Ben Darwin is the Co-founder and General Manager of Corporate at Gain Line Analytics and in this episode we’re going to take a look at what makes teams successful and stay successful.
Ben is a former Wallaby player, having played 28 test matches for Australia. He’s a former coach and a performance analyst, having worked with a number of rugby teams, including a Japanese team, the NTT Shining Arcs and Suntory Sungoliath, he started Gain Line in 2013 out of a desire to introduce a greater degree of empirical analysis into professional sports.
But his research goes broader than just sports, it also goes into the dynamics of professional teams across industries and the cultures they foster. In this podcast, we’re looking at how this has implications for investment teams and also for super fund organisations.
Overview of Podcast with Ben Darwin, Gain Line Analytics
03:00 I was always interested in Australian sports punching above its weight
05:00 I realised that my efforts as a coach did not necessarily have any influence on the outcomes
08:30 We would find that teams that didn’t buy new talent and held on to the players they didn’t want did better
11:50 Attribution bias, we overly attribute performance to the individual
13:00 With cohesion, I’m trying to measure the attributes that drive people’s understanding of each other
14:00 We all misattribute what change does
18:30 When people try to make things better, they usually make things less cohesive
20:30 The dangers of growing organisations (super funds) too quickly
23:30 Growth is really hard
27:00 Cohesion is not the same as culture
37:30 Is it possible to build cohesion in a team with a high level of turnover?
44:00 The tumble down effect: one change causes more changes, which causes even more changes
48:30 Cohesion can drop 50% in a week, but it can’t grow 50% in a week. It grows maybe five per cent a year
52:00 My experience is that economies of scale are vastly overrated
1:05:00 Often we are dealing with a competent person who works in a structure that makes them look like they are incompetent
1:06:00 Building interpersonal trust is great, developing clarity is better
Full Transcription of Episode 115
Wouter Klijn 00:00
Hello and welcome to the [i3] podcast, conversations with institutional investors. My name is Wouter Klijn, and I’m the director of content for the investment Innovation Institute. For more information about our educational forums for institutional investors, please visit our website at www.i3-invest.com There, you can also subscribe to our complimentary newsletter, [i3] Insights, in which we discuss investment strategy and asset allocation questions with asset owners from around the world. Now, as you all know, we love our disclaimers in this industry, so here’s ours. This recording is for educational purposes only. It does not constitute financial advice and is intended for institutional and wholesale investors only. Please enjoy the show. Welcome to the [i3] podcast, conversations with institutional investors. I’m here today with Ben Darwin, who is the co founder and general manager of corporate at Gain Line Analytics. And today’s topic is a little bit different from our normal investment focus podcast, because we’re going to take a look at what makes teams successful and stay successful. So Ben is a former Wallaby having played 28 Test matches for Australia. He’s a former coach and a performance analyst, having worked with a number of rugby teams, including a Japanese team, the NTT shining arcs and Centauri Sun Goliath, he started gain line in 2013 out of a desire to introduce a greater degree of empirical analysis into professional sports. But as research goes broader than just sports, it also goes into the dynamics of professional teams across industries and the cultures they foster. So in this podcast, we’re going to have a look at how this has implications for investment teams and also for super fund organisations. So Ben, welcome to the show.
Ben Darwin 02:21
Thank you so much.
Wouter Klijn 02:22
So tell me a little bit about the origin story behind gameline. I just mentioned why you started it, but can you tell us a little bit about the history of it?
Ben Darwin 02:31
I suppose I have to begin in a way, and I apologise to go back, but with my own history in that not being Australian and coming from the UK, I always sort of had a bit of a always felt like a bit of an outsider in my view of the world and becoming sort of, then part of Australian Rugby. I was always confused by this idea of, like, people say to me, you know, I go to the UK. Oh, geez. They breed them big in Australia. Actually, I was born in crew in the Midlands, like, I’m not even from Australia. And they would say, you know, you Australians, you’re so good at sport and things, and I’d be like, I don’t, I don’t quite understand why. And so I was always interested by this idea about Australian sport punching above its weight, and why rugby particularly punched above its weight, and also why countries like England or France for that matter, or just generally, larger countries would would have all the resources in the world and not necessarily be as successful. And I remember a particular phrase by Peter Fitzsimons talking about England coming out to play, and thinking, is this the best they can put together? Because with, you know, they’ve they have a million rugby players. For example, in England, Ruffin, I think we have 60,000 so it’s like, how’s it, how’s this taking place? So as a player coming into that environment, I was a little bit confused by it. And then you become, you know, one of the problems with sport is we all see things. So magically, we all see and we, you know, we see individuals as heroes, and not sort of think of them as everyday people. So you then sort of become part of that environment, and you meet the coaches, and you meet people as part of the system, and think, well, like, how is this successful? It doesn’t, doesn’t make sense. And not that people aren’t talented, but the people you’re up against being just as talented, if not more, talented, and not understanding why. So then I became a then I became a coach, because I had a spinal injury 2003 so I got very young into coaching, and the first club I was ever a part of, I don’t think I won a game as a coach, so I’m like, Okay, I’m a terrible coach. And then I went to another club, which was the Western Force, which was a startup team, and we didn’t win anything. And then I went to Japan and didn’t lose for two years. Then I come back and coach somewhere else and win there. And then I coached again in Japan and didn’t lose. And thinking, okay, maybe it’s just me in Japan, but then I’d have other teams in Australia to do well or poorly. So I began to understand that that my influence on a team was sometimes good, sometimes bad, but that didn’t necessarily lead to outcomes, and I’ve got so probably my worst coaching I ever did was in a team that did not lose the whole year. So my son. I was trying to derail them, and almost did derail them, to be honest, but they won despite me. And once you bounce around enough organisations, you start to kind of see some causality around performance. And sometimes teams win with good coaches. Sometimes they win despite good coaches. Sometimes they lose with good coaches. You talk to enough people with enough experience, they’ll tend to tell you the same thing. So the last team I was part of, from a coaching perspective, I also became a data analyst, and that was the Melbourne rebels, and that one of the questions they asked me was after two years, because we spent a lot more than the market. We basically spent double what the market had in terms of talent, but we didn’t win a lot of games. And so the question came up for me as an analyst, how long is it gonna take for us to win? So that question led me down this path, and I did one more stint, sorry, approaching at Suntory, like I said, and I came back to Australia and basically started the business because I didn’t want to work in sport anymore, because I could not control the outcomes at all. Yeah, the team that last job I had as a coach, I was literally fired after we went undefeated. So I’m like, okay, bugger this. I could this is not working. So gameline is basically a consultancy company because then, because you see a lot of people in sport, when they lose their jobs, or in business, they become a consultant to kind of fill the time. This is basically that option. It’s just gotten out of hand, but it’s a stock gap that’s gotten out of hand now for 13 years.
Wouter Klijn 06:28
Yeah, it’s got out of hand in a good way.
