Talent or toxicity?

"Talent management" - the attempt to attract, retain and motivate the best employees  - is one of the buzz phrases of bosses. But it might be distracting them from a bigger problem - that of bad workers.

Michael Housman and Dylan Minor estimate (pdf) that "toxic workers" cost companies twice as much as superstars benefit them. The rogue trader who costs a bank billions or the groper who attracts a big sexual harassment suit can do more damage to a firm than a decent employee does good. Companies should, they say, do more to screen out such workers.

But here's the thing. "Toxic workers" can look attractive; in fact they might be indistinguishable from the "talent" that firms are so keen to attract. For one thing, say Housman and Minor, such workers - those who would be later fired for fraud, violence or sexual harassment - claim to be honest: they are more likely than average workers to tell surveyors that it's important to always obey rules.

What's more, they are often overconfident about their abilities - and we know from experimental evidence that overconfidence is attractive to hirers because they often confound it with actual ability.

Such confounding, though, contains a germ of truth. Housman and Minor also found that toxic workers are more productive - in the sense of working quickly if not well - than others. This is consistent with two other findings. Francesca Gino and Dan Ariely show that creative people tend to be more dishonest (pdf) than others. And in a study of bank managers Douglas Frank and Tomasz Obloj have found (pdf) that those with higher firm-specific human capital are not only better at generating new business but also better at gaming incentive systems to get themselves big bonuses, with the result that such apparently skilled employees are actually a net cost to the bank.

For these reasons, "toxic workers" can not only stay in an organization for some time, but actually thrive - until they actually cause a big loss.

All this fits in with two other findings. One is from Nick Bloom ands John Van Reenen, who show that there is in most countries a long tail (pdf) of badly managed firms - which is what we'd expect if firms can't distinguish between good employees and bad ones. The other is from Luigi Zingales and colleagues who have estimated that one-in-seven US companies is defrauding its shareholders in some way. If you're wondering which firm will be the next VW, there are lots of candidates.

This sounds like a narrow management thesis. It's not. There are two broader points here.

First, there is a great deal of ruin not only in a nation but in companies. Market forces don't necessarily quickly and efficiently weed out bad hires. In fact, as I've said in a different context, they might sometimes actually select for them.

Secondly, what appears to be a narrow technical function is often in fact an expression of ideology and power. Firms' obsession with "talent management" might appear to be motivated by a desire to increase efficiency and "shareholder value." But if these are what matter, then firms should in fact be more concerned with managing "toxic workers" - many of whom will be in positions of influence. So why aren't they? It might be that "talent management" is in fact not (just) a means of increasing efficiency but a cover for rent-seeking - a justification of big salaries at the top of firms.

Comments

[David Ward]

In some ways I think this is similar to Alex Ferguson’s success post Ronaldo. He built a team of players who were all pretty reliable if not generally exceptional, and assumed that losing against the big four half the time didn’t matter if you win all the other games.

[Dave Timoney]

I don't imagine Fergie did that because he was disenchanted by Ronaldo's toxic personality.

If you want a footballing parallel, you'd have to think about players who "knicked a living" by talking a good game while screwing up when it mattered, e.g. Robbie Savage, or those whose off-the-field toxicity left them vulnerable when their on-field form declined, e.g. John Terry.

[Luke]

David,

"and assumed that losing against the big four half the time didn’t matter if you win all the other games."

I reckon that would be a very effective strategy, *if* it worked. Problem is that it doesn't. If you're good enough to win, home *and* away, against *all* clubs apart from the top four, you're good enough to win against the top four most of the time. Being a flat track bully sounds a nice idea, but you don't win things - ask Graham Hick.

[rogerh]

I thought the article was simple minded. I doubt creativity as such leads to dishonesty in companies, I suspect the causation is that a drive for big numbers produces a drive from existing managers to push the boundaries within a morally dubious framework. If 'everyone' is breaking the rules then you need to break the rules as well if only to survive. Within such an environment then creative people will certainly break the rules - but so will any intelligent people who need the job.

Chris points out many other ways skilled workers can be toxic but I am still pretty sure toxicity arises and thrives within certain corporate cultures not merely from hiring intelligent people.

[Igor Belanov]

"Being a flat track bully sounds a nice idea, but you don't win things - ask Graham Hick."

Graham Hick did win things. County Championships, Sunday League, NatWest Trophy with Worcestershire, and 65 Tests and 120 ODIs for England. His 'failure' is relative- his career spanned the greatest ever period of Test bowling and he would surely average well over 50 in Test cricket today.

[GunnerEcon]

I see this more as relating to Jose Mourinho than Alex Ferguson. Ferguson stayed in the same job and was consistently successful for decades because he was a good worker. Mourinho has never stayed in the same job more than 3 years, bringing unparalleled success for a short period and then (almost always) leaving in acrimonious circumstances. He is the definition of a toxic worker.

This sentence sums it up:

'For these reasons, "toxic workers" can not only stay in an organization for some time, but actually thrive - until they actually cause a big loss.'

Mourinho thrives until his methods have worn thin and he's p*ssed everyone off and they no longer respond to him, resulting in a big loss (see: Chelsea this season - specifically the incidents with Carneiro and numerous referees). Yet he's good at getting jobs because he talks the talk and has an air of overconfidence (eg. "I am the special one") which makes him attractive to employers.

[Igor Belanov]

Best definition of a 'toxic' cricketer would be Kevin Pietersen.

[nick ford]

I can think of a toxic worker who has been installed in No11 Downing Street, and has splashed £100billion on a High Speed Train Set and a Chines Nuclear Power Station.
If he were replaced by a mere groper, who was otherwise inactive, we would all be a lot better off.

[NoniMausa]

I wonder, how do managers detect and neutralize toxic employees? Seems like the sort of thing that might require a private eye of some sort.

Bullies are a particular type I worry about. A bully hollowed out a department I worked in, sending three people into full disability and two more into early retirement, from a long established working group of fourteen. He cost the company not less than $1M in disability, settlements and staff replacement and retraining costs, and God knows how much in lost productivity in the survivors. Managers at the department and section level were told about the situation for months before the crash, but merely made excuses for the bully and sent him for sensitivity training. In the end the department lost three people in three months, one who collapsed on the floor and had to be taken to the hospital by ambulance.

I earnestly wish now that the electronic recording devices we have today had been available then, and that I had kept a detailed daily record of the whole debacle. But who knows ahead of time the damage a single bully can do?

I'm retired now, so I don't know what has changed in the business world since then (~1999.) anything?

Noni
Still furious