JUNE 2015 / NO. 1
TAGS: ANTIFRAGILITY, NASSIM TALEB, BLACK SWANS, ABNAMRO, RABOBANK, LIBOR-GATE, CEO, MANAGEMENT, MERGERS & ACQUISITIONS

Antifragility

“Antifragility at the cost of fragility of others, is hidden”, Nassim Nicholas Taleb
The above statement comes from “Antifragile”, by Nassim Nicholas Taleb, published in 2012. Again, this is highly-recommended, as is his 2007 book “The Black Swan”. Black swans are large-scale unpredictable and irregular events that have a massive consequence. Examples are a tsunami, huge storms like Sandy in 2012, 9/11, Madrid 2004, and the loss of MH17. Antifragility means randomness, uncertainty, dealing with the unknown, doing things without understanding them and doing them well. However, it is easier to find out if something is fragile. Taleb makes the comparison with corporations: “Corporations are so fragile that they might collapse, while managers milk them for bonuses and ditch the bones to the taxpayer”.
Taleb’s vision of the corporate systems at corporations is critical, e.g. telecom, insurance companies, banks, healthcare sector and others:
  • Corporations do not have natural ethics
  • Corporations just obey the balance sheets
  • The sole mission of a corporation is the satisfaction of some metrics
  • Listed corporations do not feel shame
  • Corporations do not feel pity
  • Corporations do not have a sense of honor, while marketing documents mention ‘pride’
  • Corporations do not have generosity
All these defects are the result of the absence of “skin in the game”, cultural or biological, an asymmetry that harms others for their own benefit. Such systems tend to implode, because ultimately one you cannot fool too many people for a too long a period of time. The problem of such an implosion is that it doesn’t matter to the managers, as they will not be harmed by subsequent failures and will keep their bonuses, because there still is no such thing as negative manager’s compensation.
We have recently faced too many confirming and bad examples of such corporate systems in the Netherlands and elsewhere: the return of bonuses at state-owned ABNAmro as well as at Rabo bank’s Libor-gate and interest-rate derivatives and the un-professional and un-ethical behavior of tens of CEOs, Members of Supervisory Boards, Monitoring & Control Authorities and many others in the deeply rotten Dutch sector of social housing corporations. In addition, in international banking nothing has changed: it is still business as usual.
Mergers & Acquisitions are back. The sky is the limit. We have seen that large Mergers & Acquisitions are back again. We have, however, known for decades that both the poor record of M&A activities and the same managerial hubris still drive mergers, ignoring the poor economic aspects of such transactions. The economies of scale are visible, but the risks are hidden, and many concealed risks seem to bring weaknesses into the companies.
It is amazing how many special requests we regularly receive to take a ‘deep dive’ in troubled situations in a wide variety of organizations.
“A man is morally free when he judges the world and judges other men with uncompromising sincerity”, Nassim Nicholas Taleb
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