Groupthink and the public pension industry

- Gretchen Tegeler is president of the Taxpayers Association of Central Iowa.

William Whyte coined the term “groupthink” in a 1952 article in Forbes Magazine(1). Whyte felt the pendulum had swung too far in terms of “rational conformity,” or the idea that group values should trump individualism. Later (in the 1970s), research psychologist Irving Janis expanded the concept and conducted research about how cohesive groups of people make and justify faulty decisions.

Groupthink is a term that has been used to describe such various public policy fiascos as the failure to anticipate Pearl Harbor, the Bay of Pigs invasion, the Challenger shuttle disaster, and more recently the collapse of the housing bubble and the handling of the Penn State child molestation case. In each case, even though individual members were brilliant and ethical, group dynamics led to decisions with devastating consequences.

Are U.S. public pensions going to become the next big public policy groupthink debacle?

Clearly there are beliefs and practices unique to the U.S. public pension industry that appear very questionable to anyone looking in from the outside. Yet they are genuinely held, sincerely defended and “generally accepted” by those on the inside.

These include clinging to an unrealistically high investment return assumption; changing actuarial and modeling methods to get the desired results; and taking on increasing levels of risk without even asking whether such risk is acceptable.

Questions about public pension assumptions and practices have been raised by the Society of Actuaries; credit rating agencies; the former head of the Securities and Exchange Commission; and even by Warren Buffett. Accounting standards for public systems in other countries are drastically more conservative(2). If they’re right and the industry is wrong -- and we keep adding more and more employees to systems that may ultimately implode -- it could become the biggest financial and personal disaster in U.S. history.

The U.S. public pension industry is a tightly defined and powerful industry, controlling $3.7 trillion in assets and supported by millions of members and politicians who want in the worst way to believe what they are being told. It exhibits many of the symptoms that Janis described as indicating groupthink(3). In fact, we can go right down the list and provide examples of each as relate to the public pension industry:

  • An illusion of invulnerability – the government can’t go bankrupt; taxpayers have infinitely deep pockets.
  • Discounting of warnings – the assumed high future annual return assumptions (avg. 7.5 percent) can be justified based on history, so we shouldn’t worry about it.
  • Belief in the rightness of their cause – public employees have tough jobs and deserve a great retirement no matter the cost.
  • Stereotyped views of out-groups – people just don’t understand the public sector is different from the private sector; groups that question public pensions are funded by “shadowy” outfits.
  • Direct pressure on dissenters – an actual blacklist has been published by one national organization that exhorts public pension systems to avoid doing business with many reputable entities that have raised uncomfortable questions(4).
  • Doubts not expressed – national organizations provide only confirming information and studies; insiders who raise questions are distrusted.
  • Illusion of unanimity – 42 large public plan administrators signed a letter of complaint to the Academy of Actuaries objecting to a study being undertaken by that group to probe the causes of public pension underfunding.
  • Protection from information that is contradictory – information about the substantial risks imposed by today’s practices is not shared with plan trustees or others who are making decisions by default.

Is it possible to penetrate a group this heavily insulated?

In an interesting recent article(5), one writer called for a sequel to the movie, “The Big Short,” a film that colorfully documents how groupthink led to the collapse of the housing market. The sequel would depict the implosion of the U.S. public pension industry. Re-watching “The Big Short” is an entertaining way to learn how groupthink works, but maybe it will also make it easier even for insiders to identify the warning signs.

Meanwhile, ordinary people – including members of these plans -- need to keep asking the questions, and not assume that everything is okay just because we are told it is, and because we want it to be.

(1) William H. Whyte, “Groupthink,” Fortune Magazine, 1952. Reprinted in Fortune Magazine July 22, 2012. http://fortune.com/2012/07/22/groupthink-fortune-1952/

(2) Andrew Biggs, “U.S. State and Local Pensions Couldn’t Survive Under Tougher International Accounting Standards,” Forbes Magazine, June 2, 2016. http://www.forbes.com/sites/andrewbiggs/2016/06/01/u-s-state-and-local-pensions-couldnt-survive-under-tougher-international-accounting-standards/#3e00ac0c4fb1