Ben Darwin 06:30
Yeah, in a good way. So that’s kind of how I arrived that point. But the original idea for the business was actually not cohesion analytics, as we call it. It was actually something entirely different, which was a model whereby clubs would come to us, and we would tell them who was, who was off contract. And the way I arrange the data is I always arrange the data visually so I could just easily find a player, and I arranged them by team, but I would couple all the all the players in that team together, and then I would notice contractual changes year to year between teams. And there was one particular team that that basically came to us and said, We want to gut the whole team. Can you help us find new players? And we tried to help them do that. And then they came back and said, We’re really sorry. The owners got financial problems. We have to keep the players we don’t want. So we knew what they wanted and didn’t want, and it wasn’t what they had they didn’t want. And the next year, they went from, I believe, second last in the year they came to us, and the next year, they made the finals for the first time. And I don’t think they’ve had the final since. So this one year where they stabilised because of an external force, which was the financials, made them keep the place they didn’t want, they dramatically improved. And I’m like, okay, that does not make sense. And then there was another example. At the same time in 2013 of a team called the highlanders in Super Rugby, who had a recent period of under performance. And they were gifted through New Zealand Rugby, a large amount of players have been highly successful at the 2011 World Cup and and the the market responded by saying, Okay, look how much talent they have. So they went, I believe, from 40 to one, so with 2% chance of winning the competition, to six to one, which put the favourites second favourites. And they won three games, including losing to the rebels, which generally gets you five as a coach, right. But, yeah, but that that team two years later, without most of those guys, then won the cop. So I was really confused now because, and it was almost running against my own self interest, because we were trying to help players go into the marketplace. And what it was saying was, don’t buy talent. Yeah, hold on to the talent you don’t want. And so the more that people that imported, the less they could do. So sorry, the more, yeah, more people imported, the worse they got. And the less they imported, the better they got. So I started to run analysis on this, and just built some very simple algorithms, one called Twi, which the acronym I’ll regret forever, particularly in financial services that we’ve that’s what we’ve got and and we just started to find some commonality. And then we found weaknesses in that system. And then there was a it’s been a continuous iteration ever since, on this kind of formula for success or failure. And then team started talking to us, but the core of that research was not out of sport. It was it was out of Grossberg work on portability talent. It was around military data on shared experience. It was around hospital research on contractual stability. It was on other military research around structure and size of teams, and we just then applied it to sport, and then it came back again, where we’ve taken it back to corporate again. But this the we just found it to be particularly long term, really strongly predictable on performance, but also we felt was getting to the heart of causality, because a lot of data in financial services and in sports. Sports industry is fundamentally measuring outcomes, measuring performance, but what we’re trying to get to the heart of is what’s causing that performance. Yeah, so we’re not really interested. In, in the scenario of like a company is selling this much more, what, which is, why are they selling this much more? Or why are they having performance? So we’re trying to remove ourselves from form. And the turn of phrase I’ll use to that is, the closer we’ve what we’re finding is the closer you would get to correlation, the further you would move from causation. Yeah, two things were so tired, I’ll give a very simple example. This in sport, in rugby, the team that makes the most line breaks or gets the most run metres will generally win the game. Okay, well, that’s pretty close to try scored, because you can’t really make one score tries without making line breaks. So why don’t we just say the team with the highest score wins the game? Okay, but that’s really not getting to the heart of causation at all. Let’s go right further back. Why are they catching the ball? Why are they able to pass the ball? Let’s keep, keep coming back to the core about why the skills of the players develop so well. And so what we’re we’re really trying to is to move entirely away from form, because form has no hard end causation.
Wouter Klijn 10:59
Yeah, yeah, you touch upon something there that I thought was interesting as well. You, you did a presentation for us at our strategy forum in May, and you were talking about this concept of spending a lot of money on talent is actually not necessarily helping the team perform better. And I sort of made a comparison there with investment teams, where you often have a star investor or a star fund manager, but if you take them out and put them in a different team, in a different company, they don’t always perform as well or are as successful either. And you talked a lot about cohesion within a team. Can you tell us a little bit about what do you mean by cohesion, and how do you develop it?
Ben Darwin 11:41
So that turn of phrase, and all of these pretty much terms have been used, you know, brought up by other people, but the turn of phrase attribution bias, I really like, which is we overly attribute performance to the individual, either successful or unsuccessful, to the individual, rather than the collective of the situation that person’s performing in. So what we’re trying to do is to understand what are the drivers of that individual performance. And so we know that a player is is much more likely to perform well when, for example, in rugby, you have a 910 combination, a passer and a catcher, if that passer has been passing to that person 9000 times before they’re going to know where to put the ball. Okay, in financial services, for example, you might have a researcher. Relationship between a researcher and a fund manager, and that researcher knows how to deliver the information effectively. And you can use all of the terms and phrases that we like you know, and can get to a shorthand, or can look for the keys that this person’s really interested in? Well, that’s just a relationship that can work much faster and cover off more detail. And we also like how the things are handed to us. So whatever form this takes, whether it be sport or corporate, I don’t really see too much of a difference. So what I’m trying to do in cohesion is I’m trying to measure the attributes which directly drive understanding between people. And there’s different forms of understanding. So that understanding could either be interpersonal understanding, it could be system understanding, it could be role understanding, and then things like size of the team, which we can touch on later on, then structure, which is extremely important how different parts interact. In fact, there’s a group I did some some work with in Sydney. Was a was a asset management company, and they had different divisions in the business, and realised the different divisions were not talking to each other, and another one would make a change, and the other one would say, Why didn’t you tell us this was going to take place? This is going to take place, this is going to completely stuff our systems up. And they were like, we didn’t even think of talking to you. And I mean, I’ve done work with an almond manufacturing company that had the same problem, right? It doesn’t systems are systems are systems. And of course, there’s different nuances to each scenario, but, but under we all miss attribute what change does in its many forms, and so cohesion is fundamentally trying to measure change as well as the level of understanding between the component parts of the team. So if I look at a if I look at a team, and we’ve done work with Platinum, for example, the Platinum team has a level of measurable understanding that we can map at any one point, and it’s shifting all the time, up, down and and when a team doesn’t change, it’s shifting. So if you and I do something, if we do this podcast, there’ll be misunderstandings. We do it again, and you’ll go, Ben yesterday, I heard about this, but I want to talk more about this. Or you might say, I I know when Ben’s talking too long, or, you know, I know with my wife, for example, you know when the when the left eyebrow goes up, that’s a dishwasher related issue, right? We have this shorthand that we all misunderstand, right? If I could give you a really easy example of this, and I. Didn’t present this at the thing, but I was, I was in the supermarket one day, and I normally shop at Woolworths in Blackburn, and I was up at Doncaster, which is a little bit further from our house, with our daughter, and my wife said, Can you do the weekly grocery shop? Okay, now, sometimes I sit my car on my phone after I’ve done a grocery shop, and my wife sells me say, Why are you taking so long? And on this particular occasion, I couldn’t find anything in the Woolworths in Doncaster, right? And my wife messaged me, why you taking so long? It’s like because bread’s not where bread is. It’s in my mind’s eye. I had a picture because I know I actually do this sometimes at conferences. I say, right? Tell me who does the shop right, and which, which one do you go to? And they say, Woolworths here. I say, Where’s the bread? They’ll go, oh, seven. Where’s the chocolate? All four, right? You have in your your head of mine’s eye. So not every Woolworths is mapped out the same. And so there is a map in your head of what that looks like. Or, you know, you get in the car and the indicator goes off because the windscreen wipers on the other side now, right? Yeah. And so we we use the human brain, uses shortcuts all the time to help us, and it’s discombobulating when it becomes ambiguous as to where things are, and all of a sudden we keep going to the wrong places, yeah. That’s cohesion. That’s a form of cohesion. I have a level of cohesion with that supermarket. Now, if I keep going to Doncaster, I’ll build up a different cohesion. The problem is the learning and the unlearning, right? That’s also a form of cohesion, and because if you’ve done something a lot before, now it becomes the problem, right? If I have a if I have a CRM that I’m using in my financial services business, and I changed to a new one, because it’s better. The problem now becomes the old system, and my knowledge of the old system, the longer I’ve used the old system, the harder it is me. Whereas there’s some kid who’s just come straight out of uni, he’s never used a CRM before, he doesn’t have to unload, yeah, and all of this have this all the time, and it’s moving all the time. We’re learning, we’re unlearning all the time. And so what I’m trying to do is just put all of that into a number, and that’s how we’re doing it. And it’s really objective. It’s not, it’s not like I said, whether we like each other, it’s not. And I’m not saying that doesn’t contribute, but what I’m trying to find is, what can I measure and what can I see, and what does that do?
