Things They Never Taught You at Harvard Business School — Part 4

Or Let’s Make This Look Legit.

Rule 15: If everyone else is doing it, don’t!

Human beings travel in packs, both physically and emotionally. We are prey to a herd mentality. Some people will make money at the beginning of a trend. This will induce more people to jump into the game and the latecomers will invariably lose money. This has happened repeatedly in financial history. Just looking at the last four hundred years or so as we can see this pattern repeating itself, The Tulip Mania in Holland in 1637, The South Sea Bubble, the Darien disaster, The Roaring 20’s, the Asian Tigers, the dot-com bubble, the housing bubble. This is an area of business where it is important to have good self-knowledge. My rule of thumb is that when I start thinking about getting into a hot market about which I know nothing, then that market has peaked and should be avoided like the plague.

Rule 16: If you feel that you need to hire consultants to assist you in your business, you should probably not be in that business.

I am not talking about experts such as hiring a competent geologist to do due diligence on estimates of mineral or oil reserves or using an engineer to design a piece of new technology. I’m talking about the craze for using consulting companies that developed as a result of graduating a surfeit of holders of MBAs that started with the boom in business school attendees in the 1980s. I have yet to meet any consultants who had anything of value to add to an enterprise. If you feel you need them to assist you in running, adjusting or planning your future business, then my advice is sell the business and get out of it. If you don’t know what you’re doing well enough to be doing it on your own or with your existing management team, you shouldn’t be doing it in the first place.

Rule 17: Commercial skills can’t be taught.

In many respects, this is a corollary to rule 16. Most industries in the West have made an MBA an entry level qualification that needs to be obtained in order to get a job. However, holding an MBA cannot teach anyone to be good at business. It can really only teach one the language of business. It can’t teach judgment. It can’t teach any of the intangible elements or skills that one needs to succeed in the world of commerce. Some of the best businessmen I ever met were basically uneducated and unlettered, but they possessed a feel and an instinct for the deal or for an industry and were successful for other reasons. This fact also relates back to rule 5 above, finding those people who can actually make things happen. Sometimes knowing too much can be an impediment to commercial success. Over thinking things can lead to paralysis when action is required or can lead to complicating what is actually a fairly simple matter and thus lead one into making unnecessary mistakes.

Rule 18: Regulators generally don’t know anything.

Most people who make regulations are lawyers of one kind or another and therefore have no practical business experience. If they are not lawyers, then they are lobbyists and they generally do not have the wider public interests at heart but are working for the narrower interests of their masters. They are paid whores who are seeking to distort the market and protect the vested interests of their paymasters. This is true of the banking, insurance, agricultural and most other large, entrenched industries. The corollary to this rule is that there is no such thing as a level playing field. A prime example which I cannot decide whether it fits the first or the second aspect of this category is the Bank of International Settlements, Basle conventions, particularly the Basle 2 conventions on capital adequacy. These conventions are highly detrimental to the development of the emerging market countries and are a pernicious example of a rich men's club attitude to risk. Under Basle 2 when fully implemented the level of risk capital that needs to be allocated for loans made to most emerging market countries, in other words the countries that are most in need of development capital rises from 100% risk asset weighted to 150% risk asset weighted. The net result of this change will be to decrease capital flows to those countries that need it the most and increase their capital costs. What I am unsure of is whether the people sitting in their snug little corner of the world in Switzerland do not fully understand the potential consequences of their theoretical modeling or whether they have done this to protect the major international banks which are the main institutions which will benefit from the implementation of Basle 2. The US Congress was right to reject Basle 2 compliance but unfortunately in its politically motivated zealousness to make political capital out of pretending to protect the public interest from the evil bloodsucking bankers of Wall Street, they enacted Dodd Frank instead. Now this is a piece of legislation that is so badly thought out in terms of the negative consequences it has had on the US financial services industry that it beggars belief. But then remember what I said about stupidity in rule 7 above. It applies to nations as well as companies.

Rule 19: Make sure you control the board of Directors.

Generally, this is done in a very direct way. Most powerful shareholders simply appoint straw men who will vote as they are told. However, sometimes a more creative approach is needed. One of my Palestinian interlocutors told me that on one occasion they were facing a very close vote on an important matter at an upcoming board meeting, so they bribed a policeman to arrest one of the board members they knew was voting the other way on trumped-up charges on his way to the board meeting. They had a quorum. They won the vote. The man was released later the same day.

Rule 20: Tranquilizers are a better way of controlling your staff than qat or alcohol.

When I worked for Peat Marwick in Abu Dhabi, the majority of the audit staff was Pakistani and had the tendency to chew qat on a daily basis. Now, qat is a stimulant that is not really conducive to mental focus. The manager managed to get them off the stuff by handing out tranquilizers. Also, unlike alcohol as an analgesic it's easier to function and work on valium. Different cultures require different methods of personnel management. It wouldn’t have worked in Dublin or Sydney.

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