(3) Psychologists for Social Responsibility, “What Is Groupthink?"  http://www.psysr.org/about/pubs_resources/groupthink%20overview.htm

(4) National Conference on Public Employee Retirement Systems, Code of Conduct, Appendix http://www.ncpers.org/content.asp?contentid=616

(5) Ed Ring, “We Need a Sequel to The Big Short to Critique Public Pensions,” Reason.com, April 10, 2016 http://reason.com/archives/2016/04/10/we-need-a-sequel-to-the-big-short-to-cri

Escaping email overload

Fingers on keyboard photo- Rita Perea is president and CEO of Rita Perea Leadership Coaching and Consulting, specializing in working with senior leaders and managers to successfully engage employees, lead teams, manage change and balance work and life.   

     In these times, we’re all being called upon to do more with less — less time, less money and fewer people. This pressure can create a hamster-on-a-wheel feeling as we scramble to get everything done. Although the rules of business have changed, many people haven’t received updated skills training on how to manage the flow of information into their lives, especially through email.

    Recently I conducted a leadership institute with a group of directors from various organizations. During our group sessions and individual coaching meetings, I asked about their biggest source of stress in their jobs. Almost every single person said the amount of email they received and responded to each day topped their list. This overload caused them to develop unhealthy habits surrounding email, including working tremendously long hours and a life without balance.

    Effectively overcoming this time crunch and email overload requires developing new habits. But before you, or anyone else, can change, you need to know exactly what you’re already doing. That’s why I ask clients to do a time audit. During this process, you look at how you use your time over the course of three days. By logging your activities in 15-minute increments from the time you get up in the morning until the time you go to bed at night, you can pinpoint where your time is going and why you feel like you don’t have enough.

    Although many people don’t see it this way, spending time is like spending money. Just like you have a certain amount of money in the bank that you can use to achieve your goals and enjoy life, you have a certain amount of time each day that you can spend on your personal and professional activities. When you overdraw from your banking account, you run into problems. The same is true when you try to take too much out of your time account. It doesn’t work, and you feel stressed. That’s why you need to make sure you’re spending your time effectively and efficiently to accomplish your objectives for the day.

    After you complete your time audit, you can identify where you’re “overspending,” and clearly define the ideal life that you’re trying to create. As you ponder your balanced lifestyle, think about activities such as exercise, vacation or simply getting work projects done on time. Once you’ve envisioned your ideal, you can create a plan for how to build that lifestyle within the constraints of your responsibilities at work and at home.

    At work, one of the biggest keys to achieving this balance involves limiting the octopus-like control of email over your schedule. If you’re spending every spare minute answering messages, when can you move forward on projects?

    Another key to "work flow wow" is limiting the frequency and length of time you spend checking email. Many people feel like they need to respond immediately to all email, even if it’s not a priority. In brief, here’s my solution: Limit yourself to checking email three times a day. Preferably you’ll do this in 30-minute time blocks in the morning after your project time, before you go to lunch, and before you wrap up for the day.

    By breaking the control of email over your schedule, you will not only increase your productivity but also your inner peace. Before you implement the email skimming process described below, consider these keys to success:

  • Turn off any email alerts. Even if you don’t constantly check your email, alerts will create psychological distraction that can cause you to take up to 25 percent longer to complete tasks.
  • Don’t email when you should call. If you’re writing over five lines, picking up the phone can be more efficient than using email.
  • Email doesn’t stand for immediate response. You need to get out of the habit of feeling that you must respond immediately to others or expecting them to do the same for you.

    Now that we’ve covered some of the ground rules, here’s a guide to skimming your inbox. Each time you open up your inbox during your allotted time blocks, ask yourself these questions:

  • Is answering this email going to bring me closer to achieving one of my goals?
  • Can this email wait until tomorrow?
  • Will delaying my response keep someone from accomplishing his or her work?
  • Could I respond to multiple emails in a single email reply?
  • Can I delete or ignore this email without serious repercussions?

    As you begin this process, you’ll find that very few of these messages actually get you closer to your goals and even fewer require immediate responses. I highly encourage you to try out this method and start to experience workflow wow!

© Rita Perea, 2016

The importance of being earnest

- Brent Willett, CEcD, is executive director of Iowa's Cultivation Corridor. He writes on economic development.

