I can’t tell you the number of times I’ve asked what I was absolutely certain was a dumb question, and found my phone-a-friend had no idea either, leaving me annoyed, but somewhat relieved. I suspect all of us suffer that little voice which natters on about imposter syndrome every time that happens.
No matter how accomplished, we are always dealing with things, with concepts, with mechanisms, with law and regulation, with algorithms, with underlying math we don’t fully understand. We comfortably conclude, however, that we know enough about these things to use them to get our job done (you can hammer a nail with a cellphone, but it’s probably not ideal). We make mistakes because our operating assumption is that we know all that we need to know about the stuff we use. While the evidence suggests that our incuriosity doesn’t usually matter because our deals done most of the time, it’s hardly a satisfactory answer. Would that be a passing grade? (It’ll get you an “A” in the Ivies apparently these days, but it shouldn’t.)
Shouldn’t we worry more about the stuff we don’t really know, but conduct ourselves in our daily business as if we do? We periodically screw up when as our assumptions (our guesses, frankly) about what we need to know and from whom we need to know it and what we don’t know turns out to be not quite right. We call in the subject matter experts but only where we’ve been trained to call those folks into the transaction. That’s not really sufficient. For the denizens of the structured finance world, remember the hospital fiasco? Who knew that a dark appraisal would be a problem? Someone presumably did, but seemingly didn’t get asked.
I’m not suggesting that we all need to become polymaths in order to do our job; clearly, that’s not going to happen. It’s been said, and perhaps it’s an urban legend, that in the 18th century, a well-educated gentleman of leisure (the only type really) could essentially know pretty much how almost everything worked. Probably wasn’t true then and certainly it’s not true today.
Mostly, we get things done because we intuitively understand something the pointy heads call distributive cognition. That simply means collectively, we actually do know everything, albeit each one of us only knows a tiny bit. This is, of course, intuitively obvious. We embrace this notion every time we talk to our experts. The problem, of course, is, are we talking to the right experts and are we asking them the right questions? We clearly don’t do this well.
In my world of structured finance, the senior deal banker and the senior deal lawyer can’t get deals done alone (some may say that they can barely find the restrooms on their own, but that’s a different story). We need REMIC experts who truly understand why I need 3 REMIC elections to get my deal done. (I do as I’m told.) We need folks who are deeply imbued with the blessing and complexities of the 40 Act. We need Securities Acts of ’33 and ’34 experts and REIT experts. We need those who know how to navigate the complexities of local foreclosure enforcement law. We need folks who know how to service loans. We need folks who understand what a trustee does and how data from the underlying mortgages is collected, spread and distributed to the investors. We need the people who understand (or at least have the knowledge to use) our computational tools that we use to collect, analyze, collate and distribute data. (I’m just guessing that if you use Argus and Excel, you probably don’t have a clue as to how the software was constructed and, frankly, you don’t care as long as it works, right?)
None of us knows everything. Each of us only knows a fairly narrow bit of the stuff in the information landscape relevant to our business. What’s the expression? Inch deep and a mile wide? Kind of captures it, doesn’t it? The problem is we’re often unreasonably relaxed with that inch-deep bit as we conflate the sort of knowledge that can get you through a cocktail party with actual deep understanding.
We do not embrace the benefits of distributive cognition as well as we should, and could. A big problem is we’re all infected with a certain trained arrogance that we know exactly the information we need to acquire from adjacent subject matter experts and that’s all we really want to talk to them about. We think we know exactly what input we need and implicitly what input we do not. We’re shockingly comfortable assuming, generalizing, inferring and extrapolating old knowledge to new facts. (Churchill famously said that when the facts changed, he changed his mind…good advice then and now.) We embrace, day in and day out, a presumption that every new deal we work on probably looks a lot like the deal we just did, which is like the deal we did before that, on and on into the dim and darkling past, where we are certain that someone, long ago, actually did the hard work of figuring out how to make these things work in the first place. It’s much easier and quicker (e.g., cheaper) to assume this is true. Certainly, there’s a core efficacy about relying on precedents, but it has its limits and we don’t think hard enough and often enough about the nature of those limits.
Broadly, we regularly fail to completely integrate the expertise of all relevant knowledge silos into the overall performance of whatever we are doing. Mostly, it seems we embrace a view that, except where we know we need expert input on discreet questions, those experts should simply sit down and shut up.
We can do better. We can more completely embrace the notion of distributive cognition. We need to get over any embarrassment about not understanding what all those other knowledged contributors in our ecosystem do, and to get the help we need. We need to ask open-ended questions.
Bake in more curiosity, more open-mindedness into our approach to transactions…more blue sky, less checklists. Ask for input early and often from adjacent expertise. Spend more quality time thinking about what expertise we actually might need or find useful and don’t entirely rely on precedents and the last transaction, whatever training you might have. Don’t send just the bits of deal documents to the tax lawyers and other experts just because you think that’s the only relevant language for their review. Let them decide what’s relevant. Also, bring these adjacent experts into the transaction early. We so regularly bring them in too late when the momentum of the deal makes it hard to fix things that should be fixed or made better. Make sure they read the term sheet before you begin drafting the underlying documents if you’re a lawyer. Cast a broader net for expertise to make sure that all those adjacent expertise have a chance to look at the overall deal and not just the bits we think is important for them to look at.
Reject the false economy of keeping the circle of people in a transaction small. (Are you listening my lawyer friends?) Acting as if we know all the questions that we need to answer and no others is a fallacy. It’s a false economy. It’s the product of confirmation bias run wild.
Am I teaching grandma to suck eggs here (extremely old cultural reference…yes, even before my time)? I don’t think so. Perhaps at one level everyone who reads this will say, “Yeah, we do that.” “No problem.” “Got it nailed.” But, you don’t. I know from decades of practice as a transactional leader that we don’t’ do this well. The world is not getting less complex. The area of indeterminacy is not getting smaller. This is a certainty. Always be curious. Don’t always trust your instincts. Don’t always trust your learning that you know everything that you need to know. Ask our experts what are the questions we ought to be asking of them and not just ask them the questions we think should. It’s really time to ask more of those dumb questions.