broke instincts.

Trailing by two points on the Boston six-yard line, Giants coach Tom Coughlin could come from behind and win with a chip-shot field goal – a high-odds likelihood but never a certainty. So to keep the ball out of the hands of dangerous Boston quarterback Tom Brady, his interest was not an attempted touchdown – but to stay out of the end zone and run the clock near zero before what would be the winning kick.

Whereas, having no chance to win without his offense on the field, Boston coach Bill Belichick’s defense had to allow the Giants a quick touchdown to have any last-minute hope.  

The play itself was surreal. Giants running back Ahmad Bradshaw, offered a clear path by the Boston defense, drove for the end zone with all the DNA of his entire playing history – realized his error and tried to stop short – but failed to halt his momentum, stumbling awkwardly for a bizarre and unintended score. 

At that point, the decision-theory exercise was complete. The game’s final outcome was then only interesting from the perspective of one of the largest-ever audiences of actual football fans.

As frequently the case, the ultimate outcome did not undercut the validity of either strategy – to which it was equally irrelevant that Boston was unable to score in their last remaining drive, or that the Giants snatched a victory despite Bradshaw’s gaffe.

In other words: Coughlin had the right idea, but his player failed to execute – and he still won the game. Belichick was no less canny, and got precisely his desired result – only to see Brady’s final drive fall short.

As my students in Risk Management come to grasp, it is not just the balance of success or failure of competing alternatives, but the magnitude of the consequences in either direction: a multi-dimensional decision calculus weighs both a huge potential benefit against a modest chance of loss, but also a likely but small upside against an unlikely but possible catastrophe.  

Examples run from the deeply personal, through all aspects of commercial and professional behavior, to the highest levels of governmental policy-setting: 

• To the feckless Francesco Schettino, captain of the stricken Costa Concordia, the frisson of a near-shore detour overcame his judgment as to the hazard that his ship would land on the rocks.

• To MF Global’s Jon Corzine, now-fallen former master of the universe, the desperate gamble to save his enterprise made it worth raiding the accounts of his customers.

• To central bankers confronting the potential collapse of, say, a General Motors or an AIG or the sovereign debt of a Greece or an Ireland, the ability to quantify and evaluate the “success” of a bailout must include complex and uncertain consequences, economy-wide, of both action and inaction.

The choice-making architecture in all of these – from the football field to the captain’s bridge to the bankers’ boardrooms – traces back to the proposition posed by the 17^th century French mathematician and philosopher Blaise Pascal, on how the rational man should wager on the existence of a benevolent god:

There is no downside to affirmative belief, which if ultimately correct gains an eternity of heavenly reward – whereas to doubt has no immediate benefit but if proved wrong carries the punishment of eternal damnation by an angry diety.

It’s getting the downsides properly evaluated that is often the hardest, as I have written elsewhere. Belichick was challenged, because to allow an opponent’s unimpeded score went against the competitive grain – unappealing, but less consequential than the likely prospect of a Giants winning field goal.

Fortunately for Coughlin, on the other hand, his choice had an inbuilt hedge – the undesirable touchdown gave him a four-point margin, putting back on Boston the higher burden of driving the field, within an NFL minute, to answer in kind.

As for Captain Schettino or Mr. Corzine or the world’s purported financial wizards – however sincere their various professions of hindsight regret might be – only the bright sunshine of prosecutions or public inquiry will shed light on the extent to which they were remotely conscious of the potentially catastrophic results of their choices.

 

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