Monthly Archives: December 2008

Steve Jobs Health Capital & Apple Stock

A simple rumor about Steve Job’s health sent Apple Stock lower today by 32 cents, December 30, 2008, reported many newspapers including the L.A. Times.  No objective facts, just conjecture about his health status suggested to enough investors that there was a human capital threat to shareholder value at Apple to sell shares.

It’s a high-profile example of the importance of one facet of Human Capital, that of “presenteeism” and poor health. Presenteeism is the presence of sick employees on the job, who are unable to perform at their normal peak because of health problems.  It’s a serious threat to the livelihood of a firm who, in Apple’s case, depend heavily on the leadership of their founder and current CEO, Jobs.  If Jobs is unable to perform fully – or horrifyingly – if he’s unable to work at all, it would have a material effect on Apple’s ability to continue to produce iPhones, iPods, iTunes and the plethora of profitable innovations released recently under his watch.

It’s also a special case example of why leadership due diligence is a necessary part of Enterprise Risk Management.  Jobs ability to work at full performance is a material risk to the longevity of the firm.

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Video Details on Cargo Cults

In a previous post, I noted the presence of cargo cults who actually worship an World War II American as their religion.  I’m very grateful to a friend, Gilbert Kporku, for sending me these two videos that go into greater detail on the cargo cult phenomenon, and especially the current John Frum example.

Video 1

Video 2

Australian CAT for Kids

The Australian State of Victoria’s standard educational assessments include computer-adaptive tests (CATs), reports their new, free manual on report interpretation.  I was pleased to discover that the Victorian Curriculum and Assessment Authority uses the most modern form of human assessment to help children of all ages learn.

In particular, it is noteworthy that their easy-to-read manual includes an understanding of Rasch Measurement.  It notes the specific locations where there are items that are out of scope for a given assessment.  In these places, the child is mismatched with the test – the questions are either too hard or too easy to produce a trustworthy metric.

I’m hopeful that Australia’s educational leadership rubs off on more schools around the world.

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CAT for Senior Citizens

Professor Jette

Can Computer-Adaptive Testing Help Senior Citizens?  Research from Boston University suggests it can.  Professor Alan Jette, Director of the Boston University Health & Disability Research Institute published a recent paper examining disability assessments in traditional and computer forms.  With data from 671 older adults residing in care facilities, CAT compared favorably with fixed-form scales, even for a version of the CAT with only 10 questions.  In his study, each CAT was administered in less than three minutes, and were highly correlated with the original instrument.

His research strongly suggests that in situations where time is a scarce resource, and measurement fidelity is still important, that Computer-Adaptive Measurement approaches are often more useful than others.

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Great Satan or Savior – What Do Two Views of American Government Leadership Mean To You?

As someone born in the US, and well traveled, I’ve often wondered about the variation in sentiments about leaders from America.  I often felt treated as a prototypical American.  People assume I fully support every action the politicians from the US government make, frequently false.  The feelings of people in Saudi Arabia, Palestine, Pakistan, and Iraq about US Government Leaders are well known to be fairly negative.  I recall as a 16 year old living in Norway, that Europeans would often deride me because of their dislike of US government policy – though I wasn’t old enough to vote.  With the US Government meddling in others domestic affiars, and breaking its’ own rules frequently, I don’t like but understand the term “Great Satan” used in parts of the middle east to describe the USA.

But I’ve also experienced a sort of American “halo bias“.  In my frequent trips to India, I’ve found Indians extremely happy to meet an American.  I have had random strangers want to shake my hand, have me hold their baby for a picture, or buy me a free soda.  Yes, I often am offered free Coca-Cola at shops in India.

What I didn’t know until this article, is that there is actually a religion that worships the US.  The BBC reports that every February, the people of Vanuatu celebrate John Frum day with US army uniforms, wooden weapons and the Star Spangled Banner.  They paint “USA” on their chests.  Village Chief Isaac Wa, says “John is our god”, and believes that an American from World War II will be returning to Vanuatu’s 30,000 Frum worshipers.  This group of people in the small micronesian country are part of a “cargo cult“.

A cargo cult appears sometimes in tribal groups upon their first interaction with technologically advanced alien groups of people.  These cults are focused on obtaining material wealth of the advanced culture through magical thinking, and religious rituals.  In Vanuatu’s case, they believe an American GI named John Frum helped them rebel against the aggressive teachings of British and French missionaries and colonial masters.  They believe the American helped them retain their culture by throwing off the oppression of a foreign state, not unlike the original patriots who founded the US.  Vanuatu people celebrate annually, hoping and praying for the return of the man they call their “Jesus”.

