August, 2005, Volume
9, Number 11
CONTENTS
Leadership Event: Wharton Leadership Conference, June 13, 2006
Institutional Equity Trading: Realizing Value
Coaching Leaders: To Help Others Develop, Start with Yourself
Leadership Event:
Wharton Leadership Conference, June 13, 2006
The
tenth Annual Wharton Leadership Conference will be held in Philadelphia
on June 13, 2006. An intense one-day exchange on how great leadership
is developed and applied in the private, public, or non-profit sectors,
the annual conference in 2006 will be focused on “Leading with
Resilience: Coming back from Challenge and Adversity.”
Jim Collins, author of Good to Great and
Built to Last, will be a keynote presenter and will speak on “Leadership
across Sectors – Why Business Thinking is Not the Answer – and Other
Topics of Interest.”
Online information on
conference schedule and registration will be forthcoming.
Institutional
Equity Trading:
Realizing Value
By Charles E. Fish
Dictum
meum pactum. My word is my bond. Credo of the institutional equity
trader. A universe where multimillion-dollar transactions occur without
lawyers and without long, drawn-out written contracts present. Merely
a buyer and a seller agreeing to a price, with the exchange of dollars
and shares in three days time. It’s what we do and who we are. There
is no gray area, no questions asked. “I’ll see you in three days.” No
reminders, no RSVPs, no strings attached. And three days from now the
trade “settles.” Simple as that, on to the next one. But how do we
arrive at that agreed upon price? A difficult and complicated question
to answer. An explanation of which underscores the crux of
institutional equity trading. An engaging career. Have you ever
considered doing it for a living?
I’ve been trading stocks for the large-cap value
equity product since 1997. I work for a Portfolio Managers (PMs),
overseers of clients’ security holdings. The PM and his/her team of
research analysts do their work on a particular security and deem it
eligible to either enter the portfolio or be removed from it. They then
send the order to the trading desk. My job is to acquire the most
favorable price and execution under the circumstances for the security,
or more directly, for our clients. I’m good at what I do, as are the
other six traders on our desk. We have to be or they send us home. No
need to reapply.
Investment management is not Gordon Gekko, Bud Fox,
or Blue Horseshoes. It’s about solid fundamental research, an
opportunity, and a plan. Trading is the implementation of an idea. And
with the advent of Regulation Fair Disclosure and penny-increment
spreads, portfolio performance distinction and the squeezing of
additional basis points of value makes the trader an integral part of
the investment process.
Stocks tend to act like poorly behaved children.
They like to run away from you. They can be moody and cranky. They can
leave you frustrated. Each stock has its own storyline, its own
characteristics and pitfalls. Knowing this, the experienced trader
develops strategies to affect minimal price damage and attain maximum
client benefit. The route to successful completion of an order requires
tenacity and perseverance. It’s bases loaded, a 3-2 count. Triumph can
be both intoxicating and addictive.
Institutional orders are generally very large.
Millions of shares to execute. Volume constraints could force us to
work an order for weeks. Obviously markets can be volatile. They can
be especially erratic when other traders know that an institution is
involved in a stock. What valuable information that would be? Do you
think others could (legally) benefit from having that knowledge? We’re
the order others are trying to find. To run ahead of. To profit from.
But we are the 800 lb gorillas, incognito. We search for pools of
liquidity with a proverbial crocodile’s nose. We try to appear small
and harmless enough until you wade in too close. Showing your size at
the wrong time can be a recipe for disaster. You’ll look for the fool
and not see him. You’ll lose client money. Success requires the trader
to appear inconsequential and insignificant until an opportunity
presents itself. Trading cost analyses have shown that timing is a
significant component in the cost of a trade and that the faster an
order gets completed the more beneficial to our client. It’s cheaper
because less folks out there have a chance to shoot against the order.
This is the daily predicament we face. Electronic Communication
Networks (ECNs), algorithms, program baskets, etc. are all electronic
methods applied today that make large orders appear small, thus not
negatively influencing stock price. The artistic abilities of the
trader employ the same tactics.