Wouter Klijn 17:19
So can you tell us a little bit about the different ingredients of that measurement? Because, of course, cohesion can be between team members, but it can also be related to the environment in which they operate and even the organisation in which they operate. They all tie together in a way. How do you measure it?
Ben Darwin 17:41
So I can’t, obviously, go into the human brain, and I can’t do questionnaires, because we’re looking at 1000s on 1000s of teams every day. And we also don’t The question is, don’t always naturally give you the question. I mean, Enron was regarded as the best place to work in America, literally, as they were being indicted, right? So yeah, it’s right to the phrase, so that’s just not going to necessarily give us the answer. What I can measure is how long people have done something. I can measure how long people have done something together. I can measure how long they’ve been in those roles, and I can measure what they’ve done before. Okay? And each of these components will have a different impact on the performance. I can measure the size of the team. I can measure how long they got at work, right? Like, like, COVID produced some really interesting data for us, because things started to take longer, or it trapped people working together, yeah, and their performance improved, you know, because of that, okay, they were forced into groups they weren’t normally part of. They were isolated. There’s a really interesting test bed for us, because one thing that we actually find is when people try to make things better, they generally make things less cohesive. Cohesion is usually driven by disaster, bankruptcy, firings, inadvertent changes that improve, that improve systems inherently, but weren’t meant to do so, you know, I was, I was looking this morning at sporting leagues in Australia, and one of the competitions that’s improved dramatically in Australia is the NBL, and it did so because they It fundamentally. They tried to grow it too fast, too many teams came and went, and it went into chaos, and so they shrank it and stabilised it and made it better. The same things just happened with Super Rugby. They’re talking about this being one of the greatest seasons ever, because it shrank and stabilised. Yep, you sack half your staff, they will, inadvertently, the numbers will go up for cohesion, you know, you shrink it, stabilise it, or right size it, as it’s often the turn of phrase. But growth, as we talk about a lot, is the enemy of understanding. Trying to grow because you have to hire, trying to grow because you have more people, fundamentally works against the nature of cohesion.
Wouter Klijn 19:55
So that’s quite an interesting point, because we’re at that stage. Much in the Australian super innovation industry, where there’s a handful of funds that are growing quite quickly. And partly it’s because of the demand that it inflows from Super innovation itself. And partly it’s because they’re starting to do some of the investment functions themselves in house. So they need to have the expertise in house. So there’s, there’s a couple of organisations that, literally, in a couple of years, went from maybe 2030 people to hundreds of people, in some cases getting up to 1000 people. What are some of the dangers of that rapid growth then?
Ben Darwin 20:34
Well, I think, I think the military has got a lot to teach us about growth. And you know, what the military’s always done is they’ve broken themselves up into groups. And you know, if we, if we go back to the the notion II had a really interesting conversation with some of the guys at platinum, and talking about the early days of platinum, and one of the points they made to us was, when there was six of us in a room, I could just turn the chair and get the answer, and they know we they would know what even the question was before I answered it. And you can’t replicate that in a large organisation, right? And so they talked about the growth they had, and then it became too hard to get a room big enough to have the meetings of everybody, and no one get the herd right. And then it got harder to bring people into the organisation. So the things that you can do in the early days of your success are no longer achievable on a when you become a corporation, when you become a large organisation. So you have to then change the steps of which you go about. You have to have, you know, all hands meetings are pretty ineffective. So you have to understand who needs to be in the room. What is the information want to disseminate? We’re going to have to give everybody this information first, whatever it might be. And we’ve been working in Formula One, and one of the teams that had been highly stable for a number of years, we said to them, Do you have an org chart? And they said, No, we don’t. Don’t have one. It’s like, why? It’s because we never needed one, because everyone knew where they were supposed to be. Now we’ve taken on a whole bunch of people. Everyone’s asking for an org chart, and we’re like, okay, maybe we do need one right now. So So growth will have to drive a change of the processes. I think one of the mistakes that early startup businesses make is they try to introduce the processes the large organisations have when they don’t actually need them. You know, we had an investor coming to us and say, you need to do this, this and this, this and this. And it’s like, you know, have all your notes taken for meetings. And you know, you know, you and your business partner, Simon, need to process everything so you can communicate properly. I’m like, but he hears my conversations because he’s at the desk next to me.
Wouter Klijn 22:35
Yeah,
Ben Darwin 22:35
and and we talk every day because he drives me to work. We don’t need some of these processes that we think we need. So I think, I think right sizing process is a really important point. If you then break your company up into different divisions, the danger then becomes the different divisions will divert in their behaviour from one another, right? So then you build a set of offices all around Australia, and I don’t if you remember the McDonald’s movie they made about the founder, no, they they the early days of McDonald’s. They would build different ones around the country, and they’d come across and, like some of them, were serving fried chicken, completely deviating from the processes that made the organisation successful the first place. So having having the processes that allowed you to maintain cohesion. Because if you just become an amorphous mass, you have chaos, right? But if you, if you don’t, if you break yourself up, it comes with its own challenges of deviation behaviour. So there’s, there’s all these things, and, like, I say, growth is really, really hard.
Wouter Klijn 23:36
Yeah, is there sort of a optimum size? Because, you know that there is this concept that’s often used within sort of corporate culture focused strategies, and it’s a concept borrowed from anthropology, where they say, you know, once an organisation grows beyond the 150 people, it’s no longer possible to know everyone within the company. And sort of the idea that maybe, in the olden days, tribes were consisted of no more than 150 people, and after that, they would split off. Is there sort of a, you know, sweet spot there?