David Calderwood’s article about these Cargo Cults reminded me of Richard Feynman’s critique of 1960’s-era psychology.  But Calderwood makes a compelling case for the current lack of understanding of US natives optimistic about government intervention turning around the US economic crisis.  He notes that Americans have naive, and unsophisticated views of how wealth is created, and so they, like those from Vanuatu, have a sort of Cargo Cult worship of government-intervention in economics.

Business leaders would do well to consider how we’re perceived when we do business in other countries.  Most globe trotting leaders with whom I’ve worked with are already concerned with security.  But they often are relatively insulated from the root cause of the sentiment about the US – positive or negative.  Even though business leaders are not responsible for foreign policy decisions, they often take the brunt of it, with some being kidnapped or killed for their iconic status as an American.  As we are seen as prototypes of our entire homeland, we must be ambassadors for goodwill with other free people to do our best to change inaccurately positive or negative views of us and similar others.

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Leader Due Diligence – Psychometrics as Part of Financial Transparency?

With the Bernie Madoff being the latest in a series of massive financial frauds caused by leaders who misrepresented themselves, the time may have come to broaden the financial world’s definition of “transparency”.  I’d like to offer a broader view to include publicly reported reports on leadership knowledge, skills, abilities, traits, values and interests.  Would you have invested in Madoff’s Ponzie scheme if you had previously reviewed a report from a trusted authority on leadership assessment that noted he is low on conscientiousness and prudence?  How would a board view this same report on a founder-CEO?

How well do you know your leaders?

How well do you know your leaders?

Poor leadership is common, but leaders rarely fail in such a public way.  In one study of nearly 400 Fortunte 1000 companies, 47% of executives and managers rated their company’s overall leadership as fair or poor; and only 8% rated it as excellent (Csoka, 1998).  Personality traits predict both performance and ineffective leadership.  For example, conscientiousness is one of the “Big 5” factors of normal personality that has been shown to consistently predict both job performance and dishonest behavior in the worklpace. Former professors of mine, Robert and Joyce Hogan have written extensively about this area, and have authored some of the better classical test theory instruments for normal personality, the “dark side” or disfunctional leadership, and leader motives, values and preferences.  None of these sorts of assesments are typically used systematically to plan CEO development in private by the board.  And it is entirely unheard of for these reports to be shared publicly with prospective customers, partners and shareholders.  Perhaps we should reconsider making these transparent, systematically, given the risk and lack of confidence in markets of late?   The free paper I drafted, “The Three Stooges of Operational Risk: Advances in Leadership Due Diligence and Rasch Measurement” proposes a way of improving our leadership assessments.  If desired, they could be used for this transparency purpose.   I welcome your feedback.

Special thanks to Alexei M for inspiring this idea.


Csoka, L. S. (1998).  Bridging the Leadership Gap.  New York: Conference Board.

Hogan, R., Curphy, G., & Hogan, J. (1994).  What We Know About Leadership: Effectiveness & Personality.  American Psychologist 49(6), 493-504.

Robie, C., Brown, D., & Bly, P. (2008, March).  Relationship Between Major Personality Traits and Managerial Performance: Moderating Effects of Derailing Traits.  International Journal of Management, 25(1), 131-139.

Madoff Destroys $50 Billion with “Giant Ponzie Scheme”

Bernie Madoff is the latest in the series of senior executives to destroy value, this time with an apparent $50 billion dollar fraud, according to the Financial Times.  Madoff, a former Chairman of the NASDAQ stock market, on thursday admitted to his employees including his two sons that his operations were “all just one big lie” and “basically, a giant Ponzi scheme”.  The alleged fraud is the largest ever investor fraud ever blamed on a single individual.

Previously, I had written about the “Three Stooges of Operational Risk“, where I detailed senior executive destruction from Key Lay of Enron, Bernie Evers of Worldcom and most recently, Dick Fuld‘s follies with Lehman Brothers.  In two of those three I noted the dishonesty and fraud that accounted for their downfall similar to Madoff.  But unlike Madoff, they were less candid about thair fraud.  After Madoff’s brazen alleged admission, is there any uncertainty that leadership due dilligence is a critical part of the selection process of hiring senior executives?  Could it be any more clear that the pre-hire assessment procedure is a non-trivial subset of Enterprise Risk Management?

In fairness, these Industrial Organizational Psychology methods have their limitations.  No forecast could ever be perfect, or and even the best assessment procedures only account for 30-60% of the variance in job performance.  But it’s relatively rare that factors such as conscientiousness are used to screen executives – and conscientiousness highly predicts dishonest, and imprudent behavior in the workplace like that of Madoff.  With new methods from Rasch Measurement, Computer-Adaptive Testing, and an innovation from the Scientific Leader, “Inverted Computer Adaptive Testing” using Virtual Realtity, it’s increasingly difficult for people to fake or misrepresent themselves on these assessments. 

How much risk are you accepting when you use standard interviews to hire your employees?

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