In 90% of life, being humble is a good thing. In economic development, it can be a death sentence.

“In matters of grave importance, style, not sincerity, is the vital thing.” ― Oscar Wilde, The Importance of Being Earnest

We’re Iowans. We’re nice. How do you do? 

So starts the biggest uphill battle an economic developer can hope to never face. I wrote recently about the increasing role of capacity building in modern economic development — that successful practitioners today are spending less time selling and more time improving their product. But while there is a pronounced trend toward asset building Nice_guy at the expense of traditional cold call/trade show/road warrior selling by local and regional economic developers, transactional acumen remains a critical skill for all of us. What makes the sales-ish process in economic development perhaps a bit unique is the fact that practitioners must rely on the collective will of our community colleagues — including both those who are involved in projects day-to-day (like city staff and real estate developers) and everyday people who are often a great source of leads — to play as big a role in making the sale as any one economic developer. And what makes the sales process uniquely challenging in a state full of humble, nose-to-the-grindstone people, like Iowa, is the fact that we’ve got a potential sales force (everyday citizens) who hate to sell.

Aww shucks.

We generate more power from renewable resources than any state in the country (which is huge for many heavy-power tech projects), but it’s no big deal; just ask an Iowan. 

We produce more corn than any other state and most nations (a huge separator for the growing roster of major-user biomaterial producer projects), but that’s just what we do. Ask an Iowan.

We invented the digital computer in Ames, Iowa! Important? Sure! Brag about it a little? Bad form; ask an Iowan.

It’s not that Iowans aren’t proud of our state and its accomplishments; it’s that we are, owing to our German, Norwegian and Quaker roots, a work-is-a-virtue bunch adhering to a societal construct that deems self-promotion and immodesty as taboo and to be avoided. For more on this and a fascinating glimpse at what makes Midwesterners and 11 other regional American populaces tick, read Colin Woodard’s American Nations. You can find my review of the book here.

In Iowa we’re modest and unassuming by nature, and in nine out of 10 walks of life, that’s a great personal or organizational attribute. But in economic development, if not properly managed and mitigated, it can be a death sentence. Our collective ability to compete for capital, talent and innovation in a global economy churning at a blistering pace relies heavily upon our ability — and willingness — to discover, organize and effectively promote our strengths as a state and region.

CXR to the rescue

While I would argue that the decade-long trend toward an increasingly data-intensive site selection process wherein assets and good ideas trump salesmanship is an encouraging trend for the promotionally challenged (that’s us), it remains that, fundamentally, economic development is an enterprise sales endeavor. To make the point again, one of the things that discern the work of economic development from sales in a traditional sense is the fact that to do it well and be successful, economic development practitioners must rely on the collective will of the constituents in the region to promote themselves. The Cultivation Corridor and any other economic development organization in the region desperately needs for Central Iowans to continue the citizen trend we really started to see emerge with the rollout of Capital Crossroads some years ago: a pride in authorship for the spectacular story of growth and prosperity our region has been writing for a decade.

Power of the people

One of the things I’m asked most is where leads for new projects come from. While it’s true that a significant proportion of leads for economic development groups like the Cultivation Corridor come from traditional sources like consultant relationships and trade show networking, often our most actionable and qualified leads come from within the region. They come from existing companies exploring joint ventures with another company, from individuals who on a business trip read in the regional newspaper that an existing company was being yanked around on permits for an expansion, from a local supply chain logistics consultant who identifies a gaping hole in the middle of the country for a particular 3PL service offering. What translates these scenarios from latency to project action is the willingness of the applicable discoverer of information to ask him- or herself an important question: “Why not Iowa?”

Each of the preceding three scenarios is true, and each translated into a jobs creation project in my career. The power of our local stakeholders (especially you, if you’re actually still reading this 800 words in) to deliver ideas that translate into opportunity for our region and state is enormous — and critical to our collective success. So be nice, but keep a bit of a prideful edge, will you?

Brent Willett, CEcD, is executive director of Iowa's Cultivation Corridor.  Contact him:

Human: 515-360-1732

Digital: bwillett@cultivationcorridor.org / @brent_willett LinkedIn.com/in/brentwillett

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