Ben Darwin 24:10
It entirely depends on what you’re trying to do, and the and the complexity or the simplification of the task that is required. You know, military always tend to say, once you go beyond six, it gets really hard, but, but I’d just say mathematically, it just as it grows out, it gets harder and you get less time. Okay, so do you sport a doubles tennis team? Can probably learn to play together very, very quickly. But a a basketball team takes longer, a a symphony takes longer. A an AFL team takes longer. But if you take a symphony, for example, there’s different parts of that symphony. There’s the violin section, and they can take cues off one another. So it’s it’s always context, and it also we need to understand what is the context of performance. Okay? So to win the a league, you don’t actually need a lot of stability. You saw the success that Auckland FC have had in their first year with some limited, what we call externally shared experience, prior shared experience with New Zealand. But the a league is not a very cohesive league to win the Champions League. You know, we were looking at the most cohesive team that’s ever existed in the in the Champions League. And I think it was Real Madrid in 2018 and the numbers were extraordinary, because they’re up against other teams with money and cohesion, you know, such as the formerly Manchester United used to be, or IX, for example. You know, they’re really well built clubs, and so it it all depends on what your notion of good looks like. And to give an example, there’s a there’s a group of jet fighter pilots in the US, and they have called the Blue Eagles. I’m going to I’m going to get that wrong. Maybe we can correct me and I apologise, but I watched a documentary on them, and they rotate new teams every sort of two years. Yeah, they have a a level of closeness. They can get to each other in formation that at the start of the year they won’t even attempt. So they’re trying to get inside five metres, and they’re trying to get inside one metre from each other. And they slowly progress through the year that by the end, if they can get to less than one metre from each other, then they’re in a fantastic place. But they don’t attempt that at the end. So that’s what their good looks like. If your good is inside 10 metres, you probably do in a couple of weeks. Yeah. So and also depends on what are we up against? So the AFL is the highest stability league in the world, and part of that is that their teams are so stable that even to get competitive in that league takes five years, right? Where’s the a league? Six months, you know, three months you can make you into competitive. So none of this is is a or b or black and white. It’s like there’s levels of this and and the other part is, too. Is what are you doing … how much complexity does this job require? How complex is this task? Need that we have how we have to work together in order to get to a level of success?
Wouter Klijn 27:10
Yeah, you also make the difference between cohesion and culture. Culture is something that think is increasingly more on the agenda, because if you have a good culture, then a lot of benefits stem from that. And it’s increasingly seen as not just like a soft skill, but it’s, it’s, you know, an important way of creating a sustainable business. But it’s not the same as cohesion. Can you explain it a bit?
Ben Darwin 27:39
Well, I think the one of the one of the challenges that we see, particularly in sport, is it’s very difficult for people sometimes to understand success or failure. And so they’ll say, why is this team so great? Because, you know, they’ve had a lot of success, and they go, Okay, well, they got a great coach. And then that coach will leave. So for example, if we use football Liverpool, right? They had a great coaching clock. He left, the new coach comes in, and there’s like, well, it’s gonna take a long time to come. And they won the league in the first year, right? And so it’s like, okay, well, maybe it wasn’t him, maybe it was something else. So then what they go is, okay, well, the club’s got a great culture. Now, one of the things I might find is when teams are winning, people do point to them having a great culture. But my experience, and particularly when I was at the Brumbies, you know, we would, we were just as much of a set of rat bags, if not worse, than anyone else, right? But people wouldn’t believe me. They would say, you know, how are you? You know you must your team’s winning, therefore must have a great culture. And I’m like, have you met our players? Right? Have you? Have you been with us on end of Season trips? Like we’re just as badly behaved as anyone else. But one thing that happens that I I’m lived in Newcastle quite a lot, and one thing I would find is, if the team was winning, the town would protect them, right, right? They would hide the behaviour of the fires. Oh, boys will be boys. When things are losing, you’re on your own. Now, full of bad behaviour comes out. So in terms what I find behaviourally is that if things are winning, the bad behaviour takes longer to get out, but it’s still there. Now, the next part is, what is culture? I mean, what do you believe culture to be?
Wouter Klijn 29:24
Well, I actually have a background in anthropology, and it’s probably the most discussed question in anthropology, and to my knowledge, they never really came up with with one definition of it. But, you know, basically it has to do with a set of relationship, a set of customs and sort of historic knowledge of those type of interactions.
Ben Darwin 29:46
So one way of describing it might be, for example, normative behaviours. Well, you cannot achieve normative behaviours with a bunch of people thrown together, right? You get chaos. I. I talk it was like being like a refugee camp, whole bunch of different, you know, influences and a mishmash of different cultures, so to speak, different sets of behaviours. You throw them in together, and then what happens is the environment will then drive the behaviours right, and you keep people together long enough, and that will start to become a normative behaviour. So for example, in small towns, if you and I move to a small town, because we all have to see each other every day, you say hello to each other every day, right? You take care of your neighbour, right? Because we know that’s the best thing for us to do in terms of our survival of the town is not to foster a bad reputation in terms of our interpersonal, you know, behaviour amongst one another. So we become more service orientated towards other people the town. Now the driver of our behaviour, then, is actually the size of the town, right? So, so I see cultural funds as an outcome of of the circumstances in which that team exists. So small teams will build understanding faster. Their normative behaviours will be adapted to quicker. And then, for example, if you set in place rewards, you know, like this is why we had a Royal Commission in financial services, right? You you build certain rewards, people start behaving in certain ways, and so and so. But if you and I go from that small town into a city, we cannot say hello to everyone, we cannot look after everyone, it will destroy us, right? So you then you stop saying hello to everyone, and again, that’s an outcome. So I see, often times, culture, the normative behaviours, as an outcome of the drivers, right? And and those normative behaviours sometimes are good, and sometimes they’re not very, not very good. And an example I give sometimes is, you know, there was a team in the AFL of the West Coast Eagles who who were very well known, I was living in Perth at the time for their off field behaviour. And one of the players recently went to jail and said, as part of his criminal case, I was told by the senior players, if you’re not going to to take gear with us or smoke crystal meth with us, then you’re not going to be part of this team. So he did it, and he The team played well. They won the grand fall. They made the final 16 of 19 years, and they’re in the compost, or six out of 18 years. And they they won three grand finals, and they were very, very successful. Now, a lot of those players then left off the back of that, and the and the cohesion dropped, yeah, away and they they’re now stuck in a bit of a hole themselves, and