December 11 is the anniversary of Bernie Madoff's arrest. Though Madoff's fraud was different from the willful blindness that caused so many Wall Street firms to lose their way, there's an important similarity: Market discipline was replaced by boys gone wild.
Free markets assume the Economic Man: the rational actor who weighs risk against reward. In the era that led up to the collapse, that guy was AWOL, replaced by a relentless game of king-of-the-hill.
What drove the frantic one-upmanship was greed -- but what drove the greed? Here's a hint: A businessman, about to take off on his own private plane, spotted the Gulfstream V owned by a friend. "Someone's **** is always bigger," he joked.
This ethic is so common it's often assumed to be an essential part of business culture. Economists-turned-biologists often claim this kind of competition reflects natural selection, as primitive men sought to spread their seed.
Maybe so. But we can avoid speculation about sex-in-the-wild. A 2008 study in the Journal of Personality and Social Psychology points out that because "men are made, not born," manhood is seen as precarious, requiring continuous social proof. This means that many men feel an urgent need to protect their place in the pecking order. In hyper-masculine environments -- like Wall Street -- where money is the measure of a man, it is these cultural understandings that drive excessive risk-taking.
It's bad for business when men's worries impair their common sense. According to Harvard Business Review, a major oil company cut accident costs by 84% when it insisted that oil-rig workers stop ignoring basic safety precautions like double-checking key equipment as a way of proving their mettle. The workers were trained to discuss their fears in what some considered a "female" way, and to separate manhood from risky business. That's why large employers like Volvo and Ernst & Young are spending money to educate managers about how unexamined ideas about "manliness" can undermine good management.
These ideas often leave women baffled. For example, when a fund manager (a woman) asked what risk controls Societe General had in place when it lost billions in a 2008 trading fraud -- second only to Madoff's -- a male executive replied: "You can't hold back a young trader when he is on fire!"
Actually, you can -- and should. A series of recent studies document that women investors, by avoiding excessive risk, produce more consistent returns than their male peers. And researchers on a new 15-year study of the S&P 1500 find that having more women in top management predicts measurably stronger results. This body of research says that women tend to be more deliberative and risk averse. Another way to see it: because women aren't drawn into the negotiations over whose is bigger, they more soberly weigh benefit and risk.
Plenty of men resist these pressures too. We know from the management classic, Good to Great, that the best CEOs are not amped-up macho-men. Break-out leaders in businesses as diverse as Abbott (medical products) and Kimberly-Clark (household goods) dramatically outperformed the market for many years by nurturing talent and building enduring value with cultures of trust and teamwork.
So it's time to stop scolding business leaders and MBAs about greed, and follow the lead of Volvo and Ernst & Young. What's needed is more thoughtfulness about how to free certain work cultures from masculine bravado. The result will be a lot more co-ed common sense.
Sharon Meers is a former Managing Director at Goldman Sachs and the co-author of Getting to 50/50; Joan Williams is Distinguished Professor at University of California, Hastings College of the Law, and Director of the Center for WorkLife Law.