Speed and timing are essential elements to solving
this dilemma. Remaining anonymous, gathering information, attacking
opportunities with conviction before that window closes, returning to
anonymity. A simple strategy to invoke. A difficult one to apply as
outside influences require the trader to be flexible. React, adjust on
the fly, adapt to market situations, and prosper. This is the trader’s
livelihood.
Traders even use their own form of communication, a
lingo of sorts. A few examples: “a hundred burgers to go” means
100,000 shares of McDonald’s Co stock for sale. The stock “Telephone”
is referencing AT&T Co stock, yet “Phone” stock actually refers to
Sprint Co (old symbol FON). And “offers” always denote a sell request.
This is not real estate. Confused? You’re supposed to be. Evolved
originally as a way to improve speed and efficiency of communication it
can leave the inexperienced baffled. Perhaps even at a disadvantage.
Whether it improves our ability to trade effectively is debatable. It
certainly does, however, add to the mystique.
Trading exemplifies leadership. It’s the
coordination, control, and supervision of a team endeavor, to produce
positive results. It’s hard-dollar quantified, bottom-line value
added. Thorough work rewarded, laziness pummeled. If you are
contemplating a career in investment management consider institutional
equity trading. It will not let you down. You have my word on it.
Note:
Charles Fish is vice president of equity
trading for a Philadelphia-based investment firm.
By Marshall Goldsmith
I
tell every CEO that I coach: “To help others develop, start with
yourself!”
Our behavioral coaching process is designed to help
successful leaders achieve positive, long-term, measurable change in
behavior.
We first get an agreement with our clients and their
managers on two key variables: 1) what are the key behaviors that will
make the biggest positive change in increased leadership effectiveness?
And 2) who are the key stakeholders who can determine (6 to 12 months
later) if this change has occurred? We get paid only after our coaching
clients have achieved a positive change in key leadership behaviors as
determined by key stakeholders.
Many behavioral coaches are paid for the wrong reasons.
Their income is a function of “How much do my clients like me?”
and “How much time did I spend in coaching?” Both are poor
metrics for achieving a positive, long-term change in behavior. A
clients’ love of a coach never correlates with their change in behavior.
And since my clients’ time is more valuable than mine, I spend as
little of their time as necessary to achieve the desired results.
The last thing they need is for me to waste their time!
Qualifying the Coaching Client
We have learned to qualify our coaching clients,
meaning that we only work with clients whom we believe will benefit from
our coaching process.
Have you ever tried to change the behavior of a
successful adult that had no interest in changing? How much luck did you
have? Probably none! I only work with executives who are willing to make
a sincere effort to change and who believe that this change will help
them become better leaders. We refuse to work with leaders who do not
demonstrate this sincere commitment to personal development.
I would never choose to work with a client who has an
integrity violation. I believe that people with integrity violations
should be fired, not coached.
Our behavioral coaching works best when the issue is
behavioral, people are given a fair chance, and they are motivated to
improve themselves.
Involving Key Stakeholders
As a behavioral coach, I have gone through three distinct
phases:
Phase 1.
I believed that my clients would become better because of me. I thought
that the coach was the key variable in behavioral change. I was wrong.
The key variable for successful change and long-term progress is not the
coach, teacher, or advisor; rather it is the people being coached and
their co-workers.
Phase 2.
I spent most of my time focusing on my coaching clients. I slowly
learned that a hard working client was more important than a brilliant
coach! I learned that their ongoing efforts meant more than my clever
ideas.
Phase 3.
I now spend most of my time not with my coaching client but with the key
stakeholders around my client. Results are dramatically better.
I ask key stakeholders to help the person I’m coaching in
four ways:
1. Let
go of the past.
When we bring up the past, we demoralize people who are trying to
change. Whatever happened in the past cannot be changed. By focusing on
a future that can get better, the key stakeholders can help my clients
improve. (We call this process feedforward, instead of
feedback.)
2. Be
helpful and supportive, not cynical, sarcastic, or judgmental.
If my clients reach out to key stakeholders and feel punished for trying
to improve, they will stop trying. Why should any of us work hard to
build relationships with people who won’t give us a chance?
3. Tell
the truth.
I do not want to work with a client, have them get a glowing report from
key stakeholders, and later hear that one of the stakeholders said, “He
didn’t really get better. I just said that.” This is not fair.
4. Pick
something to improve yourself. My clients are
open with stakeholders about what they are going to change, and they ask
for ongoing suggestions. I also ask the stakeholders to pick something
to improve and to ask my client for suggestions. This makes the process
“two-way.” It helps the stakeholders act as “fellow travelers” who are
trying to improve, not “judges” who are pointing their fingers at my
client.
Steps in the Process
The following eight steps outline our behavioral coaching
process:
1. Involve the leaders being
coached in determining the desired behavior in their leadership roles.
Leaders can’t be expected to change behavior if they don’t have a clear
understanding of what desired behavior looks like. The people whom we
coach (in agreement with their managers) work with us to determine
desired leadership behavior.
2. Involve the leaders being
coached in determining key stakeholders.
People being coached also need to be clear (and in agreement with their
managers) on key stakeholders. People deny the validity of feedback for
two major reasons: wrong items or wrong raters. By having our clients
and their managers agree on the desired behaviors and key stakeholders
in advance, we help ensure their “buy in” to the process.
3. Collect feedback.
With CEO clients, I personally interview all key stakeholders, since the
company is making a real investment in their development. However, at
lower levels, traditional 360-degree feedback can work very well.
4. Determine key behaviors for
change. Keep it simple and
focused. Pick only one or two key areas for behavioral change with each
client. This helps ensure maximum attention on the most important
behavior. My clients and their managers agree upon the desired behavior
for change.
5. Have the coaching client
respond to key stakeholders. The
person being reviewed should talk with each key stakeholder and collect
additional “feedforward” suggestions on how to improve on the key areas
targeted for improvement. In responding, the person being coached should
keep the conversation positive, simple and focused. When mistakes have
been made in the past, it is a good idea to apologize and ask for help
in changing the future.
6. Review what has been learned
with clients and help them develop an action plan.
I only give my clients suggestions. I ask them to listen to my
ideas in the same way they listen to the ideas from their key
stakeholders. I then ask them to come back with a plan of what they want
to do. These plans need to come from them, not me. After reviewing their
plans, I encourage them to live up to their commitments. I am more of a
facilitator. I just help my clients do what they know is the right thing
to do.
7. Develop an ongoing follow-up
process. Ongoing follow-up
should be efficient and focused. Questions like, “Based upon my behavior
last month, what ideas do you have for me next month?” can keep a focus
on the future. After six months, conduct a two-to-six item mini-survey
with key stakeholders. They should be asked whether the person has
become more or less effective in areas targeted for improvement.
8. Review results and start
again. If the person being
coached has taken the process seriously, stakeholders report
improvement. Build on that success by repeating the process for the next
12 months. This follow-up will assure continued progress on initial
goals and uncover additional areas for improvement. Stakeholders will
appreciate the follow-up. No one minds filling out a focused, six-item
questionnaire if they see positive results. The person being coached
will benefit from targeted steps to improve performance.
Most requests for coaching involve behavioral change.
This process can be meaningful for top executives, and for
high-potential future leaders who have great careers in front of them.
Can executives really change their behavior?”
Yes! And at the top, even a small positive change in behavior can have a
big impact. The fact that the executive is trying to change anything
(and is being a role model for personal development) may be even more
important than what the executive is trying to change. I tell every CEO
that I coach: “To help others develop, start with yourself!”
Note:
Marshall Goldsmith is an
executive coach, author, editor, and director of the Alliance for
Strategic Leadership, and he can be reached at
marshall@a4sl.com. This article is adapted from
Leading for Innovation,
edited by
Frances Hesselbein, Marshall Goldsmith, and Iain Somerville (Jossey-Bass,
2001), and it appeared in Executive Excellence (2005).
Copyright 1996-2005, Wharton Center for
Leadership and Change Management
University of Pennsylvania.