they’re not getting great outcomes. So I think one of the challenges is, is if culture is the normative behaviours, sometimes those normative behaviours are driven by the conditions under which they are built, but also part of those conditions is the amount of turnover that you have in that environment. And so I think there can be, you know, with the background that you have. And I don’t, you know, I don’t have degrees in this, right? I’m just trying to be as objective as I can be. But I think there are times when we mistake behaviours for causality, right? So, and I’ll give you an example. They did a study on hugging in the NBA, yeah, and they found that the teams were hugging each other were winning, right? And we know that hugging gives you oxytocin, makes you feel good. And they thought that might be at the heart of success, so they coded it. And they looked at the teams who are hugging before the games and touching each other on the bum and all this sort of stuff and high fiving and saying, Well, maybe this affecting their performance. And there’s a link, there’s a link between doing it and success, but if you then go and say to a team, you need to hug each other more, right? Which is what then happened, and teams I’ve been associated with started doing it. It wasn’t going very well because the players were not comfortable to do it, yeah. What was actually taking place is the teams have been together for a long period of time, knew each other, and the hugging like if you saw me on the street now, we wouldn’t have right? We’re not quite there yet. Maybe, maybe we have coffee 10 times. The 10th time we’ll have a hug. Okay, yeah, but we would have built understanding over that period of time. That is what I believe was taking place, is that the teams who buy product of being together for a long time knew each other, therefore they were hugging. But that was not a driver of the outcome, and I think that a lot of these ideas around culture I built on that. Now, if I might divert, I mentioned to you earlier, I had a story about culture, yes, so in the world of in the world of Twitter, I caught quite a bit sometimes, and, and there was a turn of phrase that comes up quite a bit. And I’ve even had this I met with a guy who was part of the Big Four, you know, any said, you know, I believe that that cohesion can have a profound impact on performance. And he said, Well, what about culture? Each strategy for breakfast? Like, yeah, it’s a phrase, right? So that phrase has been attributed to Peter Drucker, yes. And so this person on Twitter was saying, culture is strategy for breakfast, therefore you’re wrong. Like, okay. So I wanted to look it up. And so I looked up that there is actually a Drucker Institute. And someone had put on Twitter that the Drucker Institute on the front page has cohesion eats strategy for breakfast. I’m like, Okay, well, if they’re writing it, then you must have said it. So I then went and found this other podcast where they said we looked in everything Drucker ever said. And he never said it, but he did say, I’m paraphrasing here, culture is extremely difficult to shift, yeah, which I definitely agree with. And so I emailed one of the university professors. Now, I don’t have a degree, and I’m always very intimidated by dealing with anyone who has university degrees and professors, and my mum actually has a master’s in ancient history and archaeology. But one thing I’ve always been interested is, like, you know, the whole thing about peer review and about research and, you know, writing bibliographies. Okay, so I emailed this guy and who had, who had written this, this piece for the the Drucker Institute, and I said, Did you and I said, Did you know Drucker never said that? And he said, to be honest with you, I never thought to check. I just Googled it, and in google it says he said it. So I put it on the front of it, and then all of these other university professors came onto this email chain, and then one of them came out and said, No, here’s the guy who said it, someone from MIT. Drucker never said this. And there was all these kind of people saying, Okay, well, maybe we’re not mistaken. I was, like, stunned, because if there’s anyone ever that makes sure they do research as university professors, and even they were falling into the trap that we all do, of course, which is, you just Google it and that makes sense.
Wouter Klijn 36:32
Yeah, it’s shorthand, yeah, yeah.
Ben Darwin 36:34
And so I think that happens a lot. You know, there’s so many phrases that people use and say, Okay, well, that phrase is the evidence. Like, maybe it’s not even the case. We just say it, right?
Wouter Klijn 36:43
Yeah, yeah. It’s just a way to quickly come to conclusions. I think, yeah, there’s a whole range of quotes attributed to Einstein, to Mark Twain, to Keynes, that all things that they’ve never said, but they’re still good quotes.
Ben Darwin 36:58
Yeah, one of my favourites is that no one ever built a no one ever built a statue to a critic. And Roger Ebert, the film critic, actually has a statue of him sitting there, so it’s one of my favourite ones.
Wouter Klijn 37:08
That’s great. That’s great. So you mentioned earlier there as well, like turnover. So when we go to this concept of cohesion is driving performance? Is it possible to build cohesion in a team or in an organisation that has a high level of turnover?
Ben Darwin 37:28
So again, there’s a nuance to this, which is one, what are you up against? You know, the team that has the least turnover, you know, will probably build the most levels of cohesion. I think one of the key components here is, where are you drawing your talent from, and what has that talent done before? Yeah. So there’s different components to people and and if I just give the easy example of if I take somebody who’s been part of Magellan for a period of time, and then they come across to a platinum they’re going to bring things with them. They’re going to bring previous experience, they’re going to bring bring biases, and they’re going to bring fantastic information. But what’s important to understand is that it’s different, and that doesn’t necessarily mean it’s going to work at your other organisation. And I apologise I probably said the completely wrong thing in terms of organisations. But the point being that that it’s not just turnover, it’s also from where you grab your talent, the position, you know, one thing we find is very much in sport, is certain positions require understanding, or less or more understanding the context of the group of what you’re going into. So when we did, when we looked at football, so, so Grossberg said that he felt that the research he did on Morgan Stanley, sorry, not felt the research he did on Morgan Stanley, said took someone three and a half years to peak performance. We did the same thing in the EPL. The answer was 2.9 seasons. But it was, it was conditional one, where are you coming from? Where are you going to? What is the state of the team you’re entering? The more stable the 10 you enter into, the greater the chance you have of performing. Well, there’s a turn of phrase called the Bayern Munich mirage. So if you come what you’re coming from, is what I’m talking about here, is they say that in football, once, if you leave Bayern Munich, you’ll never be the same again, because they have had, particularly 2010s at a period of high level of sustained stability, which went on to the German national team and and so if you leave that environment, you won’t be able to, and that’s attribution bias, right? You won’t be able to perform to the same standard and then different different parts. So strikers, for example, it’s easier for them to change clubs than midfielders, because that’s the management position, right? And each industry will be affected in different ways. Generally, in rugby, cohesion manifests itself in defence. I’ve just been working on the NFL, and it actually works itself in attack, because you have to work together more on attack than you in defence. So each each part will have a different component, the position will have a different component, and then you slowly start to work out what those different parts are.
Wouter Klijn 39:58
Mm. So within corporate teams, what would sort of be, you know, quick and easy wins for people to build cohesion.
Ben Darwin 40:08
So the first thing we always begin with is, what am I looking at? What I mean by that is, is that we tend to all attribute performance with that term, attribution bias to the individual and to try to understand as best we can, is this, what is creating this success or failure in this person? And so if, if they have come from another system, what are they struggling to adapt to? So and we’re not saying don’t bring people into other places. That’s fantastic, but if they’ve been using a different CRM, for example, a different organisation, they’re going to struggle with yours, right? So they’re going to take three times as long, and they’re going to take longer than the kid you just got out of university. But there’s some things that this person knows that that kid doesn’t know, so the juice might be worth the squeeze in this particular case. So we need to give them more time. So don’t compare the young person to the older person. So if you the first thing is the context of the individual’s performance, the second part is the context of the team. They might have gone in to an A team, right? So you go into play for the Melbourne storms of the world and people generally perform, well, okay, whereas and different teams inside your organisation will be built differently. And then, if I use the rugby league turn of phrase, you then go to play for a West tigers, you then don’t generally perform well, okay, but you need to understand that performance in that context. What is the context of how they’re performing? Why are they performing the way they are? And then also understand that turnover is never black and white so and to give an easy example, everyone’s got choices all the time, and organisations will say to us, we’re so unlucky. We’ve had so many people decide to travel in the same year or so many people decide to have kids. Okay, now my wife and I have four kids, and you know, there’s certain points in time where my wife’s like, I’m not enjoying work. Why don’t we turn another kid? Right? So, so, you know, you know. So sometimes people might decide not to have another child or not travel because they’re enjoying work so much, they don’t lose their opportunity at the organisation they’re in, or they start to think, you know what, I’m not enjoying myself, so I might go and do something else, or, you know, get picked up. So turnover is turnover, in my mind, right? In sport, yes, you have injuries, whatever it might be, but if people are doing things they haven’t done before, sometimes they’re more likely to get injured. So I think it’s really important to look at at the context of what you’re ending up with, and why are we losing people so much, or why are we getting people so much? And I always say, like, just because somebody, you know, if somebody is creating turnover in their behaviour, then you probably need to exit that person. So it’s not saying don’t ever have people leave. And once we understand what we’re looking at, and once we understand the decisions we’re making and and to look at turnover in a very opaque level, then the thing is to understand, okay, what changes Am I looking to make, and what is the speed of that change? And one thing that does also happen is that people are always going to be their own biggest fans. You know, with sport, we know at the parents, right? The parents are going to so we talk about, if you import talent above someone else, the people below will leave. We talk about, sign one, lose three. And to give a very easy turn of phrase, let’s say, you know, in a business perspective, you sign a very talented 50 year old and you lose 230 year olds, right? That 50 year old comes with you for five years, and he does okay, but the 252 30 year olds have gone off and started another firm, which is now one of your competitors against you. So you lose those two guys, the 50 year old their leaves, and you’re like, we don’t have those next guys ready to go, because those 230 year olds left. So because we don’t have any with that level of talent. HR, go find someone for me tomorrow. That person comes in, and then they introduce a new CRM, that all of a sudden, 10 of your people are now underperforming. And so you he says, I need to sack five of those guys. I need to bring people with the last organisation we’re in. And then Away you go, right. There’s a whole we talk about the tumble down effect one. Change creates more change creates more change. So there always needs to be a context of, if I’m going to get talent, what is that talent? And even if that person is the nicest person in the planet, and I’ve been that guy, and you’ve been that guy, and you know, this is not about people being good or bad, it’s just, what is the context here of, what will this do? Yeah, and so that is not necessarily thought about enough. I’d say, Yeah,
Wouter Klijn 44:41
I think there was an interesting slide as well that you put up at your presentation where it showed the interconnectedness between different employees. So if you remove one person, it might affect, say, four or five relationships, or maybe a bit more. But if you remove four or five people, then suddenly it starts escalating, because there’s. Of you know this, this almost compounding interest type of relationship, where you remove a handful of people, and it can affect up to 5060, different type of relationships, and it’s much harder to to deal with and to replace than just with the single individual. Can you explain it a bit more?
Ben Darwin 45:17
yeah. So, so, you know, literally, I believe sometimes multinationals can be brought down by these sort of things, right? Can I use a sporting example? Is that? Of course, yeah, okay, so, so Alex Ferguson had this really interesting impact on football when he was coaching people, inadvertently were having a bias towards Scottish coaches. There was nine Scottish coaches in the top two divisions of English football. There’s now one. But when he was coaching, everyone believed he was very that was maybe part of the deal, right? They’d hear a Scottish accent. They go, Okay, we want that. So when he left and and he brought it, they brought in Moyes, who was also Scottish, who was having success at Everton. Okay, now this is from the best I can glean, and we have some insights, and some people we work with in football that can help us with a lot of this. So we kind of, we’re not just guessing, but one of the things Ferguson did was like, don’t change too much. And then Moyes wanted to introduce the things he did at Everton to the group, so he didn’t change the team, but he changed the way they played. So now that group is and also understanding that Ferguson had been able to weather the storm of the new ownership of the club, right, which is we, you know, we know what’s going on now with menu, and we’re now at the peak point of that tumbledown effect. It’s now at the end of its cycle, moist change the way they played, and the players could not adapt fast enough to the way he wanted to play. So his response was that was going to be okay. Well, I’m going to bring in people who can right? And I remember talking to somebody at Manu at the time saying they’re completely changing how we recruit now to match this new way of playing, right? So, so now that doesn’t work. They they move him on, and then they bring in another coach. And my memory’s gonna fail me here. They bring in another coach, so German style, for example, of coaching, or Dutch style coaching, and that guy comes in, and now all their recruiters are recruiting to the wrong model, because they’re recruiting to the Everton model. Yep, yeah, they’re going to change again. Yeah. They’re not quite sure what they’re supposed to be looking for. And then they got half the team. And so the cohesion numbers are just dropping and dropping and dropping, and they’ve been dropping ever since. And so they’re spending money to bring in the new talent, because the talent they just acquired is not performing very well. And so everyone says the biggest problem at menu is recruitment. Okay, so that doesn’t work. So they go another coach again. They go another coach again. But the the ownership at this point is just trying to squeeze every dollar they can out of the organisation. And so we keep having to buy to find the answer, which is creating less stability. Now, one of the biggest drivers of skill acquisition stability if I, if I’m dealing with constant change, I don’t get better, because I’m spending all my time adapting to new environments, right? And so those young people come into a Bed of Chaos. They don’t become good at what they do, so they can’t create talent to sell. And it just has that tumble down effect. So it can literally begin with one thing, which is maybe Scottish coaches are great. Let’s get Moyes to all of a sudden, now the club is basically having to sell its entire list. And the hardest part now is, you know, it’s very difficult to have a conversation with somebody at that level of crisis. You want to stop it at the head and say, just think about what you do next, right? Because these, the way we describe cohesion is it can drop 50% in a week, but it can’t grow 50% in a week. It grows 5% a year, right? So it grows slow, but can be destroyed fast, like you’re building a house, right? Can’t build a house fast, but you cannot open pretty quickly. So that that kind of small components can lead to underperformance, which will lead to more change, which will lead to greater under performance. And now you get chaos, clouding, causality, right? And so what they tend to do is we need to go get the players who are playing well somewhere else, who then don’t play well for you, or we go get a coach who’s coaching well somewhere else. And the classic in rugby league at the moment is you go and get the assistant coach from the great club, and they don’t necessarily perform to the same level. That happens everywhere all the time. Yeah.
Wouter Klijn 49:29
So do you think there are learnings in that for mergers and acquisitions in the corporate world we see currently, within the super innovation system, there’s lots of funds that are merging. Some of them are very different. Organisations come from the different industries. How, how you bring that together is quite tricky, and sometimes it’s better. You know, especially in corporate, corporate acquisitions, they don’t always add value, and more often than not, they don’t add value. So. Is there some learnings there that makes, perhaps, easier to do mergers?
Ben Darwin 50:06
This answer I could give you could take three hours, right? But one thing that happens is, when we look at sporting teams who merge, it’s not that common, but the Waratahs just went through it. And rugby as an example, no, no, go for it. You take a bunch of people somewhere else, you bring them together, and so basically, together. And so basically, with the Waratahs this year, they’re a merger, a team that just faltered, which is Melbourne rebels. They bring a bunch of kids in right now, one of the things you want to create in any system is you want people coming through the system together, from the university graduates through, well, let’s call it your academy, or, you know, the floor where guys are working together, and they become the senior guys and and all of that knowledge and time helps to protect the business from whatever market. So the problem is, when you have a merge, is everyone who’s coming up through your system will have never been with any of those people before. So it doesn’t just hit you when you have that merge, because you have those people come in with shared experience together, but none of them have worked with anyone else. So over the next couple of years, what will tend to happen is the people who come in together from somewhere else will tend to stick together and then leave together. So one of them goes, they all go, right, yep, yep. Because why would they be loyal? You know, if you, if you join an organisation, and let’s say you’ve been there for 25 years, and they say, we’ve just hit COVID. Could you take a pay cut? Your wife’s going to say to you, they’ve looked after us. Let’s look after them, right? Yeah, if you’ve been at one for six months, and you come in and they say you need to take a pay cut, your wife’s going to say to you, why are we being loyal to this organisation? Because we don’t know if they’re going to be loyal to us. We it’s not that you don’t trust them. It’s just you don’t know them. Yeah, there’s no pattern of previous behaviour, so you’re going to act quite differently. And that’s not, that’s just loyalty to family. That’s not. There’s no good loyalty available. There’s just different types of it. So that’s the first that’s the first component. The next component is you’re merging different systems upon each other, right? So there’s different types of mergers. If you’re buying a technology, if you’re buying a business for a technology, that’s just the system you’re bringing in, but you’re not bringing in the people who administer that system. And so it’s when you merge people together and systems together with those people at the same time that tends to become a problem. If you’re a if you own a mine, and you’re just buying a hole in the ground, have at it, right? So there’s different types of mergers that we look at, and then there’s things like vertical acquisitions. But you know, all of the research that I found so far is telling me that that economies of scale is a vastly overrated issue. Just leave things as they were, for the love of God. And when people do that, that tends to be more successful over time. Yeah, and, and, but how you how you do it, how you go about that process, and, of course, size. So I’m not saying mergers and acquisitions are going to be successful or unsuccessful, but there are certain times, certain ones that we look at and go, this is not going to work at all. Now there’s another, there’s another form of merger which can take place sometimes, which is like, if you import a CEO from one of your competitors and he brings a whole bunch of people with him, you’re fundamentally, fundamentally merging the company. If you look at borghetti, when he came to went to Virgin Airlines. He basically brought Qantas with him, and it was a merger, but not in name, yeah. And so that has its own components of outcome, so to speak.
Wouter Klijn 53:32
Yeah, for sure. One concept that I find quite intriguing as well that is related to this is the idea of knowledge management within an organisation. And so there’s been studies done into this, whether you can sort of retain a form of institutional memory so that you don’t have to reinvent the wheel every time teams change, or, you know, senior management changes, but whether you can sort of codify this for new people to quickly access, see how things are done, what the history is of certain, perhaps transactions or certain techniques that they use, and get up to speed really, really quickly. Do you think that that is possible to then also help improve the cohesion that you have sort of this knowledge base that you can tap into and very quickly understand how an organisation functions.
Ben Darwin 54:29
I think I was looking at a study the other day, and I’m not going to quote it directly, but it was talking about most knowledge acquisitions done with 80 before 80% of the time it’s done on an informal level. You know, it’s the the conversations at the water cooler, so to speak. So I think that, I think that you can optimise that structurally. I’m really interested in German companies, the way the German boards are built in that you have to have people who are on the floor. And I was, you know, looking at Mercedes and Ben. And you look at the CVs of their of their board members, and they’re like, you know, Gert. Gert began as a 15 year old intern with BMW, right? And you think about when a decision is thrust upon an organisation like, we’re going to switch to this type of tool set. And Gert can say, I remember we did that in 78 9107, and 14, and it only worked once, because of these were the circumstances. We did it slowly, whatever it might be, yeah. So I think that that creating structures that retain institutional knowledge is the most important component of that. And then I think that the way that Australian companies are generally built is this kind of, I’m not going to call it a plague, this kind of scenario of non executive directors on the board, the adults in the room, so to speak, who, and there’s different forms of them, absolutely, and they provide a fantastic service. But I think there’s always a danger if you have a CEO who is the main font of that knowledge and memory, right? Is you need that memory on your board. I think it’s extremely important. Because when the big decisions come, and I remember talking to a board and the AFL and we presented to them, and they said, this was so good, you should have been here five years ago. And I said I was, but none of you were in the room, right? And now we’re still having the same conversation, right? Five years later, yeah, which can be, you know, we never name we don’t, we don’t, some some companies we work with name us, but we don’t tend to name who we work with, except if, if I’m sort of presenting to a room up, but I won’t, we won’t put it up publicly for a whole bunch of reasons, because sometimes they just don’t listen at all. Yeah, and one of the questions I actually have for board members is, why are you on the board? Are you on the board so you can tell your mates, are you on the board, and would you be comfortable for this company or team to fail, you know, while you’re here, but be successful later, and you not to get any of the responsibility for that. Like, what’s the most important thing out of this? You know, if, if you’re not winning today, but you’re winning in five years time, permanently. And I’m, I’ve actually got this idea about coaches, which is that coaches should be rewarded, but only for the wins they have five years after they retire. Yeah, because they, you want them to be thinking about that, about how they set up the team for success further down the track, and that needs to be their kind of be all and end all in a way, because otherwise you’re just self interest, right? You know, the nature of our work is, is trying to understand self interest. And I’ve, I’ve had scenarios where we’ve talked to coaches and they’ve said, one, I don’t have any permission to do what you think we should do. That’s fine. So maybe we need to have a different conversation about this, about how we have success. But also is that that sometimes people want organisations to fail after they leave. Yeah, they don’t want to set up for long term success for a whole range of reasons. Right? Revenge is pretty sweet sometimes. So it’s, it’s needs to be about who is the person who’s looking after the long term success and isn’t thinking about self interest. I think a lot of self interest is inadvertent. The other part is, and I’ll say this, and you know, put this to other other It can’t just be about sport. Is that we, we’ve been presenting to coaches who are performing extraordinarily well, and we actually saying you need to understand you are not necessarily the coach you believe yourself to be .
Wouter Klijn 58:29
Or the reason for success.
Ben Darwin 58:30
Yeah. And so they’re like, Get out of my office, right? Because they’re, they’re renegotiating their their lease. In fact, there’s a great study I just saw from the University of California. I’m going to get this wrong. They did on monopoly. And what they did is they they flipped a coin at the start of the of the game, and the person who landed on heads, they got two dice and got 200 every time they passed. Go, yeah. And the person who who had tails got $100 and they got one dice. So they weren’t going around as fast, and so inevitably, the person who had heads would win, yeah. And they did it 180 to 80 something times, and the person with the heads, I think, won all of them. And they would start talking down to the other person, right? Yeah. It starts sort of cheating. Did I present this at the conference?
Wouter Klijn 59:18
Yeah, you did. There were some videos where you can see them just becoming more and more rude, but
Ben Darwin 59:24
yeah, and they asked the person at the end, why did you win? And none of them pointed to the coin flip. Okay, that’s coaching. Yeah. No one wants to know when the when the The coins are stacked in their favour. So it’s like their favour.
Wouter Klijn 59:37
That’s a big discussion, also in investment industry, right? When you have successful fund managers, are they just lucky, or are they actually doing something that is better and repeatable, or is it just how the markets played out? Because often you see that investment decisions are made and implemented for entirely different reasons than what it’s. Played out to be, even if it’s a successful trade. And I think there’s a sort of a famous example that we’ve heard is where a fund basically took a position based on the idea that Hillary Clinton was going to win the US elections over Trump. And of course, Trump won, but the rationale behind the trade was, well, if Hillary wins, is great for markets, and we’re going to make money out of this. Well, Trump won, and the market still went up, so they still made money, but for completely their own reason. Yeah. So is that like, is that skill?
Ben Darwin 1:00:30
Well, the thing is, too, is that then what happens is, because you’ve you’ve theoretically now good at what you do, then you get the good trades, right? You get the good information comes to you, particularly in startup investment. The other thing. And I might be wrong about this, but I believe there was a report out of a company that had, you know, like online trading, and they found the best investors were people who either died or lost their login because they hadn’t they they weren’t making any changes, right?
Wouter Klijn 1:00:57
Well, there’s definitely correlation to super funds there, because some super funds offer their members self directed options where they have a certain percentage, and it can be quite high. It’s up to 60 to 70% of their portfolio that they can invest themselves, and they can invest it in single names, also within bandwidth. And invariably, they do way worse than their just default option, because they just chop and change and incur fees and get out of trade at the wrong time, or get into trade at the wrong time. And usually it is driven by trying to change return, and you’re always too late when you do that. So there’s definitely a correlation there as well. Maybe to sort of finish up, what are you working on towards future research? Any new areas that you’re looking at?
Ben Darwin 1:01:46
I’m a really big believer in the turn of phrase. I think it’s the stonemasons creed. You know, you keep hitting the same spot, and if you want to break the stone, it’s the 100th hit that breaks the stone. So and everyone forgets the first 99 they go, Wow, what a great blow. And it’s like, it doesn’t work like that. You have to keep going at it. So what I’m finding is, the more we look at the work, the more we keep focusing on the same thing, the more we discover. So it’s more of an iteration. And I think about guys, you know, who make the samurai swords. Yeah, you know, they do it for 30 years, and they can understand, Okay, well, if I do this many folds of the metal, it creates this brain, and if I stoke the fire in this way, and so you make mistakes and you improve it, and you make mistakes and you improve it. What we’re trying to do at the moment is, in all of the systems we have, we’re trying to break it, keep trying to break it and find Okay, so what does the Auckland Football Club, for example, doing well in their first year? What does that tell us? So what’s the truth of performance? That’s always keeps coming back to for us? What is the truth of performance? And I think one of the great challenges has been, is to keep on questioning the way things are done, particularly in trying to prove things out. And I think through conversations with my mom and that experience with the Peter Drucker experience, yeah, it tells me that just because something is studied and done doesn’t necessarily mean they’re getting it right, and that applies for us too, and and we need to look at things again and again in the most objective way we can say and begin with, okay, what do we actually know? And everything else is on the outer until we really feel like we can prove this out. What I would say is that we’re slowly but surely expanding the different things in which we’re looking from and learning, but the for me, you know, there are accountancy firms who are the Canterbury crusaders of accountancy firms, and there are accountancy firms who are the West Tigers of accountancy firms, and they have more in common with each other, yeah, right, than they do the other accountancy firm, right? And I think one thing that is quite interesting is, is how all of this comes from governance, and where it begins from. And I think a structure of governance is where I’m kind of looking at a lot. At the moment, you create conditions. There’s a there’s a great example of this in rugby league. So the Paramount eels had a lot of success in the 80s and 90s, not perfect by any stretch, but I think they won 58% of the gains, and they decided, because of fundamentally, the dominance of one person in the club, to kind of limit the limits the the tenure on their board. And by simply limiting the tenure of their board, they then went through like 11 CEOs and nine different coaches in 25 years, and went from 58% winning record to 36% winning record because everyone wanted that success inside of that tenure, right? Yeah, so for me, it’s what the structures do through good decisions, and what are the long term ramifications of those structures. And then. How can we create structures? And the other part that I think I’m really learning is that, you know, we go to this notion of good and bad culture and good and bad people. I kind of everyone fundamentally, I think, believes they’re doing the right thing. Most of the time, they just have a different version of what a good thing looks like. And so, you know, we’ve had so many different conversations with organisations. We’ve just been like, my god, you people are you look incompetent, but they’re not incompetent. They’re just dealing with a really difficult structure. It’s making them appear to be incompetent, or also maybe, maybe they’re making them appear to be extremely confident, competent. Okay, and let’s not over believe that they are necessarily fantastic at what they do. Maybe it’s the scenario of that. So with kind of there’s an evolving view for us that cohesion is an outcome as well of of other components, and it has obviously a set of ramifications, but everyone’s doing their best.
Wouter Klijn 1:05:59
Yeah, so it’s not simply a matter of sending somebody, a team, away, if we can to do some team building exercises, play ultimate frisbee and they come back as star investors.
Ben Darwin 1:06:11
Well, unless your job is to play ultimate frisbee, that would work. But, but literally having this conversation right now internally, you know about what that stuff does. I think, I think developing interpersonal trust is great. I think developing clarity is better. I think doing the thing you’re supposed to be doing is best, right? It better to just get that process right first, then the fun comes later. If I walk into an office, I see a table tennis table, I walk straight back out the door, no interest. People just put stuff on it, right and it’s noisy. Get rid of it.
Wouter Klijn 1:06:43
Yeah, fair enough. Well, Ben, we could talk about this for another few hours, but you’ve been very generous with your time, so I’ll let you go. But thanks very much for this conversation. It was fascinating.
Ben Darwin 1:06:55
It’s absolute pleasure. Thank you.
Wouter Klijn 1:07:12
Thank you for listening to the [i3] podcast. For more information, please visit our website at www.i3-invest.com and don’t forget to like, subscribe and review. Thank